Medicare Will Be Good for Everyone — Except CEOs
The only people who won't benefit from Medicare for All are the insurance industry CEOs profiting off people's pain.
Supporters hold signs as U.S. Sen. Bernie Sanders (I-VT) speaks during a health care rally at the 2017 Convention of the California Nurses Association/National Nurses Organizing Committee on September 22, 2017 in San Francisco, California. Justin Sullivan / Getty Images
- Interview by
- Doug Henwood
How much will universal health coverage cost? The Mercatus Institute, a Koch-funded free-market think tank at George Mason University, recently put it at $32 trillion over the next decade. That sounds like a lot, but is it?
Well, the study also estimated that the cost was $2 trillion less than it would cost to do just the same thing as we are now — which is surprising considering the source, but much less interesting to mainstream reporters.
But the Political Economy Research Institute at the University of Massachusetts has its own estimates. Its long and rigorous study shows we could cover everyone in the United States with no copays and cut overall health spending by almost a fifth. Lead author Robert Pollin, professor of economics at the University of Massachusetts and co-director of PERI, recently spoke with Doug Henwood for his Jacobin podcast Behind the News. You can subscribe to Behind the News and our other podcasts here.
We hear all of these cost estimates on the TV, in the mainstream media that put an enormous price tag on Medicare for All and say we just can’t afford this. This is very misleading, isn’t it?
Completely misleading. The fact of the matter is Medicare for All will cost less than what the United States is now paying for health care.
That’s not very hard to accomplish because what we’re paying is exorbitant already. We’re paying about 18 percent of GDP, $3.3 trillion. Other countries at similar development levels such as Germany, France, UK, are paying between 9 percent and 11 percent of GDP for health care.
The difference between us paying 18 percent and them paying 11 percent, in the United States economy, that’s $1.1 trillion. So there’s got to be some number between 18 percent GDP and 11 percent that we can easily hit through establishing Medicare for All.
These estimates always double count the actual cost of Medicare for All, because they forget that we would no longer be paying private insurance premiums.
Right. So one of the things we did in our study to try to make that point blindingly clear was setting up a financing framework in which the main source of financing will still be business premiums. They are taxes, but they’re still health care premiums. We said, whatever the businesses who cover their workers are paying under the existing system, the day after Medicare for All starts, they just pay 8 percent less. That establishes the point that this system is cheaper than the existing health care system.
Now what about out-of-pocket expenses? For Medicare right now, there’s a 20 percent copay. Does Medicare for All envision keeping that?
No. There’ll be no copays, no co-financing at all. Everybody just goes to see medical providers when they need to; they don’t have to worry about covering anything. There’s some very minor copays on drugs, but they’re tiny.
When people talk about the US health care system, aside from the expenses, people often focus on the close to 10 percent that are not insured at all. It’s come down a bit under the ACA, but it’s still quite high. But even people with insurance are often quite underinsured, right?
Right. Officially we have about 9 percent uninsured at present. But if you look at the Commonwealth Fund, which does very good studies, their survey data shows we have about 26 percent of the population underinsured. By our definition of underinsured, these are people that did not get treatment because it was too expensive. It was going to create a hardship in terms of their budget, so they just didn’t get the treatment.
So over one-third of the entire population is either uninsured or underinsured. And, of course, the uninsured are not costless. They get taken care of at some public expense.
Yes, they do. Basically, what we’re spending on the uninsured is roughly half of what we spend on the insured. Those are out-of-pocket expenses on their part, but then through charity and government support, the uninsured are covered.
Another point that people forget is that we already have an extremely large public sector financing of health care. So the amount the public sector spends on health care in the United States is often very close to what countries spend on their entire healthcare budgets as a percent of GDP.
Right. So right now, our health care system is financed 60 percent through public sources. That’s Medicare, Medicaid, the Veterans Administration, the Defense Department, other public sector employee funds. And then finally, the tax subsidies that people get when you are able to write off your health insurance costs in your taxes (which turns out to be a massive subsidy for the rich, because they have more expensive health plans).
