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What's missing from Bernie Sanders' healthcare vision

Defending his healthcare reform plan at Sunday's Democratic presidential debate, Sen. Bernie Sanders told the audience that switching to a single-payer, "Medicare for All" approach would deliver "huge savings in what your family is spending." Whether that's true, however, depends on who your family is -- and how much appetite the country has for government price caps and rationing.

Sanders argues that eliminating private insurers and having the federal government pay the citizenry's medical bills would cut healthcare spending by $6 trillion over the next 10 years. That's a huge amount, even considering the fact that Americans spent an estimated $3 trillion on healthcare just in 2014.

Much of the savings the senator is counting on would come from cutting out the insurance middleman and easing the paperwork burden on doctors and hospitals that have to deal today with multiple payers. And there are probably savings to be found there, at least initially.

Studies have shown that government-run insurance programs, such as Medicare and Medicaid, do indeed spend a lower percentage of their total budgets on administration than private ones do. Part of the reason is scale -- the federal programs can spread their fixed costs across a far larger pool of customers. And in the case of Medicare, the medical costs per enrollee are considerably higher too. Those savings don't look so impressive, however, when you calculate administrative costs on a per enrollee basis.

Sanders is also proposing to make healthcare seem less expensive by doing away with insurance premiums, deductibles and copays. Instead, he'd pay for claims by raising income-tax rates by 2.2% for most Americans, although those with high incomes would see progressively larger hikes. The top tax bracket would rise from just under 40% to 43% for incomes under $2 million, or to 52% for incomes above $10 million. All employers, meanwhile, would pay an additional 6.2% tax on incomes -- on top of the world's highest tax on business incomes.

Anyone earning a modest amount of money would probably feel significantly better off under Sanders' arrangement, especially if they already had health benefits at work. If they didn't, their employer might respond to the new tax by cutting payroll -- either through layoffs or pay cuts.

As for those earning fatter paychecks, the tax hit would be significant -- an additional $12,000 a year for someone earning $300,000, for example. Those with $1-million incomes would pay $30,000 more. For a $2-million income, the hit would be $80,000.

That sort of progressivity has a precedent of sorts: Retirees with higher incomes pay more for Medicare Part B. But that's simply because they receive a smaller subsidy for their insurance, not because their premiums are subsidizing other people's benefits. Sanders' approach, by contrast, takes from Rich Peter to pay for Poor Paul's coverage.

Here's a bigger issue. Removing private insurers in favor of government ones won't do anything to slow the growth of healthcare spending or the high cost (relative to the rest of the world) of each procedure performed, which are the real problems in the system. To (partly) address those issues, Sanders' plan calls for "reduced spending on monopoly prices for pharmaceuticals and medical devices," as well as slowing the growth of drug spending through government price controls.

It's not clear how such controls would work -- Sanders hasn't released enough detail to tell. What is clear from history, though, is that any effort by Washington to limit spending on specific drugs or devices is likely to trigger a political firestorm.

Just look at what happened when a federal panel of experts on preventive care recommended that fewer mammograms be performed, or when the Food and Drug Administration withdrew its approval of the drug Avastin for use with breast cancer patients. 

This powerful, ingrained resistance to anything perceived as rationing helps explain why healthcare costs have risen faster than consumer prices or the U.S. economy for decades. They've also been boosted by Medicare's original fee-for-service structure, which gave doctors and hospitals an incentive to perform as many treatments as possible and provide the most intensive (and expensive) care.

Nor did the original Medicare give enrollees much incentive, if any, to curb their demand for treatments. That's why reformers -- including the Obama administration -- have argued that all beneficiaries should face at least nominal deductibles or copays. Sanders' proposal would eliminate these out-of-pocket costs.

Taking private insurers out of the picture would also eliminate one of the strongest forces pushing for more efficient and better coordinated care today. That's not to say the government couldn't fill that role; it's just that, as noted above, anything the government might do to limit access to costly treatments, even if they're not as effective as less expensive ones, would be pilloried as rationing.

That's one reason the 2010 Patient Protection and Affordable Care Act, better known as Obamacare, didn't do enough to control costs. But it did include a number of pilot programs aimed at giving doctors and hospitals an incentive to treat patients more efficiently and reduce the demand for care. That sort of effort to realign incentives is vital to any healthcare reform; it goes hand-in-hand with efforts to improve the quality of care and bring every American into the coverage tent.

Sanders' plan would go further than any other candidate's to build the third leg of that stool. The other two legs, however, need a lot more work.

Email Jon Healey

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