As Winston Churchill aptly put it, “You can always count on Americans to do the right thing - after they've tried everything else.” Although Churchill wasn’t referring to our present “system” of healthcare, he surely might as well have been! So, here we explore that “right thing” that will supersede everything we have tried thus far.

Medical care in the United States

Currently, national healthcare is provided through a fragmented healthcare system, with private health insurance companies competing with each other and with the government. Private insurers offer health insurance primarily through employers. The government also supports healthcare coverage through programs such as the Affordable Care Act (ACA), Federal Employees Health Benefit Plans, Veterans Benefits, Medicare, and Medicaid. In many plans, premiums are collected through payroll taxes and general tax revenue, often leaving significant out-of-pocket costs (copays, deductibles, and coinsurance), at an unsustainable cost. The overall healthcare cost in the United States is approximately 18 percent of Gross Domestic Product (GDP), the highest in the world. This compares with costs in other western nations that generally range from 10-12 percent or lower, yielding national illness and mortality rates equal or better than those of the U.S.

Why is healthcare so expensive in the US?

Although comparison shopping makes sense when we buy consumer goods, such normal market forces do not apply to healthcare. Negotiation of medical bills is seldom available, and charges constantly rise. The multiple private insurance plans provide no effective price control, simply passing on the expenses to consumers. Although the Affordable Care Act (ACA) initially reduced the average costs to individuals, this nation’s presently excessive overall price tag continues to rise; moreover, under ACA provisions, both premiums and cost-sharing (like copays) are expected to increase for many individuals, this is due to the enhanced premium tax credits expiration expected and changes to cost-sharing rules. Thus, given our current healthcare system, there is no indication that overall national and personal costs can be controlled; therefore, more measures are needed to solve this problem.

Insurance companies have not limited increases and have also balked at ACA’s requirement to spend at least 80-85 percent of their revenue on health care. By contrast, more than 98 percent of Medicare’s expenditures are devoted to care. Estimates vary, but one-quarter to one-third of our current healthcare costs are driven by insurance companies’ profits together with their administrative costs. Thus, roughly half of these costs could be recovered under a single-payor system.

A “solution” in reverse

The recently passed “Big Beautiful Bill’’ among its many deficiencies, contains changes that will negatively impact the already suboptimal nationwide medical programs, especially on Medicaid. Particularly hard hit is a reduction of the federal funding for various state Medicaid programs, which, according to estimates of Congressional Budget Office (CBO), these provisions could result in 11.8 million fewer people enrolled in Medicaid over the next decade, meaning a loss of financial support of healthcare for many of our neediest citizens.

Medicaid’s origin

Medicaid was adopted Under Title XIX of the Amendments of 1965, as was Medicare, and both had roots in the decades-long public assistance programs that preceded it. Medicaid was not created as medical insurance but rather as a broad public welfare program to provide states with the opportunity to receive federal funding for services given to many groups of eligible needy people. For them, Medicaid provides many important supportive, non-medical, services. By contrast, Medicare was formed to provide broad healthcare insurance coverage for all citizens, but it has been limited to the elderly. As a result, Medicaid functions by default as a welfare safety net for more than 70 million impoverished and/or seriously ill Americans with spending of over $860 billion in combined state and federal funds. On average, the federal government covers about 70 percent of the program's costs. In addition to hospital care, Medicaid recipients are covered with a broad range of custodial services beyond direct healthcare that include helping those with chronic illnesses, disabilities, or age-related self-care limitations with activities of daily living that include eating, bathing, dressing, walking, and continence, etc.

Although Medicaid is a joint federal and state program, each state has the flexibility to administer the program differently within broad federal guidelines. Therefore, eligibility criteria for Medicaid inclusion can vary unevenly from state to state, relating to factors such as personal income, assets, dependents, disability status, and age. Although all states are required by federal law to provide Medicaid’s mandatory healthcare benefits, each state decides its own criteria for covering many specific medical procedures and payments.

Average yearly Medicaid expenditures for individual recipients range widely from state to state, averaging slightly over $8,800 for all low-income individuals across the entire nation, ranging from over $10,000 in most New England and mid-Atlantic states, contrasting with only about $4,000-6,000 in east, south central, west south central, and mountain states. Thus, Medicaid is an inequitable low-level healthcare system, relegating a substantial number of people into an inferior statusThus, Medicaid is an inequitable low-level healthcare system, relegating a substantial number of people into an inferior status, usually also compensating physicians less, which often leads to substandard care and frustration for those rendering care.

On average, Medicaid’s physician payment rates average about two-thirds of those of Medicare, although this varies greatly by state and service, often providing an amount that is barely able to support office expenses. This factor alone causes many caregivers to limit or refuse care for such recipients. By contrast, Medicare pays more fairly and consistently across the nation.

