(Author’s Note: This is the sixth, and last, in two series of posts explaining what’s wrong with single-payer, government-run healthcare. Recent interviews with medical school and public-health policy students have shown this information is desperately needed to warn our youth of the evils of this form of healthcare. This series was first published in October, 2017 and is re-published here.)

 

Chris Conover, Duke economist, has given us four reasons, hidden costs, thus far:

• $625 Billion to $1.1 Trillion in deadweight losses from new taxes (Part I)
• $453 to $626 Billion in additional waste (Part II)
• $152 to $914 Billion in costs resulting from rationing (Part III)
• $23 to $152 Billion in social losses from reduced innovation (Part IV)
• Thus the hidden costs of Sanders’ plan are $1.24 Trillion to $2.8 Trillion per year ($3,800 to $8,500 per U.S. resident)

 

This should be plenty of reasons to oppose the Sanders Medicare For All plan. But even if someone should try to refute these numbers, as someone certainly will, Conover gives us a fifth reason we cannot dismiss – our nation cannot afford it.

What will the Sanders Plan actually cost?

The Sanders campaign of 2016 used the projections of Gerard Friedman, economist at The University of Massachusetts – Amherst, to claim his plan would actually reduce healthcare expenditures by $6.3 Trillion over ten years (13.3%). These numbers have been challenged by other economists, including the liberal think-tank, The Urban Institute.

• Ken Thorpe, Emory University economist and advisor to the Clinton health plan, estimates the Sanders plan would cost $24.7 Trillion over a decade and add a budget shortfall of greater than $1 Trillion per year.
• The Urban Institute calculated the Sanders plan would increase federal spending by $32 Trillion over a decade (232.7%), an increase in healthcare spending of $6.6 Trillion (26%).
• Conover has critiqued the Friedman report and found he underestimated the cost by $16.6 Trillion by failure to calculate deadweight losses and the cost of moral hazards.
• Avik Roy, Manhattan Institute economist, critiqued the Friedman report and found the Sanders plan would increase the federal deficit between $14.4 Trillion and $19 Trillion.

Current Unfunded Liabilities

In 2015, the U.S. had a fiscal gap of $210 Trillion. Economists calculate this number by taking the sum of the current federal debt plus the present value of all future tax revenues minus all future federal program costs. When that number is a negative one, there is a fiscal gap or unfunded liability.

      Federal debt + future tax revenues – future federal programs expenses

Present value means it is the additional amount Americans need to have in the bank today earning interest at the U.S. Treasury bill rate in order to finance all our future promises. Health programs such as Medicare, Medicaid and ObamaCare are huge sources of such enormous unfunded liabilities (55% in 2012).

• State and local governments add $38 Trillion to this number
• $210 Trillion amounts to $644,000 per U.S. resident
• $210 Trillion is more than 11 times the GDP in 2016
• The total wealth in all U.S. households is only about $94.8 Trillion
• To close this gap would have required raising all federal taxes by 58.5% or cutting federal spending by 37.7%.

 

These numbers are staggering to behold, too much for our comprehension. Therefore it is no wonder that politicians have been “kicking the can down the road”, avoiding the harsh reality of dealing with these deficits. But what they are really doing is stealing from their children and grandchildren who will be forced to pay for their reckless spending.

It’s time to stop the madness. Here is the reality this generation must face. If the Urban Institute calculations are correct, and they are certainly a liberal think-tank unlikely to oppose liberal policies, the Sanders Medicare For All Act would only make this situation worse. It would increase the fiscal gap by a minimum of $61 Trillion!

The Bottom Line

• The Sanders plan will impose hidden costs ranging from $1.25 Trillion to as much as $2.8 Trillion per year.
• The Sanders plan will increase the fiscal gap by a minimum of $61 Trillion.
• America cannot afford this expensive new entitlement.
• No amount of “taxing the rich” will pay for this.
• This will require us to steal from our children and grandchildren – which is morally unacceptable.
• We can anticipate long waiting lines and lower quality care.
• In contrast, market-oriented systems rely on markets to ensure universal access to high quality care at an affordable price.

   

 

(Author’s Note: This is the fifth in two series of posts explaining what’s wrong with single-payer, government-run healthcare. Recent interviews with medical school and public-health policy students have shown this information is desperately needed to warn our youth of the evils of this form of healthcare. This series was first published in October, 2017 and is re-published here.)

