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What will Medicare for All really cost?

July 21, 2020

Topics: Quote of the Day

By Gordon Mosser
SSRN, May 12, 2020

Abstract

In the US, 30 million people have no health insurance, and the per capita cost of health care is far higher than it is in other countries. To address these problems, many have advocated establishing Medicare-for-All (M4A). This paper reviews seven reports on the costs of M4A that were written by scholars of health economics in universities or private foundations that study health care. Two of these reports also describe in detail how the program might be funded. Senators Bernie Sanders and Elizabeth Warren have also made suggestions for funding.

Judged from the conclusions of the seven reports, it appears that M4A would result in a net decrease in overall US healthcare costs of 5.7% on average. Under M4A, US health care would cost approximately $46,000 billion over 10 years. Over the same period, approximately $23,500 billion in new federal revenue would be needed in place of present-day payments from other sources.

This revenue could be raised in many different ways. In this review, 11 possible taxes and fees are highlighted in an example of how the necessary revenue could be raised. Under this example, it would not be necessary to impose a federal sales tax or any new taxes directly on low or middle income households, but high income households and wealthy Americans would likely pay higher taxes.

Published Reports on the Cost of Health Care under Medicare-for-All:

  • Thorpe
  • Blahaus
  • PERI
  • Friedman
  • Urban Institute
  • RAND
  • Yale

See full report for the following:

  • Cost: Factors That Could Change Healthcare Costs
  • Cost: Conclusions and Assumptions of the Seven Reports
  • Cost: Arriving at Overall Conclusions on Cost and Revenue Needed
  • Funding: Proposals That Have Been Made for Raising the Necessary Revenue
  • Funding: An Example of How the Necessary Federal Revenue Could be Raised

All of the reports project a large increase in spending by the federal government, as would be expected. Under M4A, a substantial portion of existing spending would be shifted into the federal budget. This represents new federal spending but not an increase in healthcare costs. Some political commentators have represented the dollar-volume of this shift as the cost of M4A, thus making the overall cost of health care in the US appear to increase enormously with M4A, more than 50%. This characterization is obviously misleading, perhaps intentionally so.

Concluding Comments

In discussions of Medicare-for-All, including Presidential debates, inevitably someone says, “This plan sounds all right, but how much will it cost?” The short and accurate answer is: “Nothing.” We are already paying for it. In fact, we estimate that we are overpaying by 5.7%, maybe more. Moreover, we are providing insurance coverage for fewer people than would be covered under Medicare-for-All, and those people who now have coverage are receiving fewer benefits than they would under Medicare-for-All.

We would need new federal revenue to fund the program, but this would not be new money. Most of it would be re-directed money. Currently this money flows from individuals, families, and businesses to insurance companies, and then to hospitals, physicians and other providers. Under Medicare-for-All, it would flow instead to the federal government before being transferred to providers, and the total amount transferred would be reduced.

Thus, the cost of health care under M4A should not be a barrier to its adoption. The principal barriers are instead fear of the unknown and the threat of disruption. The change to Medicare-for-All would be a monumental change, and the politics of making this change are not considered in this paper. It is clear that thinking about this change is perplexing and even frightening. We should, however, cease debating the cost and turn our attention to how to implement such a system, one that would both reduce the cost of health care in the US and generate substantial health benefits for those Americans who are currently uninsured or underinsured. To establish Medicare-for-All, the body politic will need to summon the will to enact change and to face the challenge of managing the transition.

Gordon Mosser, M.D., is a Senior Fellow in the Division of Health Policy and Management at the University of Minnesota School of Public Health.

https://papers.ssrn.com…


Comment:

By Don McCanne, M.D.

Understandably, since single payer Medicare for All is a serious proposal which is supported by a majority of Americans, people would like to know what it would cost. Since final, definitive legislation has not been produced, precise estimates cannot be made at this time. However, based on analyses of the general concepts by Thorpe, Blahaus, PERI, Friedman, Urban Institute, RAND, and Yale, fairly reliable generalizations can be made. Gordon Mosser has compiled these estimates and has come up with a “golden mean” on what the major features of spending on single payer Medicare for All might be.

  • Our current national health expenditures are already more than enough to pay for comprehensive health care for everyone through a well designed single payer model of an improved Medicare for All. Our total national health expenditures may actually decrease under such a model.
  • Medicare benefits would be improved, providing more comprehensive coverage.
  • Medicare eligibility would be expanded to include everyone.
  • The efficiency of the single payer model of Medicare would dramatically reduce administrative waste, plus efficiencies in purchasing would recover enough funds to pay for much of the improved benefits and expanded coverage of Medicare for All.
  • Since the system would be funded through the tax system, taxes will increase, but the additional amount paid in taxes by most individuals will be more than offset by the elimination of private spending for health care. On average, only the wealthy will pay more than they currently do.
  • Since the taxes will be progressive, funding of health care will be more equitable, based on ability to pay, and thus affordable for each of us.
  • What will the system cost? Nothing, since we are already spending enough to pay for it. To claim that the tax increases are increases in costs is either naive or outright dishonest.

So when someone asks, “How are we going to pay for Medicare for All?” The answer is, “We’re already paying enough, but we’re going to pay for it more fairly through equitable tax policies. For all but the very wealthy, average health care spending will decrease.”


Just as a reminder, PLOS Medicine on January 15, 2020 published “Projected costs of single-payer healthcare financing in the United States: A systematic review of economic analyses,” by Christopher Cai, James Kahn, et al. They surveyed an even greater number of single payer cost analyses, and their results were essentially the same: “There is near-consensus in these analyses that single-payer would reduce health expenditures while providing high-quality insurance to all US residents.”

PLOS Medicine:
https://journals.plos.org…

Quote of the Day – Projected costs of single payer in the United States:
https://pnhp.org…

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About the Commentator, Don McCanne

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Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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