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April 12, 2019

What Medicare-for-All would really cost, according to 5 experts

Daily Briefing

    Health reform and so-called "Medicare-for-All" plans are shaping up to be key issues in the 2020 presidential election, but it's surprisingly unclear exactly how these plans would affect U.S. health care expenditures, the New York Times reports.

    While a wide range of health proposals all claim some version of the "Medicare-for-All" moniker, competing proposals from Sen. Bernie Sanders (I-Vt.) and Rep. Pramila Jayapal (D-Wash.) are among the most detailed. But neither of the proposals include projected cost estimates, and they offer sparse details on how those unknown costs would be paid.

    To get some answers, the New York Times spoke to a group of economists and think tank experts for their estimates on how Medicare-for-All could affect American health care expenditures.

    The estimates come from:

    • Gerald Friedman, a professor of economics at the University of Massachusetts, Amherst;
    • Charles Blahous, a senior research strategist at the Mercatus Center at George Mason University;
    • Kenneth Thorpe, chair of the health policy department at Emory University;
    • Analysts at the RAND Corporation; and
    • Analysts at the Urban Institute.

    The experts' cost estimates range widely, the Times writes, mostly because any Medicare-for-All system "would be influenced by the decisions and actions of parties concerned … in complex, hard-to-predict ways." However, seeing what all the experts agreed on, as well as the range of their responses, "can give us some ideas about what Medicare-for-All could mean for the country's budget and economy," the Times reports.

    How much providers will be paid

    Currently, U.S. providers are paid by a variety of insurers—Medicare, Medicaid, private insurers—each of which pay different prices. Under a Medicare-for-All system, all medical claims would be reimbursed by Medicare, which currently pays providers less than private insurers do.

    If Medicare were to continue paying its current rates, providers who see a large number of patients with private insurance would see significant pay cuts.

    This highlights one of the core challenges of a Medicare-for-All system: If the system is to save money, it has to reduce payments to the health care industry—but if its payment rates are too low, some hospitals and providers could go out of business entirely, the Times writes.

    Currently, neither Sen. Sanders' nor Rep. Jayapal's plans specify how much Medicare would pay providers, so the Times' estimators provided their best guesses. For example, Thorpe estimated Medicare reimbursement rates would increase by 5%, as he believed anything lower would be unsustainable. Meanwhile, Blahous based his estimates on the assumption that Medicare rates wouldn't change, although he added he believes the real rates would be higher.

    Drug costs

    As the Times notes, U.S. patients pay more for prescription drugs than those in any other country in the world. In part, that's due to a system in which many payers negotiate separately for drug benefits—but it's also due America's reliance on an open market, which proponents say gives drugmakers the necessary financial incentive to develop new cutting-edge drugs.

    A Medicare-for-All system would have more leverage with drugmakers, as it would be negotiating for an entire country's drug supply, the Times writes. But it might face challenging trade-offs. For instance, if it attempted to cut costs by covering fewer drugs, that effectively would mean some patients would be denied the medications they want, the Times writes.

    All of the estimators believed that a Medicare-for-All system would negotiate lower drug prices, but they varied in their estimates of just how much. For example, Friedman said Medicare could reduce drug spending by almost a third, while the Urban Institute estimated savings would be at least 20%.

    How much would use increase?

    If implemented, a Medicare-for-All system would provide health coverage to roughly 28 million people who currently lack it—likely leading them to use the health care system more heavily, the Times reports.

    This increased usage would be a factor driving up U.S. health care spending, especially if nearly all co-payments and deductibles were eliminated, as some plans propose to do, the Times writes. The plans also would provide certain benefits, such as long-term care, that aren't typically covered by health insurance, further increasing usage.

    All of the estimators said health care use would increase, but varied by how much. For example, Friedman said health care use would increase by just 7%, while Thorpe estimated it would increase by 15%.

    Administrative costs

    The extraordinary complexity of America's current health insurance system leads to a lot of administrative overhead, the Times reports. Simplifying it to a single payment system would likely reduce those costs.

    But it's not clear just how much money would be saved, the Times reports. Currently, Medicare has lower administrative costs than other insurers—but it also covers sicker people, making it complicated to project the costs of a Medicare-type system that covered the entire population.

    All of the estimators said administrative costs would be lower under Medicare-for-All. However, their estimates varied from just 2% of overall health spending to 6%.

    How much would Medicare-for-All cost individuals?

    It's widely agreed that any Medicare-for-All plan would be a significantly shift who is paying for health care, the Times writes.

    Currently, individuals and employers pay almost half the total cost of medical care—a percentage that would drop to almost zero under Medicare-for-All. As a result, the federal government would step in to fill much of the difference, which experts and lawmakers generally agree would require tax increases.

    On Wednesday, Sanders offered a partial glimpse at what tax increases people could expect under his plan, including:

    • A 7.5% tax on employers;
    • A 4% tax on employees;
    • A fee paid by large financial institutions;
    • An estate tax increase;
    • Changing the federal income tax rate so it is more progressive, with a marginal tax rate of up to 70% on individuals with incomes higher than $10 million;
    • Limiting tax deductions for those with incomes in the top tax bracket; and
    • Taxing so-called "earned" and "unearned" income at the same rate.

    For consumers, the tax increases would be at least partially offset by reductions in spending on premiums, co-payments, deductibles, and state taxes, the Times writes. There's also evidence that suggests savings on premiums by employers could lead to higher salaries for employees.

    However, experts say for many individuals the tax increases are likely to be greater than their savings (Katz et al., "The Upshot," New York Times, 4/10).

    Medicare 101: Cheat sheets for Parts A through D

    Through the years Medicare has grown more complicated, including private supplemental insurance and prescription drug coverage. Download our cheat sheets to learn how each of the four parts of Medicare works, and why they’re so important for provider organizations:

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