 

Chris Conover, Duke economist, has given us three reasons thus far including:

• Hidden costs of $1.1 Trillion in deadweight losses in 2017 alone
• More than half a Trillion dollars of added waste to our system
• Rationing of care costs ranging from $152 to $194 Billion in 2017 alone

 

Medical Innovation Adverse Effects

The fourth reason to oppose single-payer healthcare systems is the adverse effects it will have on medical innovation. Conover says the U.S. is by far the world’s leader in medical innovation. George Mason University economist Tyler Cowen put it this way over a decade ago: “The American health care system, high expenditures and all, is driving innovation for the entire world.”

The U.S. leadership in biomedical innovation is indisputable. According to Thomas Boehm, Medical Director at Jerini AG, the availability of funding “is the single most important factor explaining the dominant role of the U.S. in innovative research.”

• From 1988 – 2003, the S. invested more than 5 times as much as the EU in private biotechnology companies. (see graphic below)
• As of 2012, U.S. biomedical R&D spending amounted to 0.76% of GDP, compared to only 0.46% in Europe and 0.35% in Canada. Single-payer Canada devotes less than half as much of its economy to biomedical R&D as the U.S. does. (see graphic below)
• Although the U.S. economy accounts for only 16.2% of world GDP (2012), the S. accounted for 44.4% of biomedical R&D in the world.
• Private industry R&D accounts for 59% of total U.S. spending.

 

Pharmaceutical R&D Spending

The U.S. dominance in pharmaceutical spending is even greater than in biomedical research. The major reason for this is the U.S. is the lone major industrialized country not to impose pharmaceutical price controls. Profits in the U.S. pharmaceutical industry are approximately four times higher than in other countries. These increased profits are directly linked to pharmaceutical R&D spending.

How much would pharmaceutical innovation be reduced under a single-payer healthcare system such as “Medicare For All?”

Economist John Vernon has done simulations that show that if pharmaceutical prices in the U.S. were regulated (controlled) as other countries do, this would lead to a decline in industry R&D between 23.4 and 32.7percent.

The current social benefit economists calculate for the consumers of pharmaceuticals is about $1.4 Trillion per year. New drugs are estimated to amount to $100 Billion of this benefit in 2017. If there were a decline in industry R&D between 23% and 33%, the expected loss of social benefit would be about $23 Billion to $33 Billion under a Canadian-style system with price controls.

Increased Life Expectancy

There is another adverse effect of single-payer healthcare on pharmaceutical innovation. Columbia University professor Frank Lichtenberg has calculated the impact on life expectancy as a result of “New Molecular Entities” (NMEs) – new drugs approved. He estimates every NME increases life expectancy an average of 0.17 years every year.

Thus far in 2017, the FDA has approved 34 NMEs; in 2016 it approved 22 NMEs. Using the 2016 data, if single-payer price controls resulted in this number being reduced by 23 to 33%, it would imply the annual loss of 5 to 7 NMEs a year – which would reduce life expectancy by 1.5 to 2.0 months. Since there are nearly 4 million births a year in the U.S. that implies a loss of 482,000 to 692,000 years of life that might other wise been gained had innovation remained at current levels. If each life year is assumed to be worth $100,000, that represents a loss of $48 to $69 Billion.

How much would other medical innovation be reduced under Medicare For All?

Pharmaceutical R&D constitutes less than half (45.5%) of all U.S. medical research spending. If the cost-effectiveness of the other 54.5% were identical to pharmaceuticals, the aggregate social cost of lost innovation would range from a low of $50 Billion to a high of $152 Billion. 

This other medical innovation actually exceeds pharmaceuticals in importance. Of the six most important innovations of the last 25 years, only two – ACE inhibitors for control of high blood pressure and statins to lower cholesterol levels – have been drugs. The others include MRI scans, CT scans, Balloon angioplasty and coronary artery bypass grafts.  Imagine if these life-changing innovations had never happened as a result of adopting a single-payer healthcare system.

 

Author’s Note: Stay tuned for the fifth reason, and last in the two series of posts on the subject of Single-Payer Healthcare.

(Author’s Note: This is the fourth in two series of posts explaining what’s wrong with single-payer, government-run healthcare. Recent interviews with medical school and public-health policy students have shown this information is desperately needed to warn our youth of the evils of this form of healthcare. This series was first published in October, 2017 and is re-published here.)

 

In Part I and Part II of this series, I discussed two of five reasons to oppose Senator Sanders’ Medicare for All Act, which calls for single-payer healthcare, from economist Chris Conover’s point-of-view. Today we will look at the third of his reasons.

