Medicare-for-all could mean a migraine for most

By Vivian Ho, Ph.D.
James A. Baker III Institute Chair in Health Economics

When asked to name the most important financial problem facing their family, Americans are more likely to name health care costs than any other issue. Seventeen percent named health care as their top concern in a Gallup poll released last week. The Gallup release concluded that health care will continue to be a major focus in national elections, including the 2020 presidential election.

Another recent poll by the Kaiser Family Foundation found that 56% of respondents favor a national health plan in which all Americans would get their insurance from a single government plan. Respondents to the survey likely had in mind Democratic presidential candidate Bernie Sanders’ Medicare-for-All plan, which was reintroduced in Congress in April. In fact, the Washington Post counts 12 of the 20+ Democratic candidates favoring some version of single payer health care.

But do voters, or even the candidates, understand all the implications of shifting to a single payer system? Medicare-for-all would eliminate employer-provided health insurance. A 2018 Gallup poll found that 70% of those with private insurance rated it as excellent or good. Many voters may not realize that “Medicare-for-all” doesn’t just mean giving coverage to those currently without it — “Medicare-for-all” means all Americans would only have coverage for essential health benefits through a government program.

And what about the cost implications? Medicare-for-All has been estimated to increase federal budget commitments by $32.6 trillion during its first 10 years of implementation (2022-2031). For perspective, the CBO projected federal outlays for the period 2020-2029 (without Medicare-for-All) to be $57.8 trillion. That is, Medicare-for-All represents an unprecedented increase in the size of the federal budget and likely the nation’s debt.

Perhaps the increased federal spending would be offset by lower employer and employee spending on health insurance? Not likely. Senator Sanders’ proposal to fund Medicare-for-All includes a 7.5% tax on employers and a 4% tax on workers. That 7.5% is only slightly less than the 8.3% of wages and salaries that employers currently spend on health insurance coverage for their employees. Covered workers contribute an estimated $1,186 toward their health insurance, and the annual mean wage was $51,960 in 2018, suggesting that workers buying single coverage currently pay only 2.3% of earnings toward their premium.

Could Americans who are currently insured expect the same quality and access to health care that they receive now? As high as the previously estimated cost of Medicare-for-All was, the study conservatively assumed that hospitals, physicians and other providers would be reimbursed current Medicare rates for all of the care they would provide. Most voters likely do not realize that private insurance reimburses providers much more generously than Medicare. One study of 21 frequent and costly services found that physicians received higher reimbursement for all of these services when provided to privately insured patients versus Medicare patients, and that the private insurance payments were 150% higher for 15 of these services. Another study found that commercial rates for hospital care are 89% higher than Medicare fee-for-service rates. Thus, maintaining similar access to health care providers for the currently insured under Medicare-for-All would require a substantial increase in Medicare fees, which would raise already enormous cost estimates even more.

If one instead tried to lower provider reimbursement rates for those currently covered by private insurance, simple supply and demand analysis tells us that physicians and hospitals would cut back on the services provided to patients. In fact, a simulation of a medium-sized hospital system with a current profit margin of 2.3% would see its margin fall to -14.1% if hospitals were reimbursed 120% of current Medicare rates under Medicare-for-All. Many hospitals, particularly those in rural areas that are already facing tough financial times, would be forced to close. Many individuals who currently have private coverage would likely have problems finding a provider willing to treat them in a timely fashion.

Moreover, the legislation does not account for the wide variation in quality of care provided across physicians and hospitals. Some providers are charging unduly high prices because they exercise monopoly power in their local market. However, others charge more because they deliver better patient outcomes. Patients travel across the country to seek care at the Mayo Clinic, the Cleveland Clinic and the MD Anderson Cancer Center. These providers likely couldn’t continue their standard of excellence if reimbursement rates were to fall. They might choose instead to not participate in Medicare-for-All and be cash-only providers serving only the wealthiest of patients in America and elsewhere.

Indeed, the shift to Medicare-for-All could result in a colossal migraine for the majority of Americans who are happy with their current insurance coverage. In addition physicians, hospitals and insurance companies would strongly resist legislative proposals that threaten their living standards, weakening attempts to introduce budget-friendly universal coverage. There is no doubt that the status quo in health care is unacceptable, and that we should introduce policies that make health care affordable and accessible to more Americans. But the fascination with Medicare-for-All is impractical, and it distracts us from finding solutions that are economically feasible and beneficial to individuals in need. Let’s hope that our presidential candidates start providing us with workable solutions, so that Americans understand what they will be voting for in the coming elections.