Medicare For All: An Economic Analysis
July 05, 2019
The U.S. health care system is characterized by high spending and a large variety of system types, including single payer nationalized health systems, multi-payer health insurance plans, and even free-market implementation. However, with exorbitant costs and high anticipated growth rates, there has been pressure to reform the health care system with a focus on cost-effectiveness, efficiency, and quality of care. Changes focused on managing care, eliminating volume incentives, and bundling have all taken form to reduce costs of healthcare services, but some believe that even more drastic change is needed. An economic analysis of Medicare for All reveals the cost-effectiveness of the program as well as its potential ramifications on the federal budget.
In 2019, Senator Bernie Sanders famously proposed Medicare for All, a policy calling for a transformation to the American health system by focusing on universal coverage and access to health services. His plan specifically outlined a national single payer system with universal coverage that prohibits private insurance markets and eliminates co-payments and deductibles. With support from several other Democratic members of Congress, his call for healthcare reform has quickly grabbed attention.The proposal notes the disparity between the U.S. healthcare system and the rest of the world. In particular, it points to lower life expectancy and higher child mortality rates as clear indicators of institutional inefficiency.
An economic analysis of Medicare for All focuses on the costs of the program as well as its potential improvements, inefficiencies, and associated costs, for example, the $500 billion annual savings due to administrative consolidation. The New York Times also published a comparison of the various estimates and predictions for costs under a Medicare for All system. The Mercatus Center of George Mason University found that a conservative estimate for the costs of a national payer healthcare system would increase the federal budget by $32.6 trillion in the first ten years of implementation. RAND Corporation predicts costs of $3.89 trillion in 2019, or a 1.8% increase compared to current law. Gerald Friedman, an economist closely tied to the Sanders administration, estimates only $2.76 trillion dollars in healthcare spending in 2019 under a national single payer system primarily due to the anticipated vast administration savings. On the opposite end, however, an economist named Kenneth Thorpe estimates $3.2 trillion dollars in healthcare costs. Finally, the Urban Institute estimates costs of $3.87 trillion, a substantial increase outside the current set of laws. The graph below also compares U.S. national health expenditures in 2019 as a share of GDP to juxtapose the competing policy estimates.
While a comparison of expenses between the current healthcare system and the policy changes in the Medicare for All proposal is helpful in determining the best budget, other important factors to consider are the cost-effectiveness, value, and return on investment for health. In other words, is the quality of healthcare and related services justified by the cost?
The Council of Economic Advisors (CEA) does an economic analysis of Medicare for All in the fourth chapter of the Economic Report of the President 2019. As noted in the report, a nationalized single payer system eliminates both competition and individual choice and instead replaces it with fixed and controlled prices. In basic economics, this often leads to inefficiency in the market for healthcare. CEA also notes that Medicare for All would decrease longevity and health in the long run by transferring health care from high value uses to low value instead. The report also comments on the administrative costs of not only the proposed changes, but also the current system. According to CEA, the administrative costs of healthcare drive competition and innovation in the market place, and therefore critiques the elimination of the crucial and defining characteristics the American health system. The conclusion drawn from this economic analysis is that there is very little evidence that government interference in this specific sector would be any more successful than other areas of the economy.
The economic analyses of the Medicare for All proposal are diverse, inconclusive, and politically charged, with conclusions falling on both sides of the aisle. It is clear that the healthcare system in the United States needs to change in the future to limit spending while maintaining quality and expanding access, an impossible task and balance known as the “iron triangle” in health care. An economic analysis of an American healthcare system mimicking the proposed idea of Medicare for All is inconclusive in determining whether or not costs would be above or below those of the current system. However, it also exemplifies and solidifies the forced tradeoffs between access and costs.
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