Although Medicare is a primary payor of hospital charges, one vital role played by Medicaid is in the support of long-term care in the U.S., covering a major portion of spending on nursing home services. In 2022, Medicaid spent approximately $154.4 billion on these services, paying for nursing home care for as long as an individual requires that level of care and meets the program's eligibility limits that vary by state. Abetted by support of patients’ hospital charges, Medicaid acts as a financial lifeline to rural hospitals, which is a major factor contributing to their viability.

In their attempts to justify the inadequate funding of Medicaid, politicians often refer to this program as riddled with fraud, waste, and abuse, and then falsely lay major blame on the recipients for such abuses. The general experience, however, is quite the opposite, in which fraud has been most commonly used by unscrupulous caregivers, as exemplified by falsely billing for many “services” that have not been performed. The recently enacted congressional bill also requires states to implement a work requirement of at least 80 hours per month by January 1, 2027. But variation of compliance among the states will likely provide more inequity to an already substandard system.

On a slightly more optimistic note, this newly passed healthcare bill that reduces benefits will not become effective until early 2027, after the November 2026 general election, which might provide an opportunity for important legislative corrections.

Could a single payor (Medicare-style) program provide the solution?

At its inception, the architects of Medicare believed that establishing a successful program for the elderly would serve as a steppingstone toward future general coverage. To gain support, their approach was to introduce a program that could be incrementally expanded later, rather than presenting a universal health insurance plan upfront. However, due to the political climate at the time, the idea of universal healthcare was derided as "socialized medicine;” but with Medicare’s current wide public acceptance and satisfaction, this label is no longer applicable. Nevertheless, additional political attention, coupled with fear of excessive costs, have conspired to limit the idea of Medicare expansion. But if we wish to adhere to our egalitarian principles, i.e., basic healthcare available to all, not to just those who are wealthy and/or well insured, one possible remedy is to replace the entire system with a single payor entity, resembling “Medicare for all,” as proposed by many. Contrary to popular belief, this method could be far more economical than our current system.

Streamlined billing under a single system would save physicians overhead costs by reducing the need for many employees to fulfill the varied requirements and forms of the multiple paying sources. If Medicare and Medicaid were combined into a single efficient financing system, the elimination of Medicaid’s role in healthcare would be justified because, as noted, such a low-level system is inequitable, providing substandard, poorly compensated medical care.

If properly structured, the consolidation would allow Medicare to assume support for all hospital expenses, both rural and metropolitan, thus providing for evenly distributed, cost efficient, and national support of extended care.

Control of drug prices

The cost of prescription drugs varies widely among health plans from state to state. In efforts to decrease drug prices, pharmacy benefit managers (PBMs) work as middlemen between drug manufacturers, insurance companies and pharmacies, leveraging their large buying power to negotiate lower drug prices to benefit users such as Medicare Part D plans. PMBs, through negotiation, do obtain price concessions and rebates from drug companies, retaining a portion and remitting the rebate balance to insurance companies which in turn are expected to reduce prescription costs for consumers. But drug manufacturers often pay the PBMs rebates on their drugs in exchange for coverage, potentially limiting access to less effective alternative therapies.

Depending upon the portion of the rebates retained by the PBMs, this can even drive up the price of available drugs. Since the Inflation Reduction Act was enacted, Medicare now negotiates directly with drug companies, and PBMs can be eliminated, which would provide an additional means to modify and unify the entire pricing structure for a single payor. The U.S. Department of Veterans Affairs provides a model for this process by direct negotiation of drug prices, and they are paying roughly half the retail price of drugs. Direct negotiations between Medicare, drug companies and clinicians could ensure adequate reimbursement of expenses plus fair profits, while ensuring value for consumers.

Control of hospital charges

According to a recent study of 3,500 medical facilities, charges for the same operation or procedure varied as much as ninefold, and these costs are compensated to varying degrees by private insurers. By contrast, Medicare controls these costs, primarily through payment models that employ value-based “Prospective Payment Systems” (PPS). For inpatient hospital care, Medicare pays a predetermined amount for cases based on diagnosis-related groups (DRGs). This system incentivizes hospitals to manage costs efficiently, limiting the difference between the payment and their actual costs. Medicare recognizes that input costs can vary by factors such as region and adjusts payments accordingly. In effect, such controls could impose rational and uniform limitations on compensations, and if applied generally, would direct us toward a national reduction of such charges for patients of all age groups. 

Compensation of caregivers

In this nation, the most common form of payment is provided by the current “fee-for-service” model, which compensates caregivers for active services such as tests and surgical procedures. This method of payment tends to encourage excess medical tests and procedures that can drive up costs without necessarily providing better outcomes. Payment in this way contrasts with passive “cognitive,” time-consuming services, such as counseling of patients against active—often expensive—procedures. Compensation could be adjusted to correct such disparities. Other payment methods, such as providing physicians with regular salaries rather than fee-for-service models, would also reduce these financial incentives and encourage less expensive, conservative management.

