July 31, 2018

What's the cost of Sanders' 'Medicare-for-All' plan? About $33T over a decade, new analysis finds

Daily Briefing

    Sen. Bernie Sanders' (I-Vt.) so-called "Medicare-for-All" proposal would cost the federal government nearly $33 trillion over a decade, according to a working paper released Monday by the Mercatus Center at George Mason University.

    Medicare 101: Cheat sheets for Parts A through D

    Background: 'Medicare-for-All' proposal gains traction

    Democrats over the past few months have been touting proposals to expand Medicare to all U.S. residents, which is a plan Sanders proposed during his 2016 presidential campaign.

    One "Medicare for All" bill currently has 122 sponsors in the House, and a group of 70 Democratic lawmakers earlier this month launched a Medicare for All caucus. Rep. Pramila Jayapal (D-Wash.), one of the caucus's co-founding members, said the group will focus on promoting a single-payer health system in the United States and researching universal health care systems, and how such systems are financed, throughout the world.

    Report details

    For the working paper, Charles Blahous, a senior research strategist at the Mercatus Center, analyzed Medicare-for-All legislation Sanders introduced last year.

    Sanders' bill essentially would eliminate private health insurance and over a four-year period replace it with a government-run health system that would gradually expand Medicare to cover all U.S. residents. During the first year, the bill would expand eligibility for Medicare to all U.S. residents up to age 18 and lower the current age at which adults become eligible for Medicare from 65 to 55. The Medicare eligibility age would then drop to 45 in the second year and 35 in the third year. Coverage would be expanded to U.S. residents of all ages—including those enrolled in Medicaid and some other government-run health programs—in the fourth year. 

    The bill also would expand the health care services covered under Medicare. U.S. residents would receive a "Universal Medicare card" that would serve as their insurance and cover a comprehensive set of health care services, including:

    • Dental care;
    • Doctor visits;
    • Emergency department care;
    • Hospitalizations;
    • Mental health care;
    • Substance use disorder treatment;
    • Prescription drugs;
    • Reproductive health care services, including abortion; and
    • Vision care.

    The bill also proposed eliminating out-of-pocket costs, including copayments and deductibles, for the majority of covered health care services, though U.S. residents could be responsible for paying up to $250 out-of-pocket for prescription drugs.

    Further, the bill proposed changing how the federal government pays for Medicare. Blahous for the analysis assumed the Medicare-for-All program would pay hospitals and physicians at rates proposed in the bill.

    Findings

    Blahous estimated that Sanders' Medicare-for-All proposal would increase federal government spending over the first 10 years of the proposal's implementation by $32.6 trillion above current spending levels. Blahous attributed the increase to an expected increase in U.S. residents who would use health care services. According to Axios' "Vitals," the projection is in line with other research that projected similar costs for Sanders' Medicare-for-All proposal.

    Blahous found the federal government under Sanders' plan would cover nearly all health care spending in the United States, which would result in about $83 billion in savings on administrative health care costs. In addition, Blahous found that the U.S. health care system would save about $846 billion on drug spending annually, because Sanders' proposal would allow the HHS secretary to negotiate prices for prescription drugs and would promote the use of generic drugs.

    Blahous attributed the majority of federal savings that would be generated under Sanders' Medicare for All proposal to cuts in how much the program would pay providers. The bill proposes to reduce provider payments by $384 billion in the program's first year and by about $660 billion in 2030. Blahous warned that the payment cuts could result in some providers closing.

    Despite those savings, Blahous estimated that federal spending on health care overall would rise, because health care utilization could increase, and the federal government would be responsible for paying for a majority of the health care services U.S. residents use. He wrote, "As a general rule, the greater the percentage of an individual's health care that is paid by insurance … the more health care services an individual tends to buy."

    Blahous said the federal government likely would have to raise taxes substantially to fund the increased spending. At the same time, Blahous estimated that Sanders' proposal would lead to a significant increase in U.S. residents' taxable wages, because it would phase out employer-sponsored health plans. Currently, the premiums U.S. residents pay for employer-sponsored health plans typically are not subject to taxes. The proposal also would eliminate Medicaid, meaning states might lower taxes they currently levy on U.S. residents to help fund the program.

    Blahous wrote, "These offsetting effects should be considered when weighing the implications of requiring federal taxpayers to finance the enormous federal expenditure increases under" the Medicare-for-All proposal. He continued, "These estimates should be understood as projecting the added federal cost commitments under [the Medicare-for-All proposal], as distinct from its net effect on the federal deficit. To the extent that the cost of [the Medicare-for-All proposal] is financed by new payroll taxes, premium collections, or other revenue increases, the net effect on the federal budget deficit would be substantially less."

    Reaction

    According to "Vitals," the $32.6 trillion that Blahous estimated Sander's Medicare-for-all proposal would cost the federal government over its first 10 years is about $2 trillion lower than what the United States is projected to spend on health care over the next decade under its current health care system. However, "Vitals" reports that the major difference would be who is paying for the costs. Currently, health care costs are spread among the federal and state governments, U.S. residents and employers, and insurers, but under Sanders' proposal, the federal government would be footing the majority of the bill.

    Further, "Vitals" reports that, if Sanders' Medicare for All proposal would cost the federal government $32.6 trillion over 10 years, it would be one of the costliest single-payer health systems in the world, largely because it would offer more generous coverage than single-payer health systems in other countries.

    Benedic Ippolito, a health economist at the American Enterprise Institute, said the working paper's findings show "[p]rovider payment cuts are doing a lot of heavy lifting here." He said, "Changes to provider payments, whether you love them or not, have real consequences. And those real consequences extend beyond a budgetary score."

    Sanders called the report "grossly misleading and biased." He said, "If every major country on earth can guarantee health care to all, and achieve better health outcomes, while spending substantially less per capita than we do, it is absurd for anyone to suggest that the United States cannot do the same"  (Birnbaum, The Hill, 7/30; Baker, "Vitals," Axios, 7/31; McIntire, CQ News, 7/30 [subscription required]; Luthi, Modern Healthcare, 7/30).

    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:

    Get all the Cheat Sheets

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