The Ripon Forum

Volume 53, No. 4

September 2019

What Medicare for All would Mean for Us All

By on September 17, 2019

by CHARLES BLAHOUS

Among the hottest topics of this political season is “Medicare for All” (M4A), a concept embraced by several current candidates for president, and criticized by others. M4A is one of the most consequential policy ideas ever put before the American electorate, and it is vital that we understand exactly what it is, what it isn’t, and what its implications would be.

The name “Medicare for All” is a misnomer. These proposals would not expand current Medicare to cover all Americans, but rather create an entirely new program in which nearly everyone – including today’s Medicare beneficiaries – would be enrolled. This new program would differ from Medicare in certain fundamental ways. For example, parts of Medicare are voluntary; its participants face premiums, deductibles and copayments and can opt to receive benefits through private insurance; and certain Medicare benefits (e.g., hospital) are constrained so as to not exceed total participant contributions, plus interest. By contrast, under M4A there would only be a single government-run plan. Benefits would be more generous, including dental, hearing and vision care, and participants would receive first-dollar coverage of all health services without any deductibles, copayments, or cost-sharing.

M4A would involve an unprecedented expansion of federal government expenditures and tax burdens. My study found that new federal costs, above and beyond current expenditures (including health programs), would likely be somewhere between $32.6 and $38.8 trillion over the first ten years. Such enormous sums are difficult to grasp. Suffice it to say that the lower-bound cost could not be fully financed even by doubling all projected federal individual and corporate income taxes.

M4A would involve an unprecedented expansion of federal government expenditures and tax burdens.

Many advocates believe that M4A is inherently affordable because Americans are already footing most of this health care bill in other ways, including through private insurance, state programs, and individual spending out of pocket. Some advocates believe further that M4A would bring total national health costs down. But M4A would more likely increase not only federal but national health spending, because it would (intentionally) expand coverage to the currently uninsured, as well as making current insurance coverage more generous, thereby inducing additional health service consumption. Even aggressively optimistic assumptions for lower drug prices and insurance administration costs under M4A do not produce nearly enough potential savings to offset M4A’s projected spending increases.

This is where the issue of provider payment levels becomes important. M4A legislation introduced in Congress specifies that health providers would be paid at Medicare payment rates, averaging about 40% lower over M4A’s first ten years than private insurance rates (the cuts becoming steeper after that). It seems implausible such cuts would be enacted. Historically, Congress has been unwilling to impose much smaller payment cuts on health providers. For example, Medicare physician payment cuts under the Sustainable Growth Rate formula were repeatedly overridden before being repealed in 2015. Washington state recently enacted a public option that in its initial draft form would have limited payments to Medicare rates; the final enacted version raised these limits to 160% of Medicare rates. Earlier this year, CBO found that applying Medicare rates under M4A would likely dampen health service supply at the same time M4A would increase demand—almost certainly disrupting Americans’ timely access to care. In short, history provides little evidence M4A would set provider payments consistent with health spending going anywhere but up.

Even if M4A left national health spending unchanged, this would not necessarily make it affordable for the federal government. Shifting nearly all current private and state health care spending onto the federal budget is not a trivial change, any more than the federal government’s assuming all U.S. spending on housing, food, or state and local government functions would be. The additional federal costs would average roughly $10,000 per American at the outset, and we have yet to hear a realistic proposal to finance them. Moreover, financing federal revenue needs of this magnitude via progressive taxation (politically the most likely strategy) would produce economic deadweight loss in the trillions of dollars, leaving Americans poorer on balance.

My study found that new federal costs, above and beyond current expenditures (including health programs), would likely be somewhere between $32.6 and $38.8 trillion over the first ten years.

Even these daunting quantitative realities gloss over important subjective value judgments, such as whether Americans would be comfortable transferring so much health spending from the private to the public sector. Imagine a family of three that spends $30,000 on health care this year, between out-of-pocket payments and subtractions from their wages for health benefits. We cannot assume that this family would instead prefer to pay an additional $30,000 in annual taxes, and lose their remaining discretion over how to spend those dollars.

One common analytical mistake is to assume that because another nation with a single-payer system has lower health costs than ours, our adoption of single-payer would lower our health costs to that level. This assumption lacks a sound basis. A single-payer system in the U.S. would still buy health care from U.S. doctors, U.S. hospitals, and U.S. drug companies. The fact that other nations have a different history simply does not provide useful predictive information as to how much a U.S. single-payer health care system would cost.

M4A advocates deserve credit for challenging the status quo amid political dynamics in which voters are often more conscious of what they would lose from change than what they would gain. Advocates also deserve credit for transparency in declaring their preferred end-state: a system in which all health care is provided by the federal government and devoid of private insurance. This straightforwardness compares favorably to proposals to crowd out private insurance gradually and imperceptibly, via a so-called public option. M4A would be no less costly if it were to emerge from gradual displacement of private insurance rather than from revolutionary change.

While M4A introduces many thorny policy issues, much of its plausibility comes down to whether its costs can be borne. These new federal costs would be an order of magnitude larger than Congress has ever seriously considered. Unless and until someone produces an economically and politically viable program for financing M4A, it is irresponsible for any political candidate to promise the benefits it would purportedly bring.

Charles Blahous is the J. Fish and Lillian F. Smith Chair and Senior Research Strategist at the Mercatus Center at George Mason University.

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