Medicare for All: Simple Steps for Financing an Ambitious Policy

Sometime this spring, the Democratic frontrunners for 2020 will be announcing their candidacies for president.

Throughout the absurdly long election season there will undoubtedly be a slew of jockeying amongst Democratic candidates on a number of issues as they try to differentiate themselves from the pack. Judging from the 2018 midterm elections, healthcare will be a major campaign issue for Democrats, and whether or not a candidate supports Medicare for All (M4A) or not will be a major point of contention for many voters in the Democratic base. Medicare for All is sometimes also referred to as single payer, universal healthcare, or a public option.

You may have seen the talking heads in the mainstream media discussing universal healthcare this past summer, after the Mercatus Center (a Koch brothers funded, right wing think tank) published a study that showed that Medicare for All would cost $32 trillion dollars over 10 years, but ultimately save the American economy $2 trillion in healthcare expenditures. I, like many others on the Left, was shocked at this revelation, not because of the economic realities about universal healthcare that it presented, but because of its source. The release of a study by a far-right, Koch affiliated organization only reinforced progressives’ resolve that Medicare for All is a vital, winning issue for Democrats in the face of our broken and inefficient healthcare system today. Many of those who identify themselves on the Left as progressive (including myself) hope that the Democratic nominee stands firmly, and explicitly, behind Medicare for All, in 2020. Many polls show that M4A is winning issue, even among Republicans.

Recently, the Political Economy Research Institute at the University of Massachusetts Amherst (PERI) released a study with contributions from professors and researchers from institutions all around the country, including Harvard, Yale, and UCLA. Their research shows that the United States would save over $5 trillion dollars in health expenditures over ten years, saving an average of $500 billion a year.

Now, I know what all the skeptics in the crowd are about to say, “Yeah, a lot of things are better in pie-in-the-sky La-La Land! How in the hell are we going to pay for that? There’s no way!” Well, in the richest country the world has ever seen, there are a lot of ways. Progressives such as Bernie Sanders and Alexandria Ocasio-Cortez generally do a good job on TV talk shows explaining how Medicare for All would save the American economy money overall, through the elimination of individual co-pays to private insurance companies and the expensive cost of not insuring people now, but often don’t dive into the exact numbers.

m4a cartoon

The format of TV news undoubtedly discourages explaining the wonky aspects of Medicare financing, but these are important details that if more people understood, they would be more likely to unapologetically support the fight for Medicare for All. While it may seem that such an ambitious policy would require complex funding mechanisms, in reality there are relatively simple measures that we could take as a nation to finance Medicare for All, without putting the burden on the lower and middle class or by bankrupting large corporations.  

The United States currently spends $3.24 trillion a year on health care expenditures between the private and public sector. According to the PERI, if we switch to a Medicare for All system, we can expect to see a 12% increase in demand, but a 19% increase in efficiency due to: less health care administration since there is only one payer for health insurance (i.e the name single payer), the ability for the government to negotiate with pharmaceutical companies for lower drug prices, the establishment of uniform rates for hospitals and clinics, the reduction of waste and fraud due to government oversight, and healthcare companies no longer needing to spend millions of dollars marketing their products.

This leaves the total cost of a Medicare for All healthcare system in the United States at $2.96 trillion dollars every year. This would be a 9.6% decrease in what we are currently paying in health care expenditures, and now everyone is covered. $2.96 trillion may seem like a large number, especially when you compare it to something like the total budget of the federal government, which is $4.4 trillion. But there’s one small detail that nobody mentions – 60% of these costs are already paid for through the single payer systems of Medicare, Medicaid, and the VA. This is a point that people on the Left don’t emphasize enough, allowing politicians and pundits to scare people with the decontextualized number of $2.96 trillion. In reality, because everyone who is poor, disabled, a veteran, or over the age of 65 is already covered through a public, single payer system, we really only need $1.05 trillion in extra revenue to provide everyone in America with quality universal healthcare.

There are many mechanisms that we could use to finance this additional $1.05 trillion every year. For example, Bernie Sanders lays out three main funding mechanisms in his Medicare for All proposal:

  1. A 6.2% income based premium by employers, raises $630 billion a year
  2. A 2.2% income based premium by households, raises $210 billion a year.
  3. Savings from tax expenditures (health care expense exemptions for employers), raises $310 billion a year.

To clarify, the income based premiums are simply increases in payroll taxes, which would increase for both employers and employees under his plan. Under our current tax system, we allow companies to deduct health care costs paid to their employees off of their total taxable income, which reduces the amount of taxes that can be collected by the government. Now that companies wouldn’t be responsible for paying for their employees healthcare, this exemption would no longer exist.

These three measures raise $1.15 trillion which means they alone could pay for a Medicare for All system. If you notice, this leaves an extra $100 billion a year which conveniently is the exact amount the study suggests to create a transition fund for anyone that will lose a job in the healthcare industry since it is the largest employing sector in the US. This fund will help pay fund unemployment insurance, pensions, and training programs so that no one is left behind. Additionally, by using these financing mechanisms, we would not need to add one dollar to the deficit since all increases in the federal budget would be immediately paid for by tax increases.

Now how will this affect individuals and businesses bottom line? Who will gain mostly from this proposal?

Figures like Warren Buffett  have claimed one of the biggest impediments to American corporation’s competitiveness is health care costs. The average business pays around $5200 per single employee and around $15600 per family. According to the PERI study, Medicare for All will actually help most businesses’ bottom lines, because they won’t need to pay for their employees insurance or an HR staff to administer these plans.

