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The Battle Over Medicare for All

The Fact Check gang has been having a field day going after Bernie Sanders, Alexandria Ocasio-Cortez and other proponents of Medicare for All. The latest battle is over a study produced by the right-wing Mercatus which showed that a government-run health care program could reduce national health expenditures by $2 trillion over the course of a decade (roughly 0.8 percent of GDP).

Sanders and Ocasio-Cortez seized on this projection of savings coming out of a right-wing think tank as support for the greater efficiency of a universal Medicare program. Of course this was not the point that the Mercatus folks intended people to get from their study. They highlighted the fact that their projections showed Medicare for All increasing costs to the federal government by $32.6 trillion over the first ten years of operation, with the amount equal to 10.7 percent of GDP in 2022 and rising to 12.7 percent of GDP in 2031.

The fact check crew definitely went overboard in attacking Sanders and Ocasio-Cortez for misrepresenting the study. One scenario in the study did in fact show that Medicare for All would reduce national health care expenditures by $2 trillion over the decade.

The study’s author, George Blahous, indicated that he didn’t think this scenario was likely because it assumed that providers (e.g. doctors) would see their compensation cut by 40 percent. Nonetheless, he did include it as a possible scenario in the analysis. (It’s worth noting that, even with 40 percent pay cuts, U.S. doctors would still be earning more than the average for doctors in other wealthy countries.)

For this reason, the heated reactions of the fact checkers was not justified. They could honestly blame Sanders and Ocasio-Cortez for not giving the full context of the projections in the study, but in a world of Trumpian outright fabrications, this seems like a relatively minor offense for politicians.

But moving beyond the fact checkers’ complaints, there are some real issues that supporters of Universal Medicare should consider. A universal Medicare program does mean shifting a large amount of revenue from the private sector to the government. (Yes, we can run larger budget deficits, but at some point we will hit the economy’s limits and see serious inflation. Committing ourselves to increasing spending by 10 percentage points of GDP [$2 trillion annually in today’s economy] will almost certainly get us well beyond those limits.)

It helps that the largest chunk of this money can come from the premiums that employers now pay for their workers’ health care insurance. It likely will not matter much to most workers whether this money is paid to an insurance company or the government to cover the cost of universal Medicare. But even with the money from employer provided health insurance going to the government, we would still be short by somewhere between 3-5 percent of GDP or $600 billion to $1 trillion annually, in today’s economy.

We can come up with progressive taxes to raise some of this money, but it is undoubtedly a big lift. The other part of the story is getting costs down. This is something that pretty much all supporters of universal Medicare envision in any case. We spend more than 18.0 percent of our GDP on health care, roughly twice the average for other wealthy countries. If we get our costs in line with those in other wealthy countries, then universal Medicare would be easily affordable.

Of course a big part of the story is getting insurers out of the picture. According to the Centers for Medicare and Medicaid Services, we will spend almost $260 billion this year (1.3 percent of GDP) on the administrative costs of private insurers. This would not go to zero in a universal Medicare system, but we could plausibly lower this figure by 80 percent, assuming the same efficiency as our Medicare system or the Canadian universal Medicare system. [1]

Insurers also impose large costs on hospitals, doctors’ offices, and other providers since they require them to have staff that can deal with a wide variety of insurance forms and policies, all of which have different rules of payment. The task of dealing with insurers can also be a huge burden on patients, who are by definition most likely to have dealings with their insurers when they are not well. (In my own thankfully limited dealings with insurers I would put their error rate at close to 50 percent. Error is defined here as originally turning down a bill they ultimately paid.)

But getting beyond the insurers, we still have a long way to go in getting costs down to a level that makes universal Medicare affordable. This means reducing payments to doctors and others at the top of the pyramid in the medical profession to levels that are more in line with other countries. Our autoworkers don’t get paid more than autoworkers in Germany and France, in fact they generally get less, there is no obvious reason our doctors should get paid twice as much.

It also means paying much less for prescription drugs. We will spend over $420 billion this year for drugs that would likely cost us less than $80 billion without patent and related government granted monopolies. There is a similar story with medical equipment where patent protections can push up the price of technology by a factor of ten or more. Here also the savings could be on the order of $100 billion annually.

These are the headline items in reducing costs. We can and should also squeeze out the profits that are being made by for-profit hospitals and nursing homes. This can perhaps save another $60 to $70 billion annually.

But the key point about these sorts of savings is not just that we would look to get them as part of a universal Medicare system, but we could look to do them tomorrow. States can try to rein in costs to bring them more in line with other countries. I have written about various mechanisms in my book Rigged.

My favorite is simply allowing people to go overseas to directly take advantage of lower cost health care elsewhere. This can be done, for example, by allowing state Medicaid patients to get expensive surgeries overseas and splitting the savings with the government. (They could bring family members with them and still have massive savings.)

The same could be done with access to expensive drugs like the Hepatitis C drug Solvaldi. When drugs can sell for over $100,000 and high quality generic equivalents may be available for less than one percent of this price, the potential savings are enormous.

Far more important than the direct savings are the educational value of this exercise. It shows that we have high prices here because the government wants us to pay high prices. It has nothing to do with the dynamics of the market, it is about the government creating structures that force us to pay high prices to these providers.

The folks pointing out that we will need to do more than just get rid of the insurance industry to make universal Medicare affordable are right. But there are concrete steps we can take to bring these other costs in line with other countries. The providers will fight these steps, but they are a necessary part of getting to good universal health insurance coverage. They are also a big part of the battle to reduce inequality. This is a fight worth having and it doesn’t have to wait until the day we get Medicare for All.

Notes.

[1] People have often noted that several high quality public systems like the one in France have competing insurers. This is true, but these insurers are very different animals than our insurers. In France they are non-profits that operate quite differently than United Health or Cigna. If we can envision transformers the conduct of our insurance industry, then these countries can provide appropriate points of reference. But accomplishing this sort of transformation would be a very big lift.

This column originally appeared on Dean Baker’s Patreon page.

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Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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