In this past Sunday's NYT (Mar. 26), Professor Robert Frank wrote an excellent article re "Medicare for All." The head of our Health Insurance Department (HID) emailed Professor Frank with a suggested modified approach. Today, Professor Frank wrote a very nice response, and referred us to a related discussion by Matt Yglesias, to whom we have forwarded on our suggestion. Below are Professor Frank's article, our response to him, and his response to us. We await Mr. Yglesias response as well the NYT's editorial board decision on the letter we submitted making the same point.
Professor Frank's NYT Article:
Republicans are in a bind. They’ve been promising to repeal Obamacare for seven years, and having won control of the White House and Congress, they had to try to deliver. But while their bitter denunciations of the Affordable Care Act may have depressed its approval numbers, they didn’t make replacing it any easier.
On the contrary, the repeal-and-replace bill designed by House Speaker Paul D. Ryan drew withering criticism from the left and the right. Liberals condemned its use of reductions in health coverage for the poor to pay for large tax cuts for the wealthy, while conservatives bemoaned its retention of many subsidies adopted under Obamacare.
In the end, the repeal effort’s biggest hurdle may have been loss aversion, one of the most robust findings in behavioral science. As numerous studies have shown, the pain of losing something you already have is much greater than the pleasure of having gained it in the first place. And the nonpartisan Congressional Budget Office estimated that Mr. Ryan’s American Health Care Act (A.H.C.A.) would have caused more than 14 million people to lose coverage in the first year alone, with total losses rising to 24 million over the next decade. Many Republicans in Congress were nervous about the political firestorm already provoked by the mere prospect of such losses.
Loss aversion actually threatened the repeal effort on two fronts: voters’ fear of losing their coverage, and lawmakers’ fear of losing their seats. Like the first fear, the second appeared well grounded. Republican voters wouldn’t have been the only ones losing coverage, of course, but early studies suggested that losses would have been concentrated among people who voted for President Trump. The Congressional Budget Office estimated, for example, that the A.H.C.A. would have caused premiums to rise more than sevenfold in 2026 for 64-year-olds making $26,500.
Now that Republicans have withdrawn Mr. Ryan’s bill from consideration, attention shifts to what comes next. In an earlier column, I suggested that Mr. Trump has the political leverage, which President Obama did not, to jettison the traditional Republican approach in favor of a form of the single-payer health care that most other countries use. According to Physicians for a National Health Program, an advocacy group, “Single-payer national health insurance, also known as ‘Medicare for all,’ is a system in which a single public or quasi-public agency organizes health care financing, but the delivery of care remains largely in private hands.” Christopher Ruddy, a friend and adviser of the president, recently urged him to consider this option.
Many Republicans who want to diminish government’s role in health care view the single-payer approach with disdain. But Mr. Trump often seems to take pleasure in being unpredictable, and since he will offend people no matter which way he turns, he may want to consider why liberals and conservatives in many other countries have embraced the single-payer approach.
Part of the appeal of Medicare for all is that single-payer systems reduce financial incentives that generate waste and abuse. Mr. Ryan insisted that by relegating health care to private insurers, competition would lead to lower prices and higher quality. Economic theory tells us that this is a reasonable expectation when certain conditions are met. A crucial one is that buyers must be able to compare the quality of offerings of different sellers. In practice, however, people have little knowledge of the treatment options for the various maladies they might suffer, and policy language describing insurance coverage is notoriously complex and technical. Consumers simply cannot make informed quality comparisons in this industry.
In contrast, they can easily compare the prices charged by competing insurance companies. This asymmetry induces companies to compete by highlighting the lower prices they’re able to offer if they cut costs by degrading the quality of their offerings. For example, it’s common for insurance companies to deny payment for procedures that their policies seem to cover. If policy holders complain loudly enough, they may eventually get reimbursed, but the money companies save by not paying others confers a decisive competitive advantage over rivals that don’t employ this tactic. Such haggling is uncommon under single-payer systems like Medicare (though it is sometimes employed by private insurers that supplement Medicare).
Consider, too, the mutually offsetting expenditures on competitive advertising and other promotional efforts of private insurers, which can exceed 15 percent of total revenue. Single-payer plans like Medicare spend nothing on competitive advertising (although here, also, we see such expenditures by supplemental insurers).
According to the Kaiser Family Foundation, administrative costs in Medicare are only about 2 percent of total operating expenditures, less than one-sixth of the rate estimated for the private insurance industry. This difference does not mean that private insurers are evil. It’s a simple consequence of a difference in the relevant economic incentives.
Our Suggestion to Professor Frank:
Dear Professor Frank:
I very much enjoyed and applaud your article re “Medicare for All” in this morning’s (Mar. 26) New York Times. While I share your wish that could be done, I assume you’re as skeptical it would be done in the near-term. But, what might have appeal both as a “fix” to the ACA that might placate moderate Republicans and Democrats and Trump, and moving the country down the road toward a single-payer system, is to have an incremental drop in the Medicare eligibility age, e.g., moving down from age 65 to say age 50 in one shot or over a period of years. Such an approach: (i) would make Medicare financially sounder because its base would then include proportionately more “younger” people in better health than older Medicare recipients; and (ii) would make Medicaid and the ACA markets financially sounder because their bases would then include proportionately fewer “older” people in poorer health and proportionately more “younger” people in better health. In short, instead of making the immediate goal of a universal single-payer system an all-or-nothing alternative likely to attract little support, a hybrid system that fulfills the promise of “fixing” Obamacare, while moving only incrementally toward a single-payer system, just might be sellable to Trump et al. It’s not a perfect solution for sure, but it would seem to be a good one compared to where we are. I hope it is tried. Again, thanks for your excellent piece.
Professor Frank's Response:
Dear Mr. Cohen,
Many thanks for your kind note. Your suggestions for how to get started on a path toward single-payer make a lot of sense. I think you’d enjoy this discussion of some related possibilities by Matt Yglesias in Vox today.
All good wishes,
Robert H. Frank
HJ Louis Professor of Management and Professor of Economics
Johnson Graduate School of Management
327 Sage Hall