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Tuesday, September 17, 2019

Why Medicare for All Is Already Looking More Expensive

Studies concluded that Medicare for All would not only dramatically increase federal spending, but increase total national health spending as well.

Photo by Vidar Nordli-Mathisen on Unsplash

After my study of the costs of Medicare for All (M4A) was published last July, a fierce debate erupted over whether M4A, while dramatically increasing the costs borne by federal taxpayers, might nevertheless reduce total U.S. health expenditures. Now, just one year after my findings, we have substantial additional evidence that M4A would further increase, not reduce, national health spending.

To be clear, no one on either side of this debate questioned my central finding that M4A would increase federal costs by an unprecedented amount, likely between $32.6 trillion and $38.8 trillion over ten years—a federal tab so large that even doubling all projected federal individual and corporate income taxes couldn’t finance it. Yet M4A advocates continued to believe that it could bring national health spending down. That’s become substantially more difficult to argue in light of subsequent events.

Various Cost Estimates

To understand how the picture has clarified, let’s review some of the specifics of my cost estimates as well as those of other experts. Prior to the introduction of Sen. Bernie Sanders’s M4A bill in 2017, various experts—including a team from the Urban Institute, Emory professor Ken Thorpe, and others­—attempted to score the costs of M4A. These studies concluded that M4A would not only dramatically increase federal spending, but increase total national health spending as well.

Subsequent to these studies, but prior to mine, Sen. Sanders introduced his M4A bill. That bill specified that health provider payment rates under M4A would be determined by the same methods used to set Medicare payment rates, which would average about 40 percent less than private insurance rates over the first 10 years of M4A.

Although my study was clear that the actual costs of M4A would likely be substantially higher, mischaracterizations of my conclusions proliferated.

Obviously, if one assumes that payments for all health treatments now covered by private insurance are reduced by about 40 percent, such a dramatic cost-reduction assumption would likely lead to the conclusion that total health spending would decline. My study duly reported the numbers that would derive from this cost-saving assumption but at the same time noted that “it is likely that the actual cost of M4A would be substantially greater than these estimates,” and that they should be regarded as a “lower bound.”

For one thing, federal lawmakers have historically balked at implementing provider payment reductions much smaller and less sudden than those. For another, dramatically reducing provider payments (and thus health care supply) at the same time that M4A markedly increases the demand for health services would almost certainly disrupt Americans’ timely access to quality health care, precipitating unpredictable political fallout.

Although my study was clear that the actual costs of M4A would likely be substantially higher than they would be under the aggressive assumption that all provider payments are suddenly cut to Medicare rates, mischaracterizations of my conclusions proliferated. Some M4A advocates wrote (and continue to write) that my study concluded that M4A would reduce national health spending, even though my study did not say this, and despite various Fact Checkers calling out this claim as a distortion.

Is M4A Less Expensive Than National Health Spending? 

It was certainly fair for M4A advocates to express their belief M4A could and would reduce all provider payment rates to Medicare levels, thereby lowering national health spending. At the same time, it was never accurate to misattribute this finding to my study, which had found that such severe cuts were unlikely to be implemented. But now we know more about these dynamics than when my study was published. Based on events over the last year, even M4A’s strongest advocates can’t expect that such dramatic provider payment cuts would be successfully implemented under M4A.

When my study was first released, some M4A supporters argued that my lower-bound estimate was the best one because it most closely reflected the literal text of the Sanders bill. As one wrote in defense of my lower-bound projection’s credence,

For now, the Sanders bill would pay health care providers at Medicare rates, which are on average 40 percent lower than private insurance rates.

In other words, they argued that regardless of whether that course of action was politically realistic, it was nevertheless what was written into the bill, and so it was fair to assert that M4A “as written” would lower national health costs (setting aside the issue of whether my lower-bound estimate’s other assumptions of substantial savings in drug prices and administrative costs were too optimistic).

However, more recently M4A advocates have been rapidly backing away from this interpretation. For example, an Aug. 20 letter to The Wall Street Journal argued that

nowhere in the House or Senate Medicare for All bills does it state that Medicare for All would reimburse hospitals at current Medicare rates. The Senate bill states that payment would be established in a manner consistent with current processes.

