In Part I of this series, I discussed the first of five reasons to oppose single-payer healthcare from economist Chris Conover’s point-of-view. Today we will look at his second reason.
The Moral Hazard
Conover says the second reason to oppose single-payer healthcare is the enormous waste it would create due to the moral hazard. This is an economist’s term for the waste created whenever you give someone something for free. Anyone given something for free will consume more of it and will be less likely to shop for a lower price (because it’s already free!). In other words, consumers will use more of the product or service and pay more for it (because someone else is paying the real cost).
This is just as true for healthcare, except when there is an emergency. Since very little of healthcare is actually an emergency, the moral hazard is a very real problem.
Many years ago the RAND Health Insurance Experiment (HIE) proved this point. The HIE randomly assigned thousands of families to different types of health insurance plans ranging from a free care plan (much like Senator Bernie Sanders’ single-payer plan) to a very high deductible plan with a large amount of cost sharing. There was an upper limit on cost sharing so that no family spent more than a certain fraction of family income.
The graphic above shows three different healthcare plans and the results of the RAND HIE. The green band shows wasted spending and the results show there is 30% wasted spending with free care, but much less with the other plans.
That means the Sanders Medicare For All Act can be expected to waste 30% of the money spent. In other words, the value of the healthcare spending under such a system is only 70% of the cost. The annual difference in between the free care group and those with a more sensible cost-sharing design was nearly $2100. Fully 82% of that cost differential represented waste!
How much waste would there be under Medicare For All?
The exact amount cannot be calculated until more details are given about the plan. But according to the Urban Institute, which estimated the Sanders plan would cost $3.277 Trillion per year, we can estimate his single-payer plan would waste over $1 Trillion per year. In addition , it would also include $308 Billion in long-term care services.
To be sure, there is waste in the current system, too. I won’t bore you with the details, but Conover calculates the Sanders plan would cause a net increase in waste of $524 Billion per year.
But wouldn’t free care save lives?
This is the favorite argument of progressives pushing this agenda. Unfortunately, this is wishful thinking. The RAND HIE also compared health outcomes – including risk of death – across all plan participants. Conover says,
“There was not a dime’s worth of difference in health outcomes for the average patient. More scientifically, we can say there was no statistically significant difference in health outcomes (including risk of death) when those who got free care were compared to those with cost-sharing plans, including those in high-deductible plans whose actuarial value was only 54%!”
The only exception was that high-blood pressure and corrected vision problems were worse in those groups with high cost-sharing plans.
So far we have learned that Senator Sanders’ Medicare For All Act will produce:
- $1.1 Trillion in deadweight losses
- $524 Billion in additional wasteful spending
That should be more than enough reasons to oppose this plan but we have three more to go! Stay tuned for Part III in this five-part series.