Medicare is so popular, Sanders wants everyone to have it.

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BernieCare Looks to Europe. Americans Don't.

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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Bernie Sanders probably knows that his plan to give all Americans free health care is never going to become law. Yet he's doing the country a service: His proposal has re-ignited a national debate -- the third since the 1990s -- over why the U.S. can't be like Europe, Canada and the rest of the industrialized world and adopt universal health care.

Sanders is no dummy. He calls his proposal "Medicare for All" because federal health insurance for the elderly is so popular that some of its beneficiaries don't realize it's a government program. Remember those picket signs that warned President Barack Obama to "keep government out of my Medicare?"

QuickTake Obamacare, Assessed

To Sanders, Europe's example proves that it wouldn't be such a leap to extend Medicare to everyone while getting rid of private insurance and employer-based coverage (and by extension, Obamacare). As my colleague, Leonid Bershidsky, wrote, Europe's nationalized health systems run pretty well and haven't broken their national budgets. Per-capita taxes aren't inordinately higher in Europe than in the U.S. (the U.S.'s $14,202 is about the same as the U.K.'s but $3,000 less than what Germans pay).

And the Vermont senator relishes saying that "We spend more, yet end up with less." He's right: Europeans spend less on health care yet have better health outcomes, as measured by rates of infant mortality, life expectancy and obesity.

Single payer, not Medicare for all, is the more apt description of Sanders's plan, which would give the federal government a much bigger role than it plays in controlling health care under Obama's 2009 Affordable Care Act. Based on his website's description, Sanders would massively expand Medicare's current slate of benefits, for which every American man, woman and child (employed or unemployed) would qualify. He would also combine all insurers -- public ones like Medicaid, veterans' programs and the federal-state Child Health Insurance Program as well as private ones like Aetna and UnitedHealth Group -- into a single, federal payer.

It sounds appealing. But would it really be popular once Americans found out how it worked? There are strong reasons to doubt it. 

First, let's revisit the spending issue. The U.S. doesn't just spend more than other advanced nations, it spends much, much more. The Organization for Economic Cooperation & Development in a July 2015 report said the U.S. spent 16.4 percent of gross domestic product on health care in 2013, while the median of the 34 OECD countries was about half that, at 8.9 percent. The mixed public-private systems of the Netherlands, Germany and Switzerland spend 32 percent less than the U.S. while the U.K., where health care is fully nationalized, spends 50 percent less.

European countries manage to keep their health spending down by reducing patient choices on diagnostic tests, new technologies, expensive drugs and costly procedures such as hip and knee replacements to what their governments define as "medically necessary." Administrators and physician panels, not patients, decide what's necessary. Another word for this is rationing.

Rationing would have to take place under the Sanders plan, too. He would have a "board of medical experts" decide which elective procedures, cosmetic surgeries or prescription drugs patients could get.

The U.S. spends about $3 trillion a year on health care, or about $10,000 a person. Sanders claims that, by getting rid of third-party claims processing and the need for insurers to make a profit, and by making the health system more efficient, he could cut $10 trillion over 10 years in costs.

But as my colleague Megan McArdle wrote, what Sanders is really saying is that, after cutting out insurers, he'd still somehow force about a third to a fifth of existing costs out of hands-on patient care. And that means hospitals and doctors would have to accept far less in reimbursements. Patients would go from fighting insurers over claims to fighting the federal government to approve the procedures they want to have and the specialists they want to see.

Politically, it's a hard sell. Remember the ruckus during the Obamacare debate over a comparatively modest proposal to let Medicare cover end-of-life patient-care counseling? Opponents likened the counseling boards to "death panels" and the proposal died. What's more, Sanders conflates "healthier" with "happier" by failing to see that what makes Americans happy is good health plus the ability to see specialist doctors when they want, obtain second and third opinions and have aging body parts replaced so they can keep playing tennis past their prime years.   

Sanders also proposes major tax increases on people earning more than $250,000 a year. He would create four new income-tax brackets, ranging from 37 percent to 52 percent for those earning more than $10 million a year. He wants to tax investment income at the same rates, up from 23.8 percent now, and cut 15 percentage points off the value of deductions for mortgage interest, charitable contributions, state taxes and the like. All told, he'd raise individual taxes by $450 billion a year.  

Included in that would be a new 2.2 percent payroll tax on top of existing payroll taxes for Social Security and Medicare and a new one Sanders previously proposed to provide family and medical leave with pay. But the $450 billion figure doesn't count a 6.2 percent payroll tax that employers would pay and pass along in the form of lower wages and higher consumer prices. In the end, many individuals would see rates above 70 percent once state and payroll taxes are included.

Beyond the political barriers to enacting taxes on this scale, there's also a potential economic cost. Most economists agree that very high rates of taxation cause economic distortions, such as the worthless tax shelters that thrived in the 1970s just to hide wealth. They differ over how high taxes would have to be before discouraging risk-taking and job creation, resulting ultimately in less economic growth, yet Sanders's plan is surely testing that line.

Europe's national health-care programs are paid for by a combination of individual and value-added taxes, which are more broadly based levies on businesses and consumers. But Americans have never warmed to VAT systems.

There's another, even deeper political booby trap in the Sanders plan. Of the 29 million uninsured people he aims to help, about 11 million are undocumented immigrants who are excluded from Obamacare and another 2 million are incarcerated. The opposition advertising campaign writes itself: Bernie Sanders wants to disrupt the entire health system to cover illegal immigrants and criminals.

The simplicity of the Sanders plan may appeal to many Americans; but not such details as reduced freedom of choice, tax increases, transfers to undocumented immigrants and bigger government. In trying to emulate Europe, it rubs against the grain of America.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net