 

m4a1

Figure 1: Impact of M4A on Businesses

 

The financing for Medicare for All is slightly different in the PERI study compared to Senator Sanders plan, showing the variety of funding options that policymakers have at their disposal. On the employer side, they chose to give businesses an option of either being taxed on each employees payroll at 8.2% or have their gross receipts taxed at 1.78%. For individuals, a 3.75% sales tax is levied on non essential goods along with increases in estate and corporate income taxes. The numbers in Figures 1 and 2 are the results of these PERI funding options. Both the Sanders and PERI options raise around the same amount of revenue.

The study looks at the net effect of Medicare for All on healthcare spending for businesses. Except for businesses with 500+ employees (large corporations) and those who don’t provide insurance, Medicare for All will save businesses money, whether employers choose a 8.2% tax on employees or a 1.78% tax on gross receipts. For large corporations, their change in healthcare spending as a total of gross receipts only increases by 0.1% if they choose the payroll option. Small businesses would be exempt from these tax increases if their payroll is under a certain amount. So any argument that says a tax on employers to fund Medicare for All would bankrupt businesses is wrong.

Now for individuals. A similar pattern emerges.

 

m4a2

Figure 2: Impact of M4A on Individuals

 

Figure 2 shows that Medicare for All decreases healthcare spending as a share of overall income for every group except the top 20% of income families. Individually insured, middle class families would save the most. Medicare for All would put money in the pockets of nearly 80% of Americans, and for the remaining 20%, their net incomes would decrease by about 4% for the top 20%, and 5.6% for the top 5%. There are additional benefits that all income earners would receive as a result of Medicare for All though.. For example, those in the top 20% who still earn their wages from labor would not need to worry about losing their healthcare if they switched jobs, haggling with health insurance companies over the phone, or only seeing specific doctors who are ‘in their network’. Although the taxes of the top 20% would increase by more than they would save on health insurance expenses, the cost is relatively small in exchange for universal healthcare coverage and the countless convenience factors that would result from it.

Medicare for All has even more benefits for everyday Americans and the economy if you believe in demand side economics. Demand side economics argue that economic growth stems from increased consumer spending because it spurs businesses to invest. Currently the United States spends around 17.2% of our GDP (public and private) on health care expenditures as a percent of our economy, which is a lot higher than other OECD countries (Figure 3).

 

m4a3

Figure 3: % of GDP Countries Spend on Health Expenditures (Public and Private)

 

If we don’t do something, that number could rise substantially as our country continues to age. The PERI study projects that health care expenditures could reach 20% by 2030, but Medicare for All could help stabilize these costs at about 16% over the next decade.

 

M4A4.png

Figure 4: US Health Care Expenditures

 

I know this table looks confusing and contains a lot of numbers, but just pay attention to Column 5, which shows the savings in healthcare expenditures per year, in trillions, as a result of switching to a Medicare for All system. This figure shows how Medicare for All would save the American economy $5 trillion, freeing up valuable GDP that can be spent more efficiently on other sectors of the economy (see above, Column 5). Every year, an average of $510 billion would be saved through Medicare for All, with the bottom 80% seeing most of the gains. Because the lower and middle classes are the primary consumers of our economy, most of that money would be spent, stimulating the economy. Nearly all businesses, except  large corporations, would save money, allowing for increased investment. This system would benefit the economy more than the current system, while putting the health and well-being of average Americans before the profits of the healthcare industry.

Additionally, Medicare for All would make the economy more productive, since people would have better health outcomes. Instead of delaying coverage due to cost, people could go the doctor immediately. Preventive care is always less costly than reactionary care. And if people are less sick less often, they would spend more time contributing to the economy. All combined, Medicare for All would increase the efficiency of our economy, and allow it to grow faster than it is now. This would in turn mean more taxes being collected, and a diminishing the tax burden of Medicare for All even further as people make more money.

So let’s return to the main point I was trying to emphasize- how Medicare for All can be financed. If anyone asks you how we could possibly pay for such a program, tell them that existing programs such as Medicare and Medicaid already cover 60% of the costs. The rest can be covered by increased payroll taxes, with 80% of individuals and a majority of businesses seeing an increase in their net incomes as a result. Additionally, by covering all citizens through a Medicare for All system, we will collectively reduce the amount of money that we spend on healthcare, putting more money in the pockets of average Americans who will then put that money back into the economy. Instead of bankrupting companies, Medicare for All will actually help them. By making healthcare a right for all Americans, we can create a more moral, equitable, and efficient society that benefits us all.

So keep it in mind the next time you are challenged on your support for Medicare for All, whether its at Thanksgiving dinner, or a future where you find yourself on TV.

Feature image courtesy of Justin Sullivan for Getty Images.

 

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Afterthought – Counter Arguments:

There are multiple counter arguments against a Medicare for All system that I was unable to include in the scope of this article in the interest of brevity. I’ve listed them below, followed by links to further discussions of them and the legitimacy of their arguments.

Lower Reimbursement Rates for Doctors

Under a Medicare for All system, doctors and hospitals will undeniably receive less money per patient. The fear is that it will cut costs so much it will drive doctors out of business.

http://time.com/money/5360985/doctors-single-payer-healthcare/

Cross State Competition

Many conservatives argue that the reason prices are high is due to a lack of competition. If cross state competition was opened up between healthcare companies, prices would be driven down.

https://www.commonwealthfund.org/blog/2017/selling-health-insurance-across-state-lines-unlikely-lower-costs-or-improve-choice

TORT Reform

Opponents of Medicare for All argue that patients sue frequently, therefore doctors run a million times to protect themselves, driving up prices.

https://www.nber.org/aginghealth/2009no3/w15371.html

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