Hi’.
There have been a couple of diaries those past days, about Medicare for All. In one, someone asked for “hard numbers” on how it was paid for and everything. I made a comment about it and feel like expanding on it.
So, and with the disclaimer that I am a foreigner, let’s tackle the numbers out there.
0. Sources & Summary
We’ll be using a bunch of sources. So to begin with:
And a bunch of studies:
I’ll be honest I only read half of them. Now what we want is (1) how much it will cost and (2) who will pay for it.
Well to sum it up:
- Costs $3.2tr per year
- $0.4tr is mechanically paid by ending tax breaks for health insurance
- Paid by a 22.5% employer “premium” (for companies with over $2mn in payroll): $1.2tr
- Paid by a 20% household “premium” (for households with over $29000 in income): $1.7tr
That’s the tl;dr, it shouldn’t be taken at face value (especially those last two points resembling nothing noone ever suggested). So what follows is a wall of text to explain those numbers.
1. How much does it cost
The problem is not the lack of hard numbers, it’s the opposite. If you want to defend MfA, go with Friedman and the cost will be $2.76tr. If you want to attack M4A, go with Holahan et al. and the cost will be $3.87tr.
Two concepts behind the difference.
One is health care access(ibility). Basically every and all universal health care plan no matter how radical or moderate will face that same hurdle: more and better health care means more health care consumption, which in turns leads to a higher price tag at the end. Friedman was already taking it into account and every study makes its own assumptions on that but in short, this is how Holahan et al. conclude that total health care expenses would jump to $4.6tr nationwide (from the current $3.4tr).
The answer to that is price control, or price containment, or the pejorative “rationing”. Again, every study takes that into account, generally administrative costs and drug prices. One new horse here is Medicare payment rates: if they stayed the same, hospitals would go bankrupt. So Holahan et al. (2016), for example, assume rates will grow. Which is more than fair. The result is cost control unable to compensate health care accessibility and boom, more expensive health care for all.
So the game is to guess if more access is compensated by better cost control.
The rough answer is yes. Pollin et al. (2018: 44) offers the best specifics, as far as I know, of cost containment measures stemming from the Medicare for All Act of 2017 (S.1804). They estimate a total of 19% in cost-savings from the current cost, and 12% in increased health care consumption. The result? A final price tag for MfA of $2.93tr.
Why $3.2tr then?
Because better safe than sorry. By now everyone is familiar with the $3.2tr price tag from the Mercatus study (Blahous 2018), accompanied with a $0.2tr savings from the current system, which adds up with the graphs the NYT is using. The Mercatus study gets that number by assuming rates stay the same, which it says won’t happen, but it’s actually a good way to simulate cost controls, even though as a rule of thumb instead of the detailed PERI study. So just to give some margin, and be fair to those who think M4A will fail, I’m going with a bigger number.
To be clearer too, anyone believing in universal health care coverage should instinctly reject any pricetag beyond $3.4tr. Noone would design a system that costs more than the current bloated mess. To suggest otherwise is to give up on the concept itself.
2. How will it be paid for?
Two points on that, before we begin.
1) There is an automatic tax hike that is unavoidable the moment you enact MfA. That’s because there are tax breaks linked to private insurance and obviously those would end. The result is $0.4tr more revenue for the federal government.
2) There are already sources of revenue for public health care: payroll, income, premiums… if you choose to keep them there, then you already have $1.9tr set up (Pollin et al. 2018: 2). But you can also choose to clean the slate and start over. Which would include point (1). Basically if you choose to start over you are offering massive tax breaks to everyone in the background, in the trillion and some.
So with that in mind, I’ll go with a $2.8tr need in revenue. Basically I keep the tax hike from (1) then clean everything else, so from here on assume that we gave ton of tax cuts left and right.
Pollin et al. (2018) and Friedman (2013) provide suggestions on how to pay for M4A but who cares. The best numbers we have are from that memo.
That memo is assuming you don’t clean the slate, and so it offers a “modest” 8% payroll tax for employers and a 4% income tax on households. It calls those premiums but basically that’s what they are. Now companies with less than $2mn in payroll are not concerned, nor are households under $29000 in income. yay That results in $8000 savings for companies on average, and $4000 savings for households on average.
But if you clean the slate and go hardcore, using only those “premiums” because I am a centrist and I like things simple and clean, here is the result:
- Employer premium (22.5% for companies with more than $2mn in payroll): $1170bn/year
- Household premium (20% for households with more than $29000 in income): $1750bn/year
For a total of $2.9tr, leaving us with a slight benefit but no savings (nor losses) for employers nor households on average.
Those numbers look bad. Even with the tons of tax cuts and lower out-of-pocket costs (down by $300bn according to all studies, basically), noone could fathom telling households to pay 20% of their income on health care. Even though that’s pretty much what the current bloated system expects. As a point of reference, Switzerland is seeking to cap premiums at 10% of a household’s income (by subsidizing everything above that).
So it is obvious such numbers can’t stand. But honestly, there are tons of options from that “starting point”.
Looking at the other proposals on that memo, my reaction is “meh”. There will be other progressives items to finance, like infrastructure, education, … and those numbers, for the titanic M4A, are kind of too low to count. So one option is, obviously, the centrist one: co-pays and deductibles, to reduce accessibility and lower the pricetag that way. Still in the centrist cycle, I would add: private supplementals would be a great way to ensure cost control for essential coverage. Another option is, just as obviously, the progressive one: take household premiums and lower it for low incomes, raise it for high incomes. Basically anchor it to income taxes and eh, that’s what has been proposed for years!
If you want to attack MfA, use those numbers and tell people a fifth of their income would go down the drain each year. If you want to defend M4A, use the $1.9tr assumption and tell people they’ll pay 4% of their income. I think most will be happy with that deal.
Personally, I think it will be somewhere in the middle. And that spreading revenues to multiple sources only blurs who pays in the end.
So I’m going with the biggest numbers if only to push progressives to go from there and simply spread it more fairly. I think progressives can accept a higher pricetag than Friedman or Pollin et al. predict, while centrists can accept that a progressive taxation, and relying on previous sources or ending those first, would make it a good deal for most people anyway. I mean the flat premiums would still mean no loss on average, and that’s without the tax cuts. Eventually the exact payment scheme would be for Senators to fix if the bill ever reached that floor, and this is where centrists could shine and best strengthen Medicare for All, by making sure it stays cheap, stable and strong.
4. The answers are there
My point is that either way, saying MfA doesn’t tell its price or doesn’t tell how it would pay for itself is… not false, but misleading. We have estimates and estimates are what economists rely on. It is clear from this diary that I personally follow Pollin et al. (2018) and would recommend it but eh, don’t be a one book man either.
Even though we don’t have the specifics on who would pay what exactly — my averages are way too broad to be useful in that regard — we can still conclude that the vast majority would save money, including a vast number of companies. To tell people that they personally will save money on this is fair, given the data we have.
The only question left is how much is saved by whom, not who stands to lose from it.
(4 years is still rather short for the transition though...)