This idea is already available in large, multidisciplinary medical groups as exemplified by large health maintenance organizations (HMOs) and clinics, or governmental employers in the veterans’ system. According to most financial analyses, overall physician fees in the U.S. contribute about 8 percent to the overall cost of healthcare. Although fee-for service prices are relatively high in this nation, they are restrained to some degree through the application of national guidelines derived from specialty societies and Medicare sources. In a future single payor system, these costs could be further controlled by the application of uniform pricing.

Varied coverage plans

In addition to a single-payor system, the U.S. may need additional tiers of care as provided presently by private insurers. These strata could offer extra services beyond basic care, such as private room options, shorter waiting times for non-urgent issues, elimination of co-pays, long-term care, and dental care. Such extras could be provided for patients who are willing and able to pay them in addition to a basic single-payor system.

Such a structure would also allow the privately run insurance companies to continue some involvement, much as they are presently provided in the form of Medicare “supplement” or “gap” plans. But a word of caution here: Medicare “advantage” plans are Medicare-approved plans from private companies that offer an alternative to original Medicare for health and drug coverage. But their disadvantages include smaller provider networks, often requiring prior restrictive authorization and they lack access to Medigap supplement insurance to cover one’s out-of-pocket costs. Those drawbacks can limit access and affordability for enrollees, and we believe that, in most cases, they are not worth their cost. 

Other advantages of universal coverage

Since the entire population would ultimately participate in and be covered by a basic single payor system, automatic coverage would be provided for everyone, including those with preexisting conditions, another stumbling block eliminated! This would also eliminate the controversial need for an individual mandate.

Although employer-financed coverage could simultaneously be continued, individuals so covered could opt out at any time to enter a single-payor governmental sponsored system. This choice would provide a means for employers to reduce their financial burdens, while allowing patients the flexibility to move freely within a national system without losing coverage. As a consequence, private carriers would need to compete with the single payor, likely forcing them to lower their prices or possibly into subsidiary roles.

Why is healthcare more cost-efficient in other advanced countries?

Advanced western nations have adopted universal healthcare as a basic right that is mandatory for all citizens. In all systems, (Canada and Germany are two examples) the government acts as a central authority that supervises universal fee schedules, either by direct mandates or through other means such as by negotiation among a combination of insurance providers, public funds, and caregivers. This usually results in lower costs for all services.

In this nation, the federal government, specifically through the Centers for Medicare & Medicaid Services (CMS), sets the prices for hospital and physician services. These prices are not negotiated as in the commercial insurance sector. CMS uses different payment systems for various types of services, such as inpatient and outpatient prospective payment systems for hospitals and for the fee schedule for physicians. CMS updates the payment rates for both hospital and physician services annually, incorporating changes in costs and other relevant factors. If the U.S. were to establish a uniform overall pricing structure in a single payor system, this would closely parallel those of the other advanced nations noted above and result in reduced healthcare costs for this entire nation.             

Conclusion

Although no system is perfect, the federal Medicare system works reasonably well; by contrast, the federal-state Medicaid system doesn’t. A number of developed nations have adopted universal healthcare successfully under governmental leadership. Following this lead, folding Medicaid into Medicare for all would adopt the long-delayed visionary 1965 universal healthcare plan. We are now presented with a timely opportunity to make important corrections, permitting the replacement of Medicaid in its present form, while at the same time, embarking on a truly effective, cost efficient, national healthcare system that has been long overdue. It is the obvious “right thing” to which Churchill, were he here today, would applaud.

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About the authors

Morton Tavel, MD, FACP, Professor Emeritus, Indiana University School of Medicine.

Physician specialist in internal medicine and cardiovascular diseases. After retiring from years of managing patients, held a teaching position (Clinical Professor) at Indiana University School of Medicine. Authored over 145 research publications, editorials, book reviews and a medical textbook. Has had direct, firsthand experience of healthcare delivery to both indigent and wealthy patients in both individual and group practice settings.

Two recent books written for the public were aimed at improving healthy behaviors, while, at the same time, avoiding scams and charlatans of various stripes. These books include the title "Snake Oil is Alive and Well. The Clash between Myths and Reality,” and “Health Tips, Myths, and Tricks—A Physician’s Advice.” Also included was medical instructional textbook (Clinical Phonocardiography) about cardiovascular sounds and pulsations. 

Website: https://radiantmortontavel.com/

Paul Nolan, CPA/PFS, CSA, CFE

Paul Nolan’s eponymous Wealth Management Practice (investments, tax, insurance, mediation, estate, probate and guardianships) followed public service (FBI Special Agent, a diplomat - U.S. Justice Department’s Caribbean Legal Attache, and municipal accountant) preceded by positions in corporate, public and parimutuel accounting, spanning 60 years.

He earned a Bachelor of Science in Accounting, Master in Public Administration, and while practicing held these professional licenses/designations; Certified Public Accountant, Personal Financial Specialist, Certified Fraud Examiner, Certified Senior Advisor, Registered Representative (stockbroker), Registered Investment Advisor, Certified Court Mediator, Mortgage Broker, Insurance Agent, Professional Guardian, and Certified State Ombudsman.