No, Medicare for All Won't Lower Health-Care Costs

No, Medicare for All Won't Lower Health-Care Costs

Some years back, I concluded that single-payer health insurance would profoundly alter America’s financial structure, but change the country’s health care relatively little. This thesis is reinforced by the strident, bipartisan emotionalism aroused by a new study by my colleague, Charles Blahous. While the paper’s findings are striking, they should be utterly unsurprising to anyone who has thought through the full implications of single-payer.

The cacophony is a reminder of why improving Americans’ health — particularly for the least-advantaged — depends mostly on things outside the monotonous 75-year disputation over health insurance.

Blahous’s findings have found traction for different reasons with very different audiences. So what does his paper (“The Costs of a National Single-Payer Healthcare System”) actually say?

It’s a cautious, narrowly focused numerical what-if analysis. Senator Bernie Sanders (I-VT) introduced a bill in 2017 to establish a single-payer health insurance system called “Medicare for All” (M4A, for short). The federal government would become the sole health insurer for all Americans. Most would be covered by M4A, which would differ radically from today’s Medicare for seniors. Everyone — including current Medicare beneficiaries — would see their current coverage replaced by Sanders’s vision.

M4A would extend coverage to the tens of millions who are currently uninsured and confer sweeping new benefits on everyone else — wiping away deductibles and co-pays and adding dental, vision, and hearing care. Supporters argue — against substantial evidence — that M4A would substantially reduce health-care spending.

Blahous asked a simple question: If M4A yielded every benefit and saving Sanders foresees, how would federal government finances change? 

Sanders’s assumptions, if true, imply lower national health expenditures (NHE is total health-care spending by everyone, including governments, corporations, and individuals) by around $2 trillion over 2022–2031 — largely via forced pay cuts of roughly 40 percent for doctors, nurses, and other providers. At the same time, under this scenario, the federal government’s 10-year total expenditures would rise by $32.6 trillion (compared with current projections).

Blahous notes that this would change the financial relationship between American taxpayers and their federal government profoundly. To cover the $32.6 trillion, Congress would have to more than double corporate and federal income taxes. 

Contrary to claims by Senator Sanders and others, Blahous certainly didn’t predict that M4A would reduce health-care spending. He merely said that under the best-case scenario touted by M4A supporters, the bill would effectively transform the federal government into history’s largest insurance company — with much smaller subsidiaries engaged in foreign relations, defense, law enforcement, agriculture, transportation, and so forth.

As the study makes clear, M4A’s expenditure-cutting promises are dubious. Sanders assumes we can slam doctors, nurses, hospitals, drug companies, and others with enormous pay cuts, and yet expect them to happily provide even more services and products than they do now. He also assumes federal bureaucrats — contrary to a wealth of past experience — will be paragons of efficient management.

The study suggests these rosy outcomes are extremely unlikely. If Sanders’s dubious assumptions don’t come to fruition, total health-care spending (NHE) would rise, not fall, and federal spending would grow well beyond the already earth-shattering $32.6 trillion forecast. If the roughly 40 percent provider reimbursements don’t stick, for example, NHE would rise, and federal health expenditures would hit $38 trillion.

While a theoretical $2 trillion spending decrease sounds large in raw numbers, it is small in percentage terms — between 2 and 4 percent of health-care spending in any given year. Less-than-perfect performance by M4A would easily flip these purported savings into increases.

None of this is surprising. In 2016 the left-of-center Urban Institute estimated that an earlier version of M4A would increase federal expenditures by $32 trillion from 2017 through 2026 — a figure remarkably close to Blahous’s number.

Blahous’s numbers are also consistent with recent state-level forecasts. In 2011, Vermont passed a statewide single-payer plan but abruptly canceled it in 2014 when the magnitude of costs became evident. In 2017, the California Senate approved a single-payer plan, but that died in the Assembly (lower house) when budget estimates showed that — similar to Blahous’s findings — state taxes would have to more than double.

The risk of economic disruption proved too great even in states where the single-payer idea was enormously popular. Several other states have also moved enthusiastically toward single-payer and then tiptoed away. 

The M4A bill is almost entirely redistributive. It doesn’t generate new doctors or drugs or hospital beds or medical devices. Nor does it alter how providers use those resources. In fact, massive reimbursement cuts and centralized direction would likely do the opposite: reduce the available resources and lock current modes of care in place. Increased care for one person would be offset by decreased care for others.

I’ve argued that single-payer would fulfill neither the Left’s dreams nor the Right’s nightmares (“Single Payer Health Care — Dream, Nightmare or Status Quo?”). Better care for more people at lower cost won’t come from scrambling the insurance system, as M4A would do, as Obamacare did, and as various Republican alternatives would do. Actual improvement will come from bold changes in the technologies and structures of care — from allowing health care to innovate as fervently as information technology has over the past quarter-century.

That will happen when health-care providers are allowed to innovate and learn from the bright pockets of transformation that already exist. Why, for example, can the private, for-profit Narayana hospitals in India perform cardiac bypasses for around $1,000 — versus $100,000 here — yet experience outcomes that are as good as or better than America’s or Europe’s? Why does Rwanda, not America, have a nationwide system of unmanned drones rapidly delivering drugs and blood products to clinics? Why can the Surgery Center of Oklahoma post to-the-penny costs of every surgical procedure on their website while most hospitals assault patients with unreadable bills stretched out over many months?

Innovation, not insurance, is where our bright future lies. In the meantime, someone has to run the numbers on insurance proposals. I’ll happily leave that task to Chuck Blahous.

Robert Graboyes is a senior research fellow at the Mercatus Center at George Mason University.

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