What Will Universal Health Care Cost?

$32.5 trillion over a ten year period, according to a study conducted by the Mercatus Center at George Mason University, Virginia.  To be specific, this was specifically a study of Senator Bernie Sanders’ Medicare-for-all proposal, but it does provide guidance for considering the question.

Health care as a percent of GDP is currently about $3.2 trillion a year.  But the 32.5 trillion the Mercatus study came up with is not simply a projection of that amount; i.e. it was not derived by multiplying $3.2 trillion by 10 (years).  Current annual GDP expenditures for health care (the $3.2 trillion) represents all services and commodities associated with health care, including research, the salaries of health providers, payments to hospitals the cost of public and private health insurance, over-the-counter purchases, and so on.  The Mercatus Center’s $32.5 trillion estimate reflects what it would cost the federal government if it assumed responsibility for the payments private health insurance makes in addition to current costs for government insurance such as Medicare and Medicaid.[1]  The principal author of the study, Charles Blahous, acknowledged that there will be savings and there will be added costs and the end result will add $32.5 to existing expenditures.[2],[3]  Is he correct?  Maybe and maybe not.

Health care is a dynamic system and many factors contribute to revenues and spending, savings, and costs.  We know, for example, that expanding health care to all (my plan provides it to all U.S. citizens and individuals in the country on a Green Card, visitors, and even undocumented workers) will add 20 to 30 million to the rolls of those covered.  That means costs will rise.  But, unlike the Sanders plan, under my proposal those 20 to 30 million people will, like everyone else, pay the health care transaction tax which will offset those costs.

Health care costs will rise because as we get older, we use more health services and medications.  So in addition to having more people covered, there will be more elderly who will need more costly services.  Expanding access will also provide health care to millions of people who will need costly treatment for both emergent conditions such as cancer and heart attacks as well as individuals needing treatment for chronic pre-existing conditions such as diabetes and depression.  However, as above, those newly added to the roles of the insured will be paying the health care transaction tax which finances the program.

My proposal does away with copays, coinsurance, and deductibles.  If you’re paying the health care transaction tax, why should you have to pay for health care again?  This will add to the health plan’s expenditures, but because goods and services are taxed along all points of the supply chain, it should generate sufficient revenues.

Senator Sanders contends that by negotiating the price of medications and by lowering administrative costs (Medicare is much cheaper to administer than private plans), there will be substantial savings.  Reimbursement to providers would also be reduced (which in part will be offset by providers having lower operating costs) therefore saving money.  He’s correct and those savings will be substantial.  However, the Mercatus study contends that costs will greatly exceed these savings.

New technologies and medications are expensive and will tend to increase health care costs.  Conversely, they can also result in lower costs, such as when a medication has reached the limit of its patents and the drug goes generic.  Or take a recent study demonstrating that dogs, through their sense of smell, can successfully differentiate between blood samples from people with cancer from those without the disease, with a success rate of 97%.  By determining what compounds the dogs use to identify cancers, new cost effective tests can be developed, thereby saving money.  For example, fecal smears, which are a less effective test for colon cancer could be replaced by a less expensive but more reliable blood screen.

These are just a few of the many, many factors that influence the cost of healthcare (three chapters in my book explore this topic in more depth).  Therefore, because health care is so dynamic it is very difficult to project how much universal health care will cost compared to current expenditures.  One thing we know is that we’ll get something very vital for our money: access to affordable health services for ourselves and everyone living in the U.S.

Three things need to be pointed out in regard to the Mercatus Center study.  First, Charles Blahous, the principal researcher, was primarily interested in costs the federal government would assume by expanding Medicare to all Americans.  But in doing so, he minimizes the fact that many of these costs already exist; they get shifted from the private sector to the public sector, but they are not new costs.  Thus, while the government’s share of health care costs will increase, total health care expenditures as a percent of GDP might actually rise at a much slower rate than has been the case in recent years. 

Second, the study focuses primarily on costs rather than revenues.  I believe Senator Sanders’ proposal underestimates the revenues needed to sustain his proposal.  That is why I am recommending multiple sources of revenues and the flexibility of a program that can generate revenues in excess of expenditures, so that the program has ample income to weather ups and downs in the nation’s economy. 

Third, the Mercatus study acknowledges that individuals and businesses will have more money because they won’t be paying health insurance premiums and the Medicare tax, and they won’t have out-of-pocket expenses for copays and deductibles.  However, it’s mentioned as an afterthought at the end of the study.  In my book, The Case for Universal Health Care, this aspect of economics of universal health care is explored in greater detail, as the additional corporate and personal income will actually help the economy grow.  For example, you’ll have a new tax to pay, the health care transaction tax, but you won’t have money deducted from your paycheck to pay for private health insurance.  And you and your employer won’t have to pay the Medicare tax.  At a personal level, because the health care transaction tax is spread throughout the economy, it’s likely to cost you less than private health insurance.  

What we can learn from asking the question, “How much will universal health care cost?” is how difficult it is to accurately predict those costs and why.  For example, to support their opposition to universal health care, conservative media pundits latched on to these numbers as if they were hard facts rather than estimates.[4]  Conversely, if we can demonstrate considerable savings, as Senator Sanders contends, then we can use the data to support the position that universal health care is, in the long run, less costly that the Mercatus study suggests.  Ultimately, it is important that we keep in mind that we’re working with data that is highly variable, that health care is a complex system, and that estimates, including the Mercatus study’s findings, are just that: approximations of what may or may not be.

[1] https://www.mercatus.org/publications/federal-fiscal-policy/costs-national-single-payer-healthcare-system

[2] https://www.factcheck.org/2018/08/the-cost-of-medicare-for-all/

[3] https://www.mercatus.org/system/files/blahous-costs-medicare-mercatus-working-paper-v1_1.pdf

[4] Conservatives Charles and David Koch have donated millions to the Mercatus Center, however the study’s author, Charles Blahous, has stated that this has not influenced his research. .

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