Last week, left-wing politicians, activists, and columnists gleefully rejoiced that they had unlocked the easy path to single-payer health care in America: Just cut reimbursement payments to health providers by 40 percent and then raise taxes by $32 trillion over the decade. You know, nothing difficult or controversial.
These liberals are cheering – and broadly misinterpreting – a new report by Charles Blahous, a former public trustee of the Social Security and Medicare systems and currently a senior fellow at the Mercatus Center. The report’s purpose was to estimate the cost of Sen. Bernie Sanders’ (I-VT) recent “Medicare-For-All” health plan. While other organizations scoring Sanders’ health proposals have adjusted some of the plan’s more ludicrous assumptions, the Mercatus study charitably accepted its absurd assumption that payments to health providers could be slashed by 40 percent without any negative effects on health delivery.
Mr. Blahous estimates that, in the fantasy world of this proposal, projected national health spending over the 2022-2031 period would dip from $60 trillion to $58 trillion. However, by nationalizing health care, the share of health spending paid by the federal government – and our federal taxes – would rise by $32.6 trillion.
Liberal opinion leaders – whose first reaction was to slam the study before they even read it – eventually seized on the reduction in national projected health spending as proof that single-payer health care saves money and is thus a bargain. Liberal publications offered headlines such as: “'Medicare for All’ would save U.S. trillions” (ThinkProgress), “Single Payer Could Save Americans $2 Trillion” (Slate), “Bernie Sanders’s $32 trillion Medicare-for-all plan is actually kind of a bargain” (Vox), and “We Have More Proof that Single Payer Saves Money and Cares for All of Us” (The Nation).
Sanders himself tweeted a “thank you” for “accidentally making the case for Medicare for All!”
Single-payer advocates should not spike the football yet. Under any fair reading of the report, single-payer health care remains as implausible as ever.
First, the 40 percent reduction in provider payments is wildly unrealistic. Sanders assumes that hospitals, physicians, and others can be reimbursed at Medicare’s payment rates, which at the time of implementation would be 40 percent below what private insurers receive. Yet Medicare already underpays providers. Mr. Blahous explains that “[I]n 2014, hospitals were reimbursed just 89 percent of their costs of treating Medicare patients and 90 percent of their costs of treating Medicaid patients— losses that were offset by hospitals collecting private insurance reimbursement rates equaling 144 percent of their cost.”
Cutting all hospital and medical providers to Medicare rates – without the ability to recover those losses by charging higher insurance rates to others – would bankrupt many health providers. While some efficiencies can always be found, an immediate 40 percent reduction is not even remotely plausible. That is why the Urban Institute’s analysis of the Sanders 2016 single-payer plan insisted on more realistic payment rates – and concluded that the plan would raise national health spending by $6 trillion over the decade. The Mercatus study also shows that even moderating these provider cuts would add $6 trillion in additional costs.
So to recap: Sen. Sanders’ bill provides universal coverage with full benefits that also include dental, vision, and hearing care, with no direct costs whatsoever for patients. This would be so expensive that even an impossible 40 percent cut in provider payment rates would be needed to roughly break even (projected national health spending would fall by just 3 percent). That is an argument against – not for – single-payer.
Next, single-payer advocates have not grappled with the $32 trillion tax increase over the decade needed to finance this legislation. Activists have argued that – if national health spending does not rise – that must mean that the $32 trillion new federal cost represents an equal reduction in costs for state governments, families, and businesses. Thus, they argue that converting those savings into a federal tax would leave families and businesses no worse off.
It is not nearly that simple. There is no “single-payer tax” that would perfectly match what businesses and families had been paying (including varying out-of-pocket expenses), so any tax would invariably create enormous winners and losers. For example, 77 million Medicaid recipients currently pay no health insurance premiums (just limited copays), and thus would not receive any “insurance premium windfall” to help pay for their steep new single-payer taxes.
Overall, designing a $32 trillion tax increase is nearly impossible, even if families and businesses now have more money. Even if we assume Washington could “tax” states for the $4 trillion they save by no longer running programs like Medicaid, they still need to raise everyone else’s taxes by roughly $28 trillion– which would represent a 60 percent increase in federal revenues. Using a menu of budget savings provided by the Congressional Budget Office, raising taxes by $28 trillion would require choosing among options such as:
- Creating a new 31 percent payroll tax on top of the current 15.3 percent tax;
- Imposing a 72 percent value-added tax (like a national sales tax); or
- Raising income tax rates by 35 percentage points across-the-board.
For the record, repealing the 2017 tax cuts would cover just $1.8 trillion of this cost. And even if lawmakers could find the taxes to pay for this plan, there remains the underlying $84 trillion baseline budget deficit projected by CBO over the next 30 years (which is driven mostly by the soaring costs of “single-payer” Medicare – we cannot even pay for the existing system!). Add another income tax rate increase of 15 percentage points to pay for that.
This is fantasyland. That is why Sanders’ legislation skips the taxes altogether. Instead, he offers a webpage listing just $16 trillion of potential tax increases to pay for a $32 trillion bill – and even those questionable tax estimates fail to account for macroeconomic responses, interactions between tax proposals, and in several places, political reality.
It is noteworthy that, for all the claims that single-payer health care can “easily” be paid for through provider payment reductions and new taxes that replace the existing health premiums, no one has actually produced such a plan. If converting all state government, business, and family health care savings into a $32 trillion “single-payer tax” is so easy, why has no politician, tax economist, or health economist offered a single proposal to do so?
The obvious answer is because the American people would never accept $32 trillion in tax increases, even in return for “free” health care. Single-payer health care is most persuasive when framed with the vague “if Canada and Europe can, why can’t we?” rationale. Never mind that taxes in those places are much higher, and that their single-payer systems are less expensive than an American system would be because: A) Our proposals are substantially more generous; B) Our population is less healthy; and C) America decided decades ago to invest more heavily in expensive technology, roomy hospitals, and pharmaceutical research – and maintaining this larger infrastructure costs money.
People can debate whether the American system is better or worse. Yet transitioning to Sanders’ absurdly-generous “Medicare For All” plan would not be remotely workable nor affordable.
Critics may disagree. Fine. Then produce an actual proposal. And this time, include both the specific tax increases that would be required, and a blueprint for how providers will survive such deep payment reductions. Until then, “affordable single-payer health care” will remain just an empty talking point.
Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on twitter here.
Editor’s Note: This piece was originally published by Economics21 at the Manhattan Institute.