Trump campaign promises of much better care, covering more people and lower costs from some new replacement for Obamacare have been shown to be absolutely impossible. Furthermore, most politicians on both sides have come to realize that Obamacare repeal in not feasible. It is also dawning on some politicians that there is no fix or repair of Obamacare that can bring the costs of healthcare in America down to anywhere near it is in the rest of the developed countries in terms of a percentage of GDP.
It is not as widely understood that the reason for the widely disparate healthcare costs between the USA and the other developed countries stems from the fact that demand for healthcare is inelastic. Demand for a good or service is inelastic if a percentage increase in price results in a smaller percentage decrease in the quantity demanded. Basic economics tells us that sellers facing inelastic demand will continuously raise prices until prices reach the elastic portion of the demand curve. Consequently, in every developed country in the world, all goods or services with inelastic demand have their prices regulated by government. Medical care in the USA being the only exception. As I said in the earlier article: http://seekingalpha.com/article/1647632
...Medical prices are controlled in various ways in the rest of the developed world. In Japan, the land of $100 melons and tiny $10,000 per month apartments, all medical care prices are listed in a book, thicker than the Manhattan telephone directory. The prices set in the book are usually less than a third of those in the USA. An MRI that costs $1,200 in the USA costs $88 in Japan. Japanese insurance companies are private as are most doctors. Japan spends less than a third per capita on medical care than America. However, the Japanese are greater consumers of medical care than Americans. They visit doctors and hospitals more often, have much more diagnostic tests such as MRIs. They also have better health outcomes as measured by all metrics such as life expectancy. They also wait less for treatment than Americans do as Japanese doctors work much longer hours for their much lower incomes.
Japan's explicit price controls are roughly emulated in other countries via the use monopsonistic systems. Monopsony, meaning "single buyer" is the flip side of monopoly. A monopolist sets prices above free market equilibrium. A monopsonist sets prices below free market equilibrium. It does not matter if there is an actual single payer or many buyers (or payers) whose prices are set by the government or by insurance companies in collusion with each other…
Single payer or socialized medicine has mostly been an anathema politically in America. Senator Bernie Sanders usually, at least publicly, demonstrates ignorance of the primary reason that that America spends twice as much per capita on healthcare as the other developed countries. He mostly blames high administrative costs in private sector insurance companies and healthcare providers. Sanders has convinced 16 Democratic Senators to co-sponsor his “Medicare- for- all” legislation. The last time Sanders introduced a “Medicare-for-all” bill in 2013, he had zero co-sponsors in the Senate. Circumstances have now made single payer not as toxic to many prominent Democrats. Additionally, Medicare-for-all does not sound as scary to many as single payer does.
usually first points to the only 2% administrative costs of Medicare. There are various problems with Medicare-for-all. Medicare has been plagued by fraud. It was said that at times there was a shortage of cocaine in South Florida, as so many former drug dealers switched to the relatively safer and much more lucrative occupation of organized Medicare fraud. There is also the fact that Medicare provides less benefits than Medicaid. Medicaid’s lower payments to providers limits the number of options in terms of choosing doctors for many poor people. However, many of those now on Medicaid might not appreciate having a wide choice of doctors when they cannot afford the copays or deductibles that they would incur by going to.
In theory, Medicaid-for-all would bring comprehensive coverage to all and would lower costs if the lower Medicaid payments to providers was retained. The opposition from healthcare providers to Medicaid-for-all would be even more intense than to Medicare-for-all, if payments to providers we at the Medicaid. In theory payments to providers in a Medicare or Medicaid for all system could be maintained at current market levels. However, notwithstanding the 2% administrative costs paying providers market levels rather than the monopsonistically derived much lower levels that the other counties allow, would not reduce health care costs significantly below that of twice the per capita costs in the other countries.
How Likely is a Medicare-for-all System?
Obviously, determining winners and losers from a Medicare-for-all system is a waste of time, if there is no possibility of such a system being adopted. Despite the severe opposition that any Medicare-for-all legislation will encounter, the fact that the number of sponsors in the senate has gone from one to seventeen, and the fact that every other industrialized country has adopted a monopsonistic healthcare cost control system must be considered. Presumably, there was significant opposition in those countries as well. There are other problems and issues with actual operation of Medicare- for-all, but my focus is on the likelihood of enactment and the implications for financial markets and economic conditions.
I cannot see any scenario where current Medicare beneficiaries are not given substantial economic incentives to support the new arrangement. Those are the only ones who have to be given enough if monopsonistic healthcare price control system such as Medicare-for-all has any chance of being enacted. After that, there are various interests that may or may not be given incentives or compensation to go along. Those incentives could be permanent or phased out over time.
There are two major obstacles that must be addressed before any Medicare-for-all legislation could have any chance of being enacted. One is the way it will be financed and two is what would be the status of current Medicare beneficiaries. The latter is the more interesting, in that potentially a powerful group could be switched from extreme opponents of it to allies.
The first reaction from many current Medicare beneficiaries to the idea of Medicare-for-all, might be related to the issue of others getting immediately what they have paid into for many years while they did not get any benefits. At minimum, current Medicare beneficiaries would chafe at the idea of having to pay new taxes to pay for Medicare-for-all, and getting anything for those taxes, other than the Medicare already have now.
The challenge of convincing younger people to pay taxes in return for not having to pay for medical care and/or health insurance premiums either directly or through their employers is surmountable. The USA spends about twice as much per person on health care as other developed countries. However, the prices paid by Americans or their insurance carriers for medical procedures are typically about triple what is paid in other developed countries. Hence, Americans consume less health care services than many of their foreign counterparts. The money saved from a monopsonistic healthcare cost control system like Medicare-for-all, could be allocated among those who now pay for healthcare, leaving almost all better-off, except doctors. Convincing many people of that would not be easy.
I said previously:
...Government spending has been increasingly driven by medical care prices. Government now pays about half of the costs of health care in the USA. When the tax spending aspects of the tax deductibility and exclusions of medical care and insurance expenses are included, the impact of health care costs on the deficits is even larger. In many respects, the health care price crisis in uniquely American. Our Government spending on healthcare per capita exceeds that of any other country in the world, including those where there are very little private health care expenditures.
Adopting the second worst healthcare system in the world, Canada, Germany and the UK are probable the best candidates for that dubious honor, would allow the USA to eliminate much of the Federal budget deficit. That would probably be beneficial to financial markets..."