But if you add all of those up, we’re at over 60 percent public financing. So that when we talk about Medicare for All supplanting our existing system, what we really have to come up with is just funds to cover the 40 percent of total financing that now goes into private insurance.
And doing the math in my head, that 60 percent is roughly 10 percent of GDP. Which is pretty much what countries like Canada and Britain are already paying.
Exactly. Good math.
Where do these cost savings come from? You’re talking about expanding coverage — not just covering the uninsured, but covering the insured more adequately. That would increase demand for services. So how do we get the overall cost down?
We are assuming that we have full coverage for everybody with no copayments of any kind, so we will see the system be used more. We want people to use the system more, especially those that have been uninsured or underinsured.
So we estimate at the high end figure that use will go up by 12 percent relative to what it is now. (That number, by the way, is higher than the Koch Brother-funded study, which was, their estimate for utilization increase was 11.3 percent).
Where do we get savings? There are three main sources. The biggest single one is administration. We save a huge amount on administration, because the private insurance system now spends about 12 percent on administration, whereas our Medicare system spends about 2 percent on administration. We assumed that Medicare for All wouldn’t get administrative costs down to 2 percent, though we might have assumed that. We said administrative costs would get down to 3.5 percent.
That means you save about 9 percent of total system costs through reducing the administrative burden. That is the biggest single source of savings.
The second biggest is lowering pharmaceutical prices. That’s going to be about a 6 percent reduction in total system costs. Because in the United States today we pay roughly 50 percent more for prescription drugs than Canada, Germany, France, and the United Kingdom. Because those countries bargain as a bloc, their health care systems bargain against the pharmaceutical companies, so they get much better prices. We’ve got about 6 percent system savings there.
The third biggest one: it’s built in that all providers — meaning doctors, hospitals, dentists — will get Medicare rates for their billable hours. Right now, they get higher rates when they are charging private insurance companies, though they have lower rates with Medicaid. On balance, we end up at about 3 percent savings from that.
There are other, smaller sources, but administration, pharmaceutical pricing, and Medicare rates for providers are the biggest. That gets you to 19 percent total savings to operate Medicare for All compared to our existing system.
And that would pay for all the un- and underinsured?
Yes, and we’d still have a system that’s about 10 percent cheaper because of the other savings.
The biggest reason we get savings, of course, is hundreds of thousands of people are going to lose their jobs. They’re redundant; we don’t need them to work in the private insurance system or at doctor’s offices filling out forms. So another feature of our study — which to my knowledge nobody else has done — is thinking about a just transition for the people that are going to lose their jobs. We focus on wage insurance, unemployment insurance at 100 percent of their existing wages, retraining, relocation, and guarantee their full pension.
By cutting prices of drugs by reducing payments to hospitals and doctors, you’re going to generate substantial opposition politically. What do we do about that?
The doctors and hospitals are going to come out fine. We spend a lot of time showing that, yes, we’re going to lower their rates by about 7 percent. On the other hand, they are going to also save on their administrative time. On average, doctors are spending about 8 percent of their week on administrative time. So if we cut their rates by 7 percent on average, but their administrative time goes down by 8 percent, that means they have 8 percent more time to see patients and bill for their time with patients. On balance, they’re going to come out okay.
By cutting prices of drugs by reducing payments to hospitals and doctors, you’re going to generate substantial opposition politically. What do we do about that?
The doctors and hospitals are going to come out fine. We spend a lot of time showing that, yes, we’re going to lower their rates by about 7 percent. On the other hand, they are going to also save on their administrative time. On average, doctors are spending about 8 percent of their week on administrative time. So if we cut their rates by 7 percent on average, but their administrative time goes down by 8 percent, that means they have 8 percent more time to see patients and bill for their time with patients. On balance, they’re going to come out okay.
The pharmaceutical companies and the private health insurance companies are not going to come out okay. In fact, we’re talking about basically the euthanasia of private health insurance. They will be oppose Medicare for All massively. The only way to deal with that problem is to fight against it.
