Monday, July 8, 2019

Marxist Provisions in "Medicare for All"

This post refers to four bills entitled “Medicare for All”: two introduced in the previous Congress (S.1804H.R.676) and two bills recently introduced in the current Congress (S.1129H.R.1384).  Although few people have actual read them, they are popular and enjoy enthusiastic support.  The bills’ titles give the impression that they are merely opening up the U.S. Medicare program to all ages.

The titles belie the actual text.  Closely following Marxist principles, the “Medicare for All” bills eliminate profits and private enterprise in health-related industries.  They centralize decisions about capital investment.  They give healthcare away “for free.”  These provisions are rarely undertaken by other countries and are contrary to media claims that actual Federal policy proposals have little to do with socialism or Marxism.

Prohibition of profits

The net operating surplus of a business is its revenue minus depreciation, labor costs, and materials costs.  The net operating surplus of an economy is the net operating surplus added across all of its businesses.  It can also be called profit, as long as capital or financing expenses are not subtracted.

According to Karl Marx, net operating surplus exists only because of the exploitation of workers by the capitalist class.[1]  Time preference and other “reasons” for a positive net return on capital are merely bourgeois justifications (i.e., flimsy excuses disseminated by capitalist-financed commentators) for labor exploitation.[2]

Zero net operating surplus is therefore necessary to eliminate exploitation by Marx’s definition.  The two House “Medicare for All” bills (hereafter, M4A) would prohibit health providers from earning profits.  As the new House bill puts it:

There is a moral imperative to correct the massive deficiencies in our current health system and to eliminate profit from the provision of health care.[3]

In contrast, neither profits nor net operating surplus are prohibited in the current Medicare system.

Government ownership of an entire industry’s businesses

Government ownership of the (nonlabor) means of production is one socialist proposal for eliminating profits.[4]  That is, the government would effectively (if not legally) own all businesses in the industry: it would make all business decisions and prohibit private control of any competing enterprises.

All three Medicare for All bills take the “single payer” principle literally and have the government taking over the health insurance industry.  The Federal government would monopolize the industry; private health insurance would be prohibited (it would be legal to sell insurance for “cosmetic surgery or other services and items that are not medically necessary” -- is that health insurance?).  Under the new House bill, the same applies to the medical-advertising industry.  This is contrary to the current Medicare system, which has thousands of private providers, more than one thousand private insurers, and permits advertising.

If consumers were better served by an industry with zero net operating surplus, the prohibition of private enterprises might seem redundant because they would be outcompeted by a nonexploitive (and unsubsidized) government business.  A second justification is therefore added: that health insurance – if not health care in general – has virtually unlimited economies of scale.  A government monopoly of health insurance would purportedly “be more productive by avoiding 'waste' on administrative costs, advertising costs, and profits and would use its bargaining power to obtain better deals from healthcare providers.”[5]

The new house bill also has the Federal government monopolize the dissemination of information to patients and health providers about health goods and services.  Specifically, providers are prohibited from advertising/marketing/promoting their health goods and services and, based on the costs of dissemination, we presume that the Federal government would be the only institution doing it.[6]  Under current Federal policy, providers are permitted to advertise, especially when product promotions involve discounts or the provision of product information.  This activity is especially significant in the pharmaceutical industry, where resources are spent disseminating pharmaceutical information to health professionals.

Central planning: all capital investment is directed and financed by the Federal government

Providers, which would have no profits, are prohibited by the new House bill from using M4A reimbursements to pay for capital investments (Sections 614(b), 614(d) and 611(b)(3)). Capital investments would be approved, prioritized, and financed by the Federal Department of Health and Human Services (HHS).[7]  Charitable contributions cannot be used to supplement the HHS capital budget (Section 614(c)(4)).

In contrast, the current Medicare program allows providers and insurers to make capital investments without HHS approval.

“Free”: Patients receive health goods and services with zero cost sharing

Aside from the normal tax obligations, none of the four M4A bills charge patients for health insurance premiums or at the point of use. 

In contrast, the current Medicare program has premiums and copays to be paid by program participants.

Other countries’ health programs are not so Marxist

Nordic countries are held up as purported proof of concept for Medicare for All, but in fact they do not adopt any of the Marxist provisions above.

All of the Nordic countries’ health systems have user fees or out-of-pocket payments, whose share of overall health spending is similar to what it is currently the case in the United States—although Denmark is the Nordic outlier, in that its patient cost sharing is essentially limited to prescription drugs.[8]

Private and for-profit health providers and health insurers exist in these countries and are accounting for a growing share of the market.

Private health insurance is important in a number of other universal-coverage countries, such as Switzerland, where all residents are required to purchase health insurance.[9]

Even single-payer countries allow providers to promote their products to health professionals.[10]

[1] Marx 1867 refers to net operating surplus as “surplus value.”
[2] Time preference is the term familiar from modern economics; Marx (1867, Chapter 24) called it “abstinence.” (Later Böhm-Bawerk 1890 distinguished the abstinence theory from the modern idea of time preference, but the distinction is unrelated to Marx's discussion of abstinence).
[3] H.R. 1384 Section 614(a), emphasis added.  See also Section 103 of H.R. 676 that requires all health providers to surrender their for-profit status.  For an alternative view, see McCloskey (2016, esp. Chapter 59 and 61).
[4] Marx (1867) focuses more on the existence and magnitude of surplus value rather than the ownership relations that allow it to exist.  See also Roemer (1982).
[5] Quoted from CEA (2019, p. 420).  For evidence of the modern currency of these views, see Kliff (2014), Kliff (2018), Frank (2017), Konrad (2017), and Weisbart (2012).  CEA (2019) notes that historical nationalizations were justified on similar grounds.
[6] H.R. 1384 Section 614(b)(1).
[7] Section 614(c).  Capital investments are defined to be "the construction or renovation of health care facilities, excluding congregate or segregated facilities for individuals with disabilities who receive long term care services and support; and major equipment purchases." (Section 601(a)(6)) and later as "expenses for the purchase, lease, construction, or renovation of capital facilities and for major equipment."
[8] Universal coverage systems are common internationally, but they are different from free health care and from single-payer systems.  Regarding cost sharing, see Rice et al. (2018); Globerman (2016); Anell, Glenngård, and Merkur (2012); Olejaz et al. (2012); Ringard et al. (2013); Sigurgeirsdóttir, Waagfjörð, and Maresso (2014); and Vuorenkoski, Mladovsky, and Mossialos (2008).
[9] See Sturny (2017). The Netherlands achieves universal coverage by mandating the purchase of health insurance from private insurers (Wammes et al. 2017). Private health insurance is also required in Japan (Matsuda 2017).

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