Healthcare Rationing

Rationing of healthcare treatment occurs in all known single-payer healthcare systems including Canada, Great Britain, and Sweden. Conover says this occurs in two different ways:

• Deliberate administrative decisions – to deny certain expensive medical technologies
• Inevitable shortages – created by a system that imposes price controls that underpay providers.

Deliberate Administrative Decisions

In any single-payer healthcare system there is an administrative body empowered to make decisions regarding the availability of healthcare treatment. These bureaucrats, frequently not physicians, concern themselves with the cost of treatment and measure that cost against the likely outcome. They then arbitrarily deny those treatments considered too expensive or too unlikely to produce significant improvement in health, or both.

This administrative body in Great Britain is known as the National Institute for Health and Care Excellence (NICE). Advisory committees to NICE use a threshold for recommending treatments of between L20,000 and L30,000 (British pounds) per quality adjusted life year (QALY). Since 1 British pound currently equals $1.29 (American), that translates to roughly $26,000 to $39,000 per QALY.

To see how this is put into practical usage, consider Medicare currently spends approximately $88,000 per year on kidney dialysis for each patient with end-stage renal disease. Without it these patients will die unless they get a kidney transplant. So Americans evidently are willing to pay $88,000 per year to keep people alive. But this would equal a cost/QALY of $185,000.

In Great Britain this would greatly exceed the NICE cost-effectiveness threshold. If the greater U.S. GDP per capita (34%0 is mixed into the equation, the cost/QALY could rise to as much as $52,000. But this is still far below the true cost of kidney dialysis. Therefore NICE would deny the kidney dialysis treatment – and people would die.

Rationing by Waiting

The second form of rationing, caused by shortages, is rationing by waiting. Insufficient numbers of providers (doctors and hospitals) and diagnostic technologies (CT scanners, MRI scanners, Ultrasound, Radiation, etc.) leads to long waiting times for routine services and surgery, even for non-elective procedures like cancer treatment.

The Fraser Institute of Canada reports, “The median wait time in Canada in 2016 was 20 weeks – the longest ever recorded – and more than double the 9.3 weeks Canadians waited in 1993, when the Fraser Institute began tracking wait times for medically necessary elective treatments.”

This problem is getting worse, not because of significant growth in the population, but because of significant decline in the number of physicians. The evidence coming from studies of the Canadian system shows that physicians deliberately reduce the supply of their services, but working fewer hours, retiring early, or moving to other countries. Thus waiting times are due to a combination of excess demand (see the impact of free care in Part II) and shrinkage of supply.

A study by Wharton Business School professor Patricia Danzon concluded: “In Quebec, in the two years immediately after the introduction of universal health insurance, home visits dropped by 63 percent, telephone consultations fell by 41 percent, physician time spent per office visit declined by 16 percent, and office visits rose by 32 percent.” There is no reason to believe American physicians would react any differently if that system were imposed on our country.

Time spent waiting is not limited to physician services. In Canada, hospitals are paid a fixed budget per year giving the perverse incentive to fill their beds with low cost “bed-blockers” (to prevent more expensive patients from filling those beds). To illustrate the impact of this, consider that Canada has the same supply of beds per capita as the U.S. (2.7/1000 population) but the average length of stay in Canada is 36% higher. The consequence is suffering that is avoidable as patients wait months rather than weeks for various types of surgery.

What is the cost of such rationing if Medicare For All is enacted here?

It is difficult to measure the cost of lives put on hold until proper treatment can be given. Who knows the economic impact, let alone the human cost of such delays?

Danzon concluded that patient time costs under a single-payer health system likely amounted o anywhere form 10 to 110 percent of spending on physician services. Government actuaries project we will spend $717 Billion on physician services in 2017, meaning Medicare For All would impose anywhere from $72 to $789 Billion in hidden costs not include in the Urban Institute estimates of the cost of the Sanders plan.

Conover calculates the grand total hidden cost associated with rationing typical in the Canadian single-payer healthcare approach proposed by Sanders would range from $152 to $914 Billion per year. He considers these to be extremely conservative numbers because they do not attempt to account for the adverse effects on health and longevity from the exclusion of high-priced medicines and treatment likely under a single-payer system.

So far, we have three reasons to oppose single-payer healthcare:

• Deadweight Losses of $1.1Trillion
• Additional Wasteful Spending of $524 Billion
• Additional rationing costs of $152 to $914 Billion

 

Altogether, that’s between $1.7 Trillion and $2.5 Trillion in additional hidden costs in the first year alone with single-payer healthcare! (Remember, these costs are not including the obvious costs of just paying for the healthcare!)

 

For more reasons to oppose this system, tune in next time.