House Majority Leader Richard A. Gephardt's (D- Mo.) health care reform proposal, unveiled today and headed for the House floor in the next two weeks, would begin America on a slow march to a single payer system. The proposal would make 115 million Americans eligible for a new entitlement program called Medicare Part C, and thereby create a single payer system for up to 59 percent of the population.¹

Under this proposal, Medicare ostensibly would compete with private health plans to cover the employees and dependents of businesses with 100 or fewer employees, all part-time workers in large and small firms, and all non-workers. The competition, however, is rigged in Medicare's favor. Its insurance premiums would be lower because Medicare caps its payments to providers, thereby forcing the private sector to make up the difference. This shift of costs from the public to the private sector allows Medicare to pay only 59 percent of what the private sector pays for the same physician services, and 68 percent of private sector payments for hospital services.²

Medicare's advantage would become self- perpetuating. As small businesses joined Medicare, providers would make up their shortfall by charging private plans ever more. The escalating cost of private insurance from the cost-shifting would soon drive most small businesses to Medicare.

Another result might be that more doctors will refuse to see Medicare patients to avoid the financial burden of the government caps on payments. Two tiers of providers would develop just as in Medicaid, which covers the poor and pays providers even less than Medicare. The seniors' lobby could demand that the government require all providers to accept all Medicare patients, thereby leading to stringent regulations to overcome the growing economic disincentives to take Medicare patients.

Because poor people currently covered under Medicaid also would be added to Medicare Part C, the only source of coverage not provided by the federal government would likely be large employers. But under the leadership bill, in 2001 federal price controls would be imposed on all private health care spending if such spending is growing faster than the economy. These controls would be inevitable because large businesses subject to the same cost-shifting as small businesses would have to pay providers ever-higher charges to make up for the government's underpayments.

Some might expect private health plans to become more efficient and beat the prices set by the government. But the rules would be stacked against them: If competition lowers costs, Medicare's payments would automatically decline and continue to be less than in the private sector. Private health plans would lose their incentives to become more efficient and instead turn to inefficient means of controlling costs: waiting lines, lower quality, and less investment and innovation. But before too many hospitals closed and waiting lines became too long, Congress would likely recant and increase spending limits, thereby defeating the goal of controlling costs.

The slow death of the private marketplace for health care and the inexorable growth of a single payer system inherent in the Gephardt proposal do not fulfill the President's promise of private health insurance for everyone that can never be taken away.

Endnotes

(1) Calculated from 1992 data in "Source of Health Insurance and Characteristics of the Uninsured," Employee Benefits Research Institute, January 1994, as follows: Employees in firms with under 100 employees and dependents (75.5 million); Medicaid population (28.5 million); individuals not employed and not enrolled in public programs (11.4 million); and the Medicare population (33.7 million); for a total of 149.1 million out of a total population of 252 million. Medicare Part C would be a new fund separate from Parts A and B, under which the elderly and disabled receive benefits for hospital and physician services.

(2) Physician Payment Review Commission, "Annual Report to Congress," 1994, p. 376. Prospective Payment Review Commission, "Medicare and the American Health Care System: Report To Congress," June 1993, p. 31.

David B. Kendall is Senior Analyst for Health Policy at the Progressive Policy Institute.