Medicare Payment and Reimbursement

‘Medicare for All’: What would it really mean for healthcare stakeholders?

December 19, 2019 9:32 pm
  • Although “Medicare for All” could reduce personal healthcare spending and administrative costs, overall government spending could increase significantly after accounting for costs currently borne by employers and individuals under commercial plans.
  • Hospitals in high-cost markets could struggle to make up for the loss of commercial insurance payments that amount to several times more than what Medicare pays for the same service.
  • Physicians would face increasing financial pressure to seek employment with hospitals, and the physician shortage would be exacerbated given the likelihood of greater demand for healthcare services under universal coverage.

In the spotlight as the 2020 presidential election cycle approaches, “Medicare for All” (M4A) is one of the most defining and contentious issues in politics.

According to an August 2018 Reuters/Ipsos poll, 70% of people surveyed support M4A. Another survey indicates the underlying reason for Americans’ interest in healthcare reform: 77% are concerned that rising healthcare costs will cause significant and lasting damage to the U.S. economy, and 45% believe a major health event could leave them bankrupt, according to a 2019 Westhealth/Gallup survey.

Yet despite intense interest, much of the dialogue around this issue fails to connect the dots on what M4A would mean for the healthcare industry.

What M4A might really mean: A working premise

In this article, we assume “Medicare for All” means exactly that — Medicare for everyone — but with important clarifications:

  • Because Medicare coverage would be made available to all citizens, it would replace Medicaid and each state’s portion of funding for Medicaid.
  • Medicare coverage also would replace insurance provided by commercial insurers, whether offered by an employer or purchased on the individual-insurance market.
  • An M4A proposal would eliminate most or all out-of-pocket costs associated with the current Medicare program.

In a widely publicized July 2018 working paper, Charles Blahous of Mercatus assesses the potential financial cost of a national, single-payer healthcare system. He begins with the projection by the Centers for Medicare & Medicaid Services that personal healthcare spending will reach $3.86 trillion by 2022 and calculates that M4A would reduce national healthcare spending by about $93 billion annually.

This figure comprises:

  • $10 billion in savings on personal healthcare spending, with increased utilization and elimination of out-of-pocket costs factored in along with expanded application of the lower rates paid by Medicare
  • $83 billion in savings on combined government and commercial health insurance administrative costs

Despite the slightly lower national cost of healthcare, Blahous concludes that M4A would result in a 2022 net annual increase of $2.535 trillion in federal costs after including costs currently borne by employers and individuals under commercial plans, even after accounting for the elimination of federal health insurance subsidies.

M4A’s impact on the healthcare industry: winners and losers

An M4A scenario as described above would have varying impacts on healthcare stakeholders.

Hospitals: Mostly losers with a few winners. Hospitals bear a wide range of costs depending on the markets they occupy. Some might do well under M4A, but many would not.

Medicare payment rates are, on average, roughly 40% lower than those of commercial insurers, according to Blahous. However, in high-cost markets like the San Francisco Bay Area, New York, Chicago, Los Angeles and others, health plans may pay up to five times the rate paid by Medicare for the same service.

Hospitals that would experience the greatest negative impact under M4A are those with substantial volumes of commercially insured patients, high operating costs or both. Hospitals in the San Francisco Bay Area, Chicago and New York, among others, would be seriously injured by the loss of revenue associated with a shift to M4A unless they significantly change their structures and operations to become leaner, more productive, more astute about delivering care at the most appropriate site and better at overall care management.

Although the organizations that would be most affected also tend to have substantial cash resources and thus the means to attempt operational transformation, the magnitude of the challenge would be significant and may exceed the capacities of management that is used to the status quo. 

Meanwhile, some hospitals operating in low-cost areas may even see their prospects improve under 100% Medicare payment. The same applies to urban and rural safety net providers that disproportionately serve Medicaid and Medicare populations and rely on various forms of government subsidization. According to the Medicare Payment Advisory Commission, “Hospitals with high shares of Medicare and Medicaid patients tend to have more pressure to control costs and therefore tend to have lower costs per discharge.”

Health plans: Mostly losers with a few winners. Consolidating most insurance policies under a single government payer likely would spell the end for many health plans, while those contracting with state and federal governments to offer Managed Medicaid and Medicare Advantage plans might do well —  especially if the federal government encouraged or required citizens to enroll in such plans as a cost-saving or administrative-simplification measure.

Under this scenario, commercial health plans could play important roles in a single-payer system like M4A, but their service emphasis might change. The largest plans would focus on contracting with the federal government for full-risk and value-added administrative services, much as they do today with federal and state governments and large employers. However, this role necessarily would be filled by many fewer and far larger health plans, and those with significant government contracting capabilities would enjoy substantial competitive advantages.

Similarly, companies such as UnitedHealthcare/Optum, with a business model that favors facilitating the management of healthcare services for providers and other health plans, may do well under M4A. Likely to emerge as well are health plans that offer concierge-type insurance products and services to facilitate a “superior” healthcare experience for those willing to pay for it.

Overall, depending on how it is implemented, M4A could be welcome for larger health plans and their investors. Smaller plans and providers of administrative services would need to scramble to prove their worth to larger entities that may acquire them. Health plans that fail to adapt to the new system and do not secure the requisite regulatory support likely would go out of business unless they can pivot into specialty services.

Independent physicians: Mostly losers. Medicare compensates physicians and other healthcare professionals at about 75% of the rates paid by commercial health plans, on average. For the majority of today’s physicians, who are employed directly or indirectly by hospitals and health systems, the financial impact of M4A may be blunted relative to their private-practice counterparts, perhaps manifesting in changing work practices and demands for greater productivity at the same or lower compensation levels.

For those in private or group practice, however, the impact would be more direct, potentially driving many to abandon private practice for salaried employment. 

Physicians practicing in groups or independently might rethink their career choices if they have to rely exclusively on Medicare payments for their services. Many likely would seek to become employees of larger health systems, practice only concierge medicine or choose to retire. Physicians who are employed or part of a health ecosystem would see a very different horizon due to potential mitigations from the hospital and the way in which patients enter their clinical pathway.

This dynamic has important implications for patients, as the added demand for care associated with M4A, together with diminished payment to physicians and other clinicians, can be expected to drive down the available supply of clinicians, thus making access to care increasingly difficult.

M4A thus could be the harbinger of a true two-tiered healthcare system: one privately paid for by the relatively few consumers who can afford it, the other a much larger and perhaps much less appealing system for the majority.

How providers can hold their own

There would be hope for healthcare organizations under M4A, especially for those that know how to use innovative tools to enhance patient care, quality and safety, and revenue cycle efficiency. With a long enough runway facilitated by measured regulatory implementation, nimble providers could succeed in an M4A environment, with equal or better outcomes for their patients and themselves.


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