More than 100 House Democrats have endorsed a “Medicare for all” plan which would eradicate private health insurance, and every single senator running for president, with the sole exception of Amy Klobuchar of Minnesota, has backed single-payer. So the Congressional Budget Office put it to the test, and needless to say, it’s not pretty.
Every American who sits even a centimeter and a half to the left of Paul Krugman understands that the cost component of “Medicare for all” renders it immediately untenable. In the arguably most comprehensive valuation of the bill as proposed by 2020 hopeful Sen. Bernie Sanders, I-Vt., the Mercatus Center conservatively estimated that the bill would cost $32.6 trillion in its first decade. That would roughly double our federal spending, and so far, not one Democrat has announced a tax or a combination of taxes that would remotely fund it. The tax touted by a Democrat that would accrue the most revenue is the wealth tax proposed by Sen. Elizabeth Warren, D-Mass., which would generate $2.75 trillion over ten years, less than one tenth the cost of “Medicare for all.”
But the CBO rightly highlights a far more nefarious problem that socialized health insurance would inevitably posit: supply.
While the CBO explores a number of various mechanisms for a universal healthcare system, the two major “Medicare for all” bills that national Democrats have backed — the aforementioned one by Sanders and one with even more benefits, proposed by Rep. Pramila Jayapal, D-Wash., and endorsed by more than 100 Democrats — are specific. Neither would allow for a parallel private insurance market in the long run that covered the same procedures covered by “Medicare for all,” and both offer too many benefits to allow for any other cost modeling than that of Medicare and Medicaid in their current forms than private health insurance reimbursement rates. The House bill calls for patients to pay zero out-of-pocket costs outside of pharmaceuticals.
The CBO inadvertently explains this may be a problem. First they note that three major private insurers paid hospitals for inpatient admissions a rate 89% higher than Medicare Fee-For-Service — “Original” Medicare, or Medicare Parts A and B — rates. The Mercatus valuation of “Medicare for all” assumes that the program would pay out rates comparable to current Medicare, which are 40% lower on average than that from private insurers. The CBO then notes:
This is high school-level economics here, but a vital point that most in the “Medicare for all” debate, even those opposing it, often fail to address. Even if the government nationalized every single hospital — a tall order, considering that 70% of the nation’s hospitals are private — that wouldn’t change the issue of physician salaries, which would have to be decreased with lower reimbursement rates.
The CBO addresses this as well:
Perhaps the government could save more money by negotiating prescription drug costs, thus allowing them to redirect more funding towards healthcare providers instead of pharmaceutical companies. But even then, the CBO spells danger:
Even though the pharmaceutical industry would become an effective monopsony under “Medicare for all,” resulting in ample deadweight loss, the government still wouldn’t have the bargaining power they would in a normal market. They can’t simply refuse to pay for drugs that feature perfectly inelastic demand, such as expensive HIV and cancer treatments. And given that we already pay for 78% of total pharmaceutical profits, effectively subsidizing the cheap list prices of drugs for every other country, it’s impossible to imagine drug manufacturers failing to call the government’s bluff even if they did try to play hardball.
These realities cannot synchronize the Sanders and Jayapal’s promises that “Medicare for all” would offer more benefits with fewer out-of-pocket costs and the government can afford it. The CBO provides a sober explanation of the obvious implications of “Medicare for all,” and any American, including those who want to expand the size and scope of government to result in “universal” coverage, ought to wield out this analysis as Democratic leaders continue to march their party towards a practical disaster.
