Medicare For All Warning
The other day, the Mercatus Group published a well-researched report estimating that Mr. Sanders’ “Medicare for All” proposal would cost $32,600,000,000,000.00 (aka 32.6 Trillion) over 10 years. This study, which was not out of line from other estimates, and not surprising considering the Vermont single payer experiment and the subsequent California analysis of the same, provoked the gag reflex of any decent macroeconomist. And for good reason. (That’s 3.26 Trillion per year, obviously. Since the rest of the world budgets annually, we need to normalize to provide perspective.)
Some fun facts:
- The total budget of the US is right around 4 Trillion a year.
- The corporate income tax provides about 500 billion a year.
- The individual income tax provides about 2 trillion a year.
- The rest comes from payroll taxes and borrowing
So, obviously, the item that provokes the gag reflex is the fact that taxes and/or borrowing would have to be raised 80% to pay for it all. However, if you look at European tax rates, this is not so surprising, in that most of the middle class in Europe pays rates which are triple what our middle class pays, their upper earners pay about double, their lower income classes actually pay taxes rather than get rebates like they do in the US, and they top it off with a 15–35% national sales tax (VAT) to make it all work.
(It is not controversial to suggest that if you want Europe’s bells and whistles, you’re going to have to be taxed like Europeans.)
Well, when the Mercatus report was first released, the standard array of rationalizations from the Left was deployed. That the Report was “Koch Funded”, was the first salvo. (Of course, it is a logical fallacy to assume that any report is false based on its source of funding, but if you have no critical thinking ability, you don’t worry yourself about logic.)
But, in the last 48 hours, a new, and even more frighting refutation of the Report has emerged. Instead of trying to refute the Report, the Left is embracing it; and arguing that a 32.6 Trillion dollar estimate actually SAVES us 2 Trillion dollars over 10 years!
If you think about it a bit, your reaction to that “rationale” should be something like this:
Now, let’s explain why.
The math here is based on the fact that according to the Centers for Medicare and Medicaid, we are now spending close to $11,000 a year, per person, for our health care. Health care costs continue to inflate in the general area of 2X the core inflation rate (which should be a major source of an “we-told-you-so”, because flattening that rate was another “promise” of Mr. Obama and the ACA which never had a chance of becoming real, but let’s not digress).
That all works out to about $34 Trillion and change per year. So, if M4All saves us $2T a year, that’s all good, right?
Wrong. We have an incredible health care delivery capability which suffers in international averages not because it cannot perform as well or better than any other country, but due to the fact that we have a substantial portion of our population that lacks systemic access to care. This brings down our average outcomes compared to other nations; however, it does NOT mean, as is often erroneously assumed, that other nations have better health care capabilities than we do.
So, the goal of any universal care system apropos to the USA should be threefold:
- insure all of our population
- disrupt our excellent existing system as little as possible
- bring down our out of control health care inflation rate
Does M4All do that? Well, yes, no, and no, in that order; one out of three isn’t a good score. Let’s step through the list:
ONE. Does M4All insure everyone? Yes. Congrats. (That’s always been the easy part.)
TWO. Does M4All leave our existing delivery system largely untouched? NO. It would be incredibly disruptive to our existing system, as well as our existing system of taxation. Why? Well, middle class taxes would in many cases triple to European levels, as previously mentioned. However, there’s another, darker side to how the numbers of the European systems add up: they pay doctors, medical technologists and nurses substantially less than we do in the US. Obviously, and on aggregate, that leads to a lower quality of individual choosing the health professions as a career……which is not a goal to be strived for.
(Let’s put this another way for clarity. As everyone knows, going though the education and training to be a licensed M.D. is a grueling ordeal that only the best and brightest qualify for. If the end reward for all that training is making substantially less money than one can make as an IBM salesperson, or a stockbroker, or a being a Home Depot store manager (all of which require no more than a Bachelor’s degree) won’t many of those best and brightest opt for the easier option? And won’t that lead to a lower quality of M.D.? And btw, the same equation exists for medical technicians and nurses. All of them would take a substantial financial hit to make the numbers work out.)
Simply put: M4All upends both our system of taxation AND our health care delivery system, and in return for all that disruption, we only get a lousy one time 9.4% decrease in total annual expenditures. Which leads us to…..
THREE. Does M4A lower the existing health care inflation rate? No, it codifies it into permanent existence. How do we know that? Because we have fifty years of Medicare experience, showing that Medicare NEVER decreased the health care inflation rate; in fact, it was one of the causes of the high health care inflation rate. (Key point here: health care care hyperinflation started a year or two after Medicare came into existence. This is not surprising to any free marketer, due to the fact that after Medicare’s establishment, suddenly close to 50% of the total heath care billings in the US were being paid for with a government check, divorced from the price controlling effect of supply and demand.)
So, although moving to M4All would give us a one-time 9.4% windfall in terms of annual expenditures (so, that $11,000 we spend on average would dip to $9,900), at the existing health care inflation rate (running on average 2X above core inflation per year) that “savings” would be wiped out in 2–3 years, and health care inflation would then continue at its present unsustainable rate unabated.
Any universal care system we choose needs to address the health care inflation problem; if we don’t, all we’re doing is rearranging the deck chairs on the Titanic as it sinks. No system can succeed when costs are escalating at a rate in excess of our ability to pay.
Now, the M4All people will try to claim that this WILL solve the inflation problem; so let’s address HOW they make those (erroneous) claims:
All single payer systems depend on the idea that the government, as a huge buyer, can dictate what it spends on goods and services to the vendors of those services. Nobody is debating that the government can dictate a cost of service; however, there are two rather large (and illogical) assumptions sitting behind that process:
FIRST, that when the scheme is introduced, the quality of the goods and services in the health care sector will not change, and…
SECOND, the availability of the goods and services in the health care sector will not change.
In reality, we know from years of examples of experimentation with social services that neither is true. Go no further than the VA health care system for a domestic example, and there are plenty of other discussions available regarding the problems in high profile single-payer systems in the U.K. and Canada.
In Medicare, the government underpays for goods and services, at a rate below the level at which the manufacturer or provider can turn a profit. So, the manufacturer or service provider keeps the lights on (and food on the table) by OVERBILLING those with private insurance to make up the difference and pad their pockets.
This practice is called “cost-shifting”, and has been going on for decades.
Well, if you have M4All, there are no longer any private payers to cost-shift to, eh? So, the government has to pay the entire load…..and that load will never been sufficient to fuel all the innovation and to incent the best to entire the health care field. Quality of care problems quickly emerge, as they have in other nations. The government gets to choose between raising taxes, or getting the population to accept a lower quality of service.
This is a fool’s bargain.
So, what we do we actually have, here? A proposal wrapped up like a bright, shiny object, designed to be attractive to people who don’t understand (or care) about either human behavior or the future.
It’s a political proposal, not one for the real world. We may have been able to implement M4All back when Medicare was first legislated; but that horse has left the barn. We need to do better than expand a 1970’s program that itself is in need of modernization to an entire population. Can we have universal care in the US? Of course. But the solution is going to have to be uniquely American, or we as patients will suffer the consequences of yet another major government administrative disaster.