But almost everybody hates pharmaceutical and private health insurance companies anyway.
Everybody hates those people. And, look, Medicare for All is going to save people money, including businesses. The way we designed the payment system, the biggest winners in Medicare for All are middle-sized businesses — around ten to fifteen employees — and the US middle class. If you’re a middle-class family and you have to buy individual insurance on one of the exchanges, Medicare for All is going to save you about 14 percent. Your income is going up 14 percent, just because you switched your insurance.
The same goes for businesses. Any business that’s covering their workers is going to get an 8 percent reduction in their health care costs. So why would they be against this? They shouldn’t be. These people are going to be isolated.
I did a study for California last year, and statewide Medicare for All passed the state senate. Governor Jerry Brown blocked the measure. He was against it. So there was no way it was getting through. But now there’s a new governor, Newsom, who ran on Medicare for All. We have to hold his feet to the fire and make sure he follows through on his promises.
Will people who are now employed and have good insurance from their employer see these savings?
If they’re getting it through their employer, it won’t feel any different. They will be able to see their same provider. It’ll be as though they had insurance through their job. On the other hand, they won’t face the anxiety of losing their health insurance if they were to lose their job or if they wanted to switch jobs.
We proposed a sales tax of 3.75 percent on non-necessities as part of this plan. Households will pay. But any household that is either paying through an individual insurance plan or covering out-of-pocket copays and so forth will see direct benefits.
Overall, every family other than the wealthiest will see significant reductions in their health care expenditure.
You’re also proposing a modest wealth tax, right?
Yes. We proposed a wealth tax of 0.38 percent. That would mean for the average top 1 percent family, that the return on their portfolio goes down from about 5.6 percent to 5.2 percent. They still are going to be doing just fine.
Because of the rise of inequality and the concentration of wealth at the top, that generates roughly the same amount as the 3.75 percent in sales tax on everybody — almost $200 billion. It’s a great revenue source.
Although it’s likely to make the plutocrats scream.
Well, look. We’ve allowed neoliberalism to go on for roughly forty years. The result is an enormous increase in wealth concentration, the takeover of politics by the Right. This is a measure that advances egalitarianism. But, by the standards of the world, it’s pretty modest. Every other country already has a version of this, and they’re paying a lot less for health care, and they’re getting better health care outcomes. Surveys of satisfaction in other countries are much higher relative to the United States.
You’re projecting over the long-term that US health care expenditure would stabilize around 15 percent or 16 percent of GDP. Which is still well above what we see in Canada and Britain, and quite above also Germany and France, who spend more than Canada and Britain.
We’re talking about a difference of a trillion or more dollars, which is enough to save the climate and have enough left over for dessert. Why can’t we get down to those levels?
Very good question. We really wanted this study to be really heavily peer reviewed. One reviewer was Jeffrey Sachs, who was extremely active and very helpful, and was quite critical in some points. This was his main question. “If we’re going to do all of this, we end up with a system that is going to cost 16 percent of GDP. Why can’t we do better, if Canada and the others are 11 percent, 10 percent, 9 percent?”
Some of the other reviewers I have were pushing on the other side, saying, “You can’t make these cuts. It’s unrealistic to think you’re going to get this level of savings.” On balance, this is where I think is realistically we can get to.
I assumed administrative costs would be 3.5 percent of the total system cost. Medicare’s already at 2 percent, so maybe we can get it down to 2 percent. One of the reviewers, William Hsiao at Harvard, is a very eminent health care economist. He said I was way underestimating the opportunity to cut back on fraud. He said, “Fraud is 5 percent of all system costs.” I said, “Okay, well, we can get it down by 2 percent.” He responded, “We can almost effectively eliminate it.”
I’m not sure I believe that. There’s plenty of Medicare fraud. I remember when my mother was in the nursing home they were billing Medicare about $100 a month for essentially clipping her toenails.
