The move to enact single-payer health care in the United States always suffered from major math problems. This week, it revived another: Common sense.
On Monday, the Mercatus Center published an analysis of single-payer legislation like that promoted by socialist Sen. Bernie Sanders (I-VT). While conservatives highlighted the estimated $32.6 trillion price tag for the legislation, liberals rejoiced.
Sanders even released a video thanking Mercatus for its study, claiming that it showed how his bill would reduce overall national health expenditures by $2 trillion. In other words, Sanders claims his bill will provide more health care coverage to more Americans, and at less cost.
Thank you, Koch brothers, for accidentally making the case for Medicare for All! pic.twitter.com/speuEL6ETC
— Bernie Sanders (@SenSanders) July 30, 2018
Riiiiiigggggggghhhhhhhhhttttt. As the old saying goes, if something sounds too good to be true, it usually is. Given that even single-payer supporters have now admitted that the plan will lead to rationing of health care, the public shouldn’t just walk away from Sanders’ plan—they should run.
National Versus Federal Health Spending
Sanders’ claim arises because of two different terms the Mercatus paper uses. While Mercatus emphasized the way the bill would increase federal health spending, Sanders chose to focus on the study’s estimates about national health spending.
Essentially, the $32.6 trillion figure—the amount of taxes that a single-payer bill must raise over its first decade—represents the cost of bringing the entire health-care system on to the federal government’s books. While bringing the health-care system on-budget will obviously require massive tax increases, the Mercatus paper assumes that doing so will cause overall national health spending to drop slightly.
Although it sounds large in absolute terms, the Mercatus paper assumes only a slight drop for health spending in relative terms. It estimates a total of $2.05 trillion in lower national health expenditures over a decade from single-payer. But national health expenditures would total $59.7 trillion over the same time span—meaning that, if Mercatus’ assumptions prove correct, single-payer would reduce national health expenditures by roughly 3.4 percent.
Four Favorable Assumptions Skew the Results
However, to arrive at their estimate that single-payer would reduce overall health spending, the Mercatus paper relies on four highly favorable assumptions. Removing any one of these assumptions could mean that instead of lowering health care spending, single-payer legislation would instead raise it.
First, Mercatus adjusted projected health spending upward, to reflect that single-payer health care would cover all Americans. Because the Sanders plan would also abolish deductibles and co-payments for most procedures, study author Chuck Blahous added an additional factor reflecting induced demand by the currently insured, because patients will see the doctor more when they face no co-payments for doing so.
But the Mercatus study did not consider whether providing completely free health care to all U.S. residents will induce additional migration, adding even more costs to the system. As Hillary Clinton testified before Congress in 1993: “We do not think the comprehensive health care benefits should be extended to those who are undocumented workers and illegal aliens. We do not want to do anything to encourage more illegal immigration into this country. We know now that too many people come in for medical care, as it is.”
Second, the Mercatus study assumes that a single-payer plan can successfully use Medicare reimbursement rates. However, the non-partisan Medicare actuary has concluded that those rates already will cause half of hospitals to have overall negative total facility margins by 2040, jeopardizing access to care for seniors.
Expanding these lower payment rates to all patients would jeopardize even more hospitals’ financial solvency. But paying doctors and hospitals market-level reimbursement rates for patients would raise the cost of a single-payer system by $5.4 trillion over ten years—more than wiping away any supposed “savings” from the bill.
Third, by its own admission, Mercatus assumes “virtually perfect success” for a single-payer system in replacing brand-name drug usage with generics. If the government cannot achieve “virtually perfect success” in increasing generic drug utilization—and a cynic might ask whether government has achieved even imperfect success in anything—or greater government “negotiating” power has little effect in jawboning down prices, then the estimated costs of single-payer will rise.
Finally, the Mercatus paper “assumes substantial administrative cost savings,” relying on “an aggressive estimate” that replacing private insurance with one single-payer system will lower health spending. Mercatus made such an assumption even though spending on administrative costs increased by nearly $26 billion, or more than 12.3 percent, in 2014, Obamacare’s first year of full implementation.
Likewise, government programs, unlike private insurance, have less incentive to fight fraud, as only the latter face financial ruin from it. The $60 billion problem of fraud in Medicare provides more than enough reason to doubt much administrative savings from a single-payer system.
Apply the Common Sense Test
But put all the technical arguments aside for a moment. As I noted above, whether a single-payer health-care system will reduce overall health expenses rests on a relatively simple question: Will doctors and hospitals agree to provide more care to more patients for the same amount of money?
Whether single-payer will lead to less paperwork for doctors remains an open question. Given the amount of time people spend filing their taxes every year, I have my doubts that a fully government-run system would generate major improvements.
But regardless of whether providers get any paperwork relief from single-payer, the additional patients will come to their doors seeking care, and existing patients will demand more services once government provides them for “free.” Yet doctors and hospitals won’t get paid any more for providing those additional services. The Mercatus study estimates that spending reductions due to the application of Medicare’s price controls to the entire population will all but wipe out the increase in spending from new patient demand.
If Sanders wants to take a “victory lap” for a study arguing that millions of health care workers will receive the same amount of money for doing more work, I have four words for him: Good luck with that.
Health Care Rationing Ahead
I’ll give the last word to, of all things, a “socialist perspective.” One blog post yesterday actually claimed the Mercatus study underestimated the potential savings under single-payer: “[The study] assumes utilization of health services will increase by 11 percent, but aggregate health service utilization is ultimately dependent on the capacity to provide services, meaning utilization could hit a hard limit below the level [it] projects” (emphasis mine).
In other words, spending will fall because so many will demand “free” health care that government will have to ration it. To socialists who yearningly long to exercise such power over their fellow citizens, such rationing sounds like their utopian dream. But therein lies their logic problem, for any American with common sense would disagree.