Even Doubling Taxes Wouldn’t Pay for ‘Medicare for All’
The idea of “Medicare for All” has energized progressives ahead of November’s midterm elections. Across the country, candidates like New York congressional hopeful Alexandria Ocasio-Cortez have rallied to the slogan. Vermont Sen. Bernie Sanders introduced the Medicare for All Act last year and has so far rounded up 16 co-sponsors. Last month, 70 House members formed a Medicare for All Caucus.
But there is an enormous gulf between the appealing idea of Medicare for All and the incredibly expensive reality. According to my calculations, paying for every American’s health-care expenses would increase federal spending by $32.6 trillion over the first decade of Medicare for All. Even if Congress were to double what it collects in individual and corporate income taxes, there still wouldn’t be enough money added to the federal coffers to finance the costs of this plan.
While such large amounts of money are difficult to comprehend, my cost estimate is essentially a lower bound. Medicare for All’s actual price tag would likely be even higher. My projection generously assumes the plan would succeed in lowering prescription-drug costs and that administrative costs would somehow be less than half what they are among private insurers.
Most important, it assumes Medicare for All would successfully cut all health-care provider payments down to Medicare’s reimbursement rates, which are more than 40% lower than private insurance rates—and even below providers’ costs of delivering services. Moreover, it assumes that Medicare for All will somehow do all this without disrupting the availability and quality of health care.
Medicare for All would require an unprecedented rise in already unaffordable federal health-care subsidies, which are currently equal to about 6.6% of gross domestic product. The plan would expand federal taxpayers’ obligations by 10.7% of GDP right away. That would rise to 12.7% of GDP and beyond within 10 years of full implementation—over and above taxpayer obligations under current law. This would be even more expensive than tripling all future federal appropriations spending, including national defense and domestic discretionary appropriations.
Part of the cost increase from Medicare for All would naturally come from covering those who are currently uninsured. But the proposed legislation would also expand coverage of specific benefits such as dental, vision and hearing, and greatly increase demand for health services that are already insured, through its stipulation that “no cost-sharing, including deductibles, coinsurance, copayments, or similar charges, be imposed on an individual for any benefits.”
The more of a person’s health care is paid by insurance rather than out of pocket, the more health-care services he tends to buy, regardless of quality and effectiveness. Providing first-dollar coverage for a range of health-care services would therefore be a powerful force driving additional health-care spending. Although Medicare for All proponents believe the administrative efficiencies of single-payer insurance would reduce national health-care costs, my research found the opposite—specifically, that the added costs associated with increased coverage far surpass not only the savings attainable from lower administrative costs, but also the savings potentially gained from swapping brand name drugs for generics.
Some have seized on a scenario in my estimates showing a slight decline in projected total public and private health expenditures under Medicare for All. But that decline, relative to current projections, relies on an assumption that Medicare for All would immediately and dramatically cut provider payment rates by roughly 40%. Without such cuts, Medicare for All would drive national health costs further upward, and the federal price tag would be $38 trillion during its first 10 years.
Mine isn’t the first study to show that Medicare for All’s price tag would be enormous. Independent estimates from the Urban Institute, the Center for Health and Economy, and Emory scholar Kenneth Thorpe have reached similar conclusions.
Medicare for All would place more than 15 times as much pressure on federal finances as did last year’s tax reforms. Before too many Americans become invested in the rhetorical vision of Medicare for All, there needs to be a serious national discussion about whether shouldering its vast cost is even remotely within the realm of practical possibility.
Mr. Blahous holds a chair at the Mercatus Center at George Mason University and served as a public trustee for Social Security and Medicare from 2010-15. His new study is “The Costs of a Single-Payer Healthcare System.”
Appeared in the August 2, 2018, print edition as ‘Even Doubling Taxes Wouldn’t Pay for ‘Medicare for All’.’