The US Institute of Medicine, the National Academy of Science’s branch on medicine, did this huge study in 2010 where they said waste in the system, like what you just described for your mother, was roughly 35 percent of all costs. So when I first started to calculate these things it was like, “Okay, how much of this can we get rid of? We should be able to get rid of a significant amount.” But some of the people in the field said that it was unrealistic. It’s there, but it’s impossible to get to.
I assumed that waste reduction was going to only be 1.5 percent out of the 35 percent that’s there. Over time, I’m assuming we can get more. But even then, I just assumed that we could reduce waste by maybe 1 percent per year. So I assumed that we could initially get Medicare for All at a little less than 16 percent of GDP, and then stay at that rate, because we’re getting savings from waste reduction at 1 percent a year while the population ages (which is going to increase costs somewhat).
That’s where we are. If we actually could institute Medicare for All and stabilize GDP healthcare expenditure at 15 percent, 16 percent, it’s not as good as Canada, but it’s a lot better than what we have now.
I remember back in the days when the Affordable Care Act was being debated, they kept talking about bending the cost curve, bringing health care prices down. We bent it slightly, although I think health care inflation has picked up again in the last few months. But can we keep health care inflation under control?
The historic problem in creating Medicare in the first place was that in order to get it passed, there was no consideration of cost control whatsoever. It was fee-for-service for providers and hospitals, and they set fees pretty much where they wanted. Then, the private system basically tacked on 25 percent over Medicare. That’s basically what we’ve had.
Under the Affordable Care Act, there is very little success in controlling costs. Again, they still didn’t want to confront the private system and the pharmaceuticals, so they instituted various quality control measures, which are very difficult to actually truly measure. And on top of that, it’s easy to game the system by, for example, only taking the patients that don’t need serious care, because then you can provide high-quality care for them. All of those things are going on. So that hasn’t worked at all.
But to get the Affordable Care Act passed, there was no confrontation with the private health insurance companies or the pharmaceutical companies. That’s where the huge waste is. Until we go after those companies, it’s going to be impossible to bend the cost curve significantly.
Getting Medicare for All at the federal level seems like a pretty heavy lift now. But we have a couple state governments where this is plausible. You mentioned California. The new configuration of the state senate in New York means it could be possible here.
But if we can’t get it at the federal level, how plausible is it for states, especially larger states, to do it?
Well, I think it could pass in California. Like I said, in June 2017 it passed in the state senate.
I don’t mean just politically feasible. Could it be financed? Could it be managed?
Yes. There’s one massive challenge: in order for any state system to be viable, the funds that are now going into the Medicare/Medicaid system from the states have to be retained within the states.
One of the features of the Affordable Care Act was a provision introduced by Bernie Sanders, to his credit. The provision was that as long as the new system introduced by a state could demonstrate that it was maintaining health care for its residents at the level that they were getting now, the federal government was obligated to allow the state to undertake this system and retain all of the funds it now uses for Medicare and Medicaid.
You need those funds because they’re something like 60 percent of the total financing. But in reality what is likely to happen if something passes in California, say, and Trump is still president, is that Trump is going to deny California the right to do that. Well, then it’ll become a lawsuit and it’ll probably go all the way to the Supreme Court.
Obviously it would be much easier to enact something at the state level if there is a Democratic president who is at least mildly sympathetic to the idea.
We have this coalition now developing in Congress of Democrats opposed to any idea of single-payer, so not obvious at this point.
Well, not obvious. But 70 percent of the population says they’re for it.
The argument was for a long time, “Yeah, you may be for it, but you don’t know what the hell it is and you can’t pay for it.” I hope that my study and other people’s studies have demonstrated that that simply isn’t true. It was obvious all along that it wasn’t true — other countries are paying a lot less, and they have some equivalent to Medicare for All.
But in the US case, now we have these various studies, including ours, that make it blindingly clear that this is completely practical, and the financing works. It works way better for almost everybody in society. It relieves people of all the anxieties they have about how they cover themselves when they have health problems. It’s a much better way to run a health care system.
On the other side, you have people making tons of money off of a bad health care system. That’s what we are going to struggle over.