The cost of Medicare for All: Sticker shock or bill relief?
Despite its central role on the Democratic debate stage in Houston, Medicare for All remains fuzzy in one key respect: The price tag.
At one point, former Vice President Joe Biden said it would cost $30 trillion. And Sen. Bernie Sanders, author of the bill, didn’t argue.
"Joe said that Medicare for All would cost over $30 trillion," Sanders said. "Status quo, over 10 years, will be $50 trillion."
Sanders said the net savings would be "substantial."
The reality is that predicting the cost of Medicare for All is a tricky business.
There is no debate that federal spending on health care would rise dramatically under Medicare for All. Based on two independent estimates, the program would add about $32 trillion to the federal budget over the next 10 years.
But if it’s a better deal for citizens depends on the other number Sanders put out there, the $50 trillion cost for keeping the system as it is.
That’s not federal health care spending. That’s the government’s estimate of total health care spending across the board, both public and private, over the coming decade. (It’s actually $47 trillion by 2027.)
Medicare for All would shift a lot, but not all, of the private spending over to the government. In 2017, payments from private insurance and households were about 45% of all bills.
Sanders, who wrote the legislation, and Sen. Elizabeth Warren, the other top candidate backing the approach, argue that their plan reins in total spending, which would make it easier for people to see savings. Some studies say it would rise, which would make it harder.
And in the middle of that uncertainty, there’s no clear plan for how it would be paid for. If insurance companies are no longer collecting premiums and paying doctors, and states are no longer paying for Medicaid, the bills still need to be paid. The money would come from taxes, but how much and on who is murky.
A study of Medicare for All from the libertarian-oriented Mercatus Center at George Mason University put the cost at more than $32 trillion over 10 years.
The Urban Institute, a more liberal-leaning academic center in Washington, looked at Sanders’ plan in 2016 and predicted it would add $32 trillion over the decade.
But what about the offsets, the money paid now that Washington would pick up?
The Urban Institute estimated that state and local governments would save $4.1 trillion over 10 years, and that households and businesses would see about $21.9 trillion in savings.
The modeling is a challenge — how much would hospitals, doctors and drug makers be paid? Without insurance company profits, what are the net savings? What would be the cost when more affordable care leads to more use?
But if the Urban Institute numbers are reasonably correct, the total offsets of $26 trillion — state and local government plus private savings — leave a gap of $6 trillion relative to new federal spending. Overall, the Urban Institute said total health care expenditures would rise $6.6 trillion over the period.
Urban Institute fellow John Holahan pointed out that Medicare for All doesn’t cover some large areas of health care spending, such as institutional long-term care and veterans health care. The amount would be in the trillions of dollars. Sanders’ left that out when he compared the Medicare for All price tag to total health expenditures.
The RAND Corporation said that for 2019 by itself, Medicare for All would come with a 1.8% rise in total health care spending.
Medicare for All backers counter with a report out of the University of Massachusetts-Amherst. Economists there said the program could reduce the cost of care by about 10%. The bulk of those dollars would come from lower administrative and drug costs.
There’s no argument that Washington would need to collect more money to pay for Medicare for All. Sanders has put forth several suggestions. They include a 7.5% payroll tax from employers and a 4% one from workers. Households making over $250,000 a year would see a tax hike, and there would be a variety of tax changes that would fall primarily on the well-to-do, such as higher rates on capital gains and a wealth tax on the top 0.1% of households.
And with employers no longer making tax-free contributions to their workers’ premiums, Sanders’ predicts the government would see a net gain of $4.2 trillion over 10 years. The Tax Policy Center, a joint project of the Urban and Brookings Institutions, said that in 2018, that tax break cost the government $280 billion.
Still, Sanders’ proposals would raise about $16 trillion over the decade. That’s half of what the program would cost and he hasn’t said how he would close the gap.
Warren has offered fewer details than Sanders.
"Those at the very top, the richest individuals, and the biggest corporations, are going to pay more," Warren said in the debate. "And middle class families are going to pay less."
In the absence of a comprehensive proposal, no independent study has parsed how households at different income levels would fare.
Both Sanders and Warren argue that at the end of the day, "middle class families" will be better off. Whatever they pay in taxes, they say, will be more than offset by not paying premiums and not paying for the part of care that insurance doesn’t cover.
But the truth is, the data are lacking.
"Taxes are going to vary tremendously across workers," University of Chicago economist Katherine Baicker told us in July. "On net, some people are going to be much better off, and some people are going to be much worse off — and overall taxes will have to rise substantially."