Health Insurance Health Reform

Facts to know in the ‘Medicare for All’ debate

Proposed by Bernie Sanders and supported by a number of politicians on the left, Medicare for All (M4A) would provide all Americans access to government health insurance. Some proposals would even replace all current insurance with a government run program.

So what do you need to know about this program? The Healthcare Economist gives some key figures:

  • It will dramatically increase government spending. A paper by Blahous (2018) estimates that M4A would increase federal government spending by $32.6 trillion over 10 years.
  • Paying for this would dramatically raise taxes… Doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan.
  • …with some offsets due to avoided insurance premiums. Sure taxes will rise, but some individual cost will be offset because individuals (or their employers) will no longer have to pay for insurance. Note, however, that this offset would not be complete. Even if M4A insurance cost the same as private insurance, working individuals taxes would rise by more than their current premiums since these individuals would also have to finance M4A for non-working individuals who currently do not have insurance.
  • People currently without insurance would be much better off. Clearly, getting free or low cost health insurance when one previously did not have any is a key benefit of the program.
  • Medicare for all may not have a major impact on overall U.S. healthcare spending. Bauhous estimates that by 2031, a M4A program would lead to U.S. healthcare spending which is 96% to 107% of current projections for 2031.
  • Expect significant reductions in provider reimbursement and increased wait times. It is unlikely that a M4A plan would pay provider at commercial rates. Thus, if provider were reimbursed at Medicare rates, reimbursement would fall by 30%-40% compared to private insurance rates. As reimbursement falls, one can expect some early physician retirements and fewer new graduates to enter the medical profession. There is some question as to whether the government would actually be able to maintain this spending discipline (see the SGR debacle that occured over multiple years).
  • How do you set prices? Medicare currently can set rates as a multiple of market rates determined in the commercial insurance market. Under M4A, all prices would be set administratively. Because prices are set through central planning, some prices wi;l be too high, others too low; some services over-provided and some-under provided The long-run lack of information is problematic.
  • More affordable but fewer drugs. The Sanders plan would allow M4A to negotiate prices down for drug companies. This approach likely would lower out-of-pocket costs, but if reimbursement were cut, pharma companies would be less likely to invest in R&D and rates of innovation may slow.
  • Your view of moving health care to the government depends a lot on how you view government vs. corporate health insurance. Those in favor of more government insurance have a number of arguments to make. Administrative costs for Medicare are lower than commercial insurance. A large government body may be able to better negotiate discounts from providers and drug manufacturers. Additionally, with a single government insurance, there will less adverse selection since all individuals will be insured. On the other hand, those who favor private insurance will note that although private insurance has higher administrative costs, these administrative costs may be used to lower unnecessary medical costs. Further, despite the potential for government to improve efficiency, in practice this rarely occurs. Note that the slogan was Medicare for all and not Medicaid for all–since Medicaid has a poor public perception–or the VA for all, which had a scandal of the Phoenix VA where patients died waiting for care. Those who have strong preference for equality but low trust in government often propose a voucher system.

1 Comment

  1. There are alternative to M4A that could be affordable, politically attainable and improve quality. They depend upon new technology and innovation to achieve univ resales coverage while reducing cost as a percentage of GDP. If you want to see my proposal please email me your contact information and I will send you my draft proposal. It is some of my initial efforts but I would love to collaborate on any plan that would provide universal coverage but would also be affordable. The US spends far more on healthcare as a percentage of GDP we should be able to spend less and still provide universal coverage. Other coun tries do it we just need to learn from them and be smart in adopting what works that can work with the existing U.S. healthcare system to reinvent it and move it in the right direction.

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