Many Members of Congress and presidential candidates, including Senators Bernie Sanders, Elizabeth Warren and Kamala Harris, have embraced “Medicare for All” (M4A), the catch-all phrase used to describe proposals that would replace our current blend of private and public health insurance with a single-payer system run by the federal government. This month provided two opportunities to learn more about the implications of M4A, one a hearing of the House Rules Committee, the other a report issued by the Congressional Budget Office (CBO). I was privileged to be a commenter on the draft CBO report as well as to testify at the committee hearing. Below are some of the key findings from the hearing and the report.
New federal costs under M4A would be unprecedentedly large.
I estimated in my testimony that new federal budget costs would be somewhere between $32.6 trillion and $38.8 trillion over the first 10 years of M4A. These large numbers represent just the additional federal costs above and beyond currently projected federal spending. Total federal costs of M4A over the first ten years would be much higher, somewhere between $54.6 trillion and $60.7 trillion. This increase in federal spending would be of such a magnitude that even doubling currently projected individual and corporate income taxes would be insufficient to finance it.
We do not know how or whether the federal government could successfully finance its additional spending under M4A.
Multiple experts who testified at the hearing agreed that most of these new federal costs would arise from the federal government’s taking on spending currently done by the private sector—e.g., through private health insurance and individual payments out of pocket. Under M4A the federal government would also assume health spending obligations currently financed by state and local governments. The fact that most of this spending is already being done by someone else does not, however, imply that the federal government could successfully finance it without causing significant damage to the U.S. economy. Indeed, most of the taxes under discussion for financing M4A would leave Americans poorer on average, after the deadweight loss from such taxation is taken into account.
The projected additional costs of M4A’s coverage expansion would exceed the potential savings from eliminating private health insurance administration.
Many proponents of M4A hope that a single-payer system would allow health care to be provided more efficiently, by eliminating private health insurance administrative overhead and profit. However, my projections as well as others have found that the additional costs of providing expanded and more generous health insurance would far exceed the savings from reducing insurance administrative costs. CBO’s analysis is consistent with this calculation, and its text reinforces the point: “[E]xisting evidence indicates that people use more care when their cost is lower, so little or no cost sharing in a single-payer system would tend to increase the use of services and lead to additional (national) health care spending, as well as more government spending.”
Importantly, this additional spending wouldn’t just be a matter of previously uninsured people finally receiving the care they need. Instead, previously-insured individuals would also demand more services, irrespective of those services’ quality, necessity or efficacy. The net effect would be an introduction of new inefficiencies and added costs to our health care system, exceeding the savings that might be gained by eliminating private insurance administration.
Current M4A proposals would sharply cut payments to health providers while increasing health service demand, most likely causing supply shortages, and disrupting Americans’ timely access to health care.
Neither my study nor my subsequent writings or testimony offer judgments of what health providers should be paid. The study simply notes that we do not know what will happen to the timeliness or quality of health services if we cut provider payments from current, higher private insurance payment rates down to Medicare payment rates, as current M4A proposals stipulate.
The CBO report is more explicit that doing so would likely limit Americans’ timely access to health care services (emphasis in bold added):
“Setting payment rates equal to Medicare FFS rates under a single-payer system would reduce the average payment rates most providers receive—often substantially. Such a reduction in provider payment rates would probably reduce the amount of care supplied and could also reduce the quality of care. Studies have found that increases in provider payment rates lead to a greater supply of medical care, whereas decreases in payment rates lead to a lower supply. . . .
In addition to the short-term effects discussed above, changes in provider payment rates under the single-payer system could have longer-term effects on the supply of providers. If the average provider payment rate under a single-payer system was significantly lower than it currently is, fewer people might decide to enter the medical profession in the future. The number of hospitals and other health care facilities might also decline as a result of closures, and there might be less investment in new and existing facilities. That decline could lead to a shortage of providers, longer wait times, and changes in the quality of care, especially if patient demand increased substantially because many previously uninsured people received coverage and if previously insured people received more generous benefits. How providers would respond to such changes in demand for their services is uncertain.”
The costs of M4A would be borne most directly by health providers and those most in need of health services.
An irony of the Rules Committee hearing was that it featured positive comments about M4A from the perspectives of physicians and those facing severe and expensive health conditions. While there would be winners and losers under single-payer health care, some of the groups represented at the hearing would be among those paying the largest and most direct costs. Under current M4A proposals, health providers would pay the greatest price up front, for they would bear the brunt of payment cuts that have been proposed to contain the additional costs of M4A’s expanded and more generous insurance coverage. The other group to feel M4A’s costs most severely, at least under the M4A legislation as written, would be those in most dire need of health care services. This is because, as CBO notes, the supply of health services would be reduced relative to demand, making the services less available in the aggregate and putting upward pressure on prices.
This would be particularly problematic for those with income limitations and urgent health needs, because M4A would not target federal resources on those of modest income, nor on those facing severe health challenges. Instead it would provide first-dollar coverage of all Americans’ health care services, from the most routine to the most urgent, from the least expensive to the most, and for the wealthiest patients as well as the poorest. By so doing, it would create much more competition for access to urgently needed health services.
It would be an elementary analytical mistake to compare the imperfect reality of our current health system to an idealized fantasy of perfectly functioning M4A, in which everyone gets more care for less money. That is not how things would work. Instead of cost-saving improvements for everyone, there would be winners and losers. The winners would include state governments as well as those who currently pay for routine health expenses out of pocket under their plans’ deductibles. The biggest losers under the introduced M4A bills would be federal taxpayers, hospitals, doctors and nurses, and patients urgently needing swift access to care.
Charles Blahous is the J. Fish and Lillian F. Smith Chair and Senior Research Strategist at the Mercatus Center, a visiting fellow with the Hoover Institution, and a contributor to E21. He recently served as a public trustee for Social Security and Medicare.
Editor’s Note: This piece was originally published by Economics21 at the Manhattan Institute.