'Medicare for All' will be a trap for Democrats if they're not careful

"Medicare For All" is shaping up to be the healthcare slogan Democrats will run on for several election cycles to come, until they take full power in Washington.

As Republicans learned with "Repeal and Replace," having to actually turn the slogan into something when you win is likely to turn into a huge problem.

But if they're careful, Democrats can avoid falling into the trap. They can make "Medicare for All" a workable policy - if they define it right.

Medicare available to all

There is a version of "Medicare for All" that Democrats could operationalize effectively and popularly: opening a version of Medicare or Medicaid up to any individual who wants to buy coverage under it, and to any employer who wants to buy coverage for its employees under it.

Such a program could build on the existing system of subsidies and exchanges created by Obamacare, as well as the existing system of tax-preferred employer-provided health insurance. It could reduce costs for consumers by using the government's bargaining power to bring down the prices paid for drugs and medical services. It could be sold with the promise that if people like their current plans, they could keep them.

And because it would make health insurance a better deal, it would lead to more people having coverage and more people being satisfied with their coverage.

In practice, the cost advantage of the Medicare or Medicaid system might lead most individuals and most employers to decide they'd rather buy the public plan than a private one. But that would be a voluntary change - one that consumers would welcome because of the cost savings - not a mandatory one.

Over time, if Democrats wished, they could increase the available subsidies and/or make the government plans more comprehensive - for example, by eliminating deductibles or adding dental services. The savings generated by lower payments to providers - which would reduce the government's existing spend to subsidize healthcare - would even make it possible to do these expansions without raising taxes or growing the budget deficit.

This approach would internalize a lesson from the fights over implementing the Affordable Care Act and over repealing the Affordable Care Act: While people have their discontents about the healthcare system as a whole, people with insurance react with extreme skepticism to changes to their own insurance plans, and to the imposition of new obligations.

Most voters have health insurance already, and they don't want their cheese moved too much.

Don't overpromise

The alternative version of "Medicare for All" embodied by the Bernie Sanders bill introduced Wednesday entails political and substantive problems that would doom its enactment.

Sanders' bill makes sweeping promises - free and extremely comprehensive coverage, much more generous than actually existing single-payer systems in other countries, with no co-payments or deductibles. And it contains no plan to pay for what would likely be, according to estimates of Sanders' campaign plan produced last year by the liberal Urban Institute think tank, an additional $32 trillion in federal spending over 10 years. (For comparison, the Congressional Budget Office projects total federal spending over the next 10 years of just $53 trillion.)

Sanders has proposed a "menu" of possible revenue-raising options. Its largest components are a new 7.5% payroll tax, a new 4% income tax, and the abolition of the existing tax exclusion for health insurance benefits. But this menu isn't included in the bill, meaning his cosponsors don't endorse it, and even if you ordered every item on the menu you would only generate $16 trillion in new revenue over a decade, per Sanders' own estimates.

Advocates of a single-payer approach like to point out that their plan entails new government spending, but not necessarily new spending: Employers would be relieved of the cost of premiums, and individuals would be relieved of their own out-of-pocket costs.

Still, the government would need to lay its hands on funds that are currently spent privately, which is hard. The details of the tax system to do so would create winners and losers, and the losers would contest the change vigorously.

Others would be skeptical of their own status as winners. Workers will be depending on their employers to divert funds they once spent on employee insurance premiums into higher wages, to make them whole for whatever taxes they will pay to finance single payer.

It matters who pays

Changing to a system where the government pays for everything will also have important incentive effects on both healthcare consumption and on work. Single-payer systems around the world are cheaper than the US system, but the extreme generosity of the Sanders proposal would undermine cost savings.

The abolition of co-payments and co-insurance - which are a feature of both existing Medicare and many other countries' government health-insurance systems - would encourage consumers to use more healthcare, driving up costs.

In the absence of co-insurance, other countries' systems rely on government gatekeepers to hold down costs, denying treatments that are unnecessary or not cost-effective. Expansive promises about what single payer would cover, and political rhetoric about getting insurers out of the way of your care decisions, will tend to undermine the effectiveness of such gatekeeping.

Effective gatekeeping policies would also draw strong opposition from doctors and patients, many of whom are likely to describe such policies as "death panels."

Finally, a switch from premium financing to tax financing would produce an incentive to work less.

Currently, a worker who faces a flat annual health insurance premium pays no more at the margin for healthcare if he or she works an additional hour. But the cost of single-payer is so large that it will have to be financed with a broad-based tax like a payroll tax or a value-added tax.

This is reflected even in Sanders' insufficient proposals to raise revenue to finance his plan: He proposes some tax increases on the wealthy, but most of the revenue he'd raise would come from income and payroll taxes that would add to 11.5%. Unlike existing premiums, these taxes would take an additional bite out of each extra hour of each worker's compensation.

Such a substantial increase in the marginal tax rates faced by ordinary workers will put a drag in the economy, even if the total payments by such workers are unchanged.

The US is especially ill-suited to single payer

But this is unlikely to be a concern because the sticker-shock from such a new tax will prevent its imposition in the first place. This has been the lesson from Vermont and California: Once a price tag gets attached to single payer, and the tax structure needed to finance such a system becomes clear, it falls apart. Voters are discontented with the current system, but not enough to trust the government with a new, double-digit broad-based tax.

Single-payer advocates often point to extremely high costs in the US as an argument for adopting single-payer here, but our high cost structure makes the US particularly ill-suited to a system where the government pays nearly all the bills.

It is easier to hold down costs in the first place than to reduce them when they have already gotten high. The primary driver of high American healthcare costs is high payments for outpatient care, which is to say high salaries for medical professionals.

The need to build a political coalition for single payer will require making an expensive peace with those providers - you'll note Sanders talks of the need to take on insurers and drug companies, not doctors.

While single-payer may produce cost savings over time (depending on the politics of gatekeeping and of provider payment rates), the initial condition would simply be paying much more in healthcare-related taxes than peer countries do for the same level of service - much as we currently pay much more in premiums and direct charges than peer countries do for the same level of service.

One fight at a time

The big political advantage of a public-option approach is it makes it possible to take on providers and drug companies directly, on the issue of costs, without simultaneously fighting on many other fronts. With a public option, you don't need to simultaneously convince doctors to take a pay cut and convince workers and employers to accept a tax increase and convince consumers to give up their existing insurance plans.

The winners-and-losers calculation with a cost-reducing public option is simple: if you are a producer of healthcare, you may be a financial loser. If you are a consumer of healthcare, you are a financial winner.

Right now, the left of the Democratic Party is basking in the increased popularity of "single-payer" as a buzzword. "Repeal and replace" worked for Republicans for a long time. They eventually became faced with the reality that healthcare changes become less popular as they become more specific and as the disruption to individual financial situations becomes clear.

There is an option for Democrats that can maintain popularity once the details get filled in. But it's not in the Sanders bill.