An expert recently interviewed by Politifact offered a similarly revised interpretation of the Sanders language: that the text of the bill only requires that a Medicare-style rate-setting process, not actual Medicare rates.

The article states,

the Medicare for All bill sponsored by fellow Democratic candidate Sen. Bernie Sanders (I-Vt.) doesn’t actually say hospitals would be paid at Medicare rates. . . . Politically, Anderson argued, the odds are ‘quite low’ that the government would decide to pay all hospitals the current Medicare rates for all services, though it would set a lower price than what many private plans now pay.

High-Cost vs. Low-Cost Visions for M4A

The intended message to health providers of these statements is clear: don’t worry, if M4A is enacted, lawmakers won’t really cut your payments down to Medicare levels.

As interpretations of the M4A bill’s legislative language, these assertions are a stretch. The bill language says specifically that the federal government will establish “fee schedules” for M4A that are consistent with those that result from Medicare’s rate-setting process. My study observed that such stipulations were likely to be amended on the way to enactment, not that they would be enacted as is and then simply ignored. It’s difficult to construe the legislative language as leaving the federal government free to arrive at whatever payment levels are deemed politically acceptable, rather than those that arise under the current-law Medicare process.

But putting aside the interpretative stretch, advocates’ recent efforts to massage the bill’s intent would, if successful, clearly negate the basis for any claim that M4A would lower national health costs. Such claims of cost savings were always based entirely on the assumption that M4A would lower private insurance payment rates not just a little bit, but all the way down to Medicare levels. Indeed, projections by multiple experts indicate that if instead M4A’s payment rates were set higher than Medicare’s current rates—even if only at the bare minimum that enables hospitals to break even—national health spending would rise, not fall, as a result of M4A’s substantial coverage expansion.

The initial promises of lower costs would give way to the realities of federal government deal-making.

Of course, the aforementioned quotes represent the perspectives of just certain individuals, and by themselves are not proof that every M4A advocate is now embracing a higher-cost vision for the program. But the quotes also align with what happens, and is now happening, when government-run health plans are developed.

As previously noted, M4A advocates’ recent shift to supporting higher provider payments is exactly what my study anticipated upon an actual attempt to enact M4A. The initial promises of lower costs would give way to the realities of federal government deal-making. It is always an analytical mistake to unfairly compare the messy reality of existing policies, which have been run through the real-world legislative wringer, to an idealized fantasy alternative that hasn’t. But we don’t need to wait to see these messy compromises rearing their heads with respect to M4A. The shift to countenancing higher government expenditures under M4A is already happening.

One such scenario recently played out in the state of Washington, which was attempting to set up its so-called “public option”—i.e., a state-run plan through which those lacking other health coverage could acquire it. Here, too, the initial idea was to pay providers participating in the public option at Medicare rates—until, that is, the legislation actually started to move.

Crumbling Rationale

By the end of the process, the legislation had shifted from paying providers at levels no higher than Medicare rates, to paying them at levels no higher than 160 percent of Medicare rates. Faced with the reality that providers wouldn’t support or participate in the plan at Medicare rates, sponsors simply buckled and promised more public funds until opposition was defused and the legislation could pass.

It should be obvious that this cost-increasing dynamic is even more inevitable with a federal M4A program than it was with Washington state’s “public option.” Under M4A there would be only the one single-payer plan, and providers would either have to participate in it, or cease to practice. Obviously, America’s health providers would fight several times as hard against payment cuts under M4A that they could not escape, as they needed to do against Washington state’s public option in which they could simply have chosen not to participate.

One M4A advocate understood the significance of the stakes in Washington state:

This would be a massive game changer . . . if they were able to somehow not only convince a statewide network of doctors and hospitals to agree to a 40% pay cut, but to also manage to make such an arrangement work without driving those hospitals, clinics or physicians into bankruptcy.

But they didn’t do so, because they couldn’t.

The great promise of M4A for its advocates is that it will be able to simultaneously offer Americans more comprehensive coverage while also bringing health costs down. But M4A can’t bring health costs down unless it dramatically cuts payments to providers. What we’ve learned over the last few months is that, when faced with a choice between abandoning government-run health care and abandoning cost containment, supporters are choosing to abandon cost containment. By so doing, the core rationale offered for Medicare for All—that it would deliver better health care for less money—is being undone.

This article is republished with permission from Economics 21.

  • Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21.