Last year I published a study with the Mercatus Center projecting that enacting Medicare for All (M4A) would add at least $32.6 trillion to federal budget costs over the first 10 years. After the study was published, some advocates misattributed a finding to it, specifically that M4A would lower national healthcare costs by $2 trillion over that same time period. This misattribution has since been repeated in various press reports. Multiple fact-checking sites have pointed out that the study contains no such finding, as did a follow-up piece I published with e21 last year. However, because the mistake continues to appear occasionally, this article provides additional detail about how and why it is wrong.
- New federal costs under M4A would be unprecedentedly large
- We do not know how or whether the federal government could successfully finance its additional spending under M4A
- The projected additional costs of M4A’s coverage expansion would exceed the potential savings from eliminating private health insurance administration
- Current M4A proposals would sharply cut payments to health providers while increasing health service demand, most likely causing supply shortages, and disrupting Americans’ timely access to health care, and
- The costs of M4A would be borne most directly by health providers and those most in need of health services.
Emergency medical care is an exception to the general principle of market exchange, whereby services are voluntarily bought and sold, with sellers competing on price. Under federal law, hospitals are required to treat patients that arrive needing emergency medical treatment, regardless of their ability to pay—but allowed to subsequently charge whatever they wish. In recent years, medical providers have increasingly exploited this arrangement by threatening exorbitant charges for out-of-network emergency care in order to force insurers to agree to generous reimbursement terms across the board. Patients have frequently been caught in the crossfire and forced to pay large “surprise bills” for emergency care by hospitals or doctors who remain out of network.
The core appeal of the 2020 Democratic presidential candidate’s Medicare for All proposals, whether it’s optional buy-ins floated by moderate Democrats or Sen. Bernie Sanders’s comprehensive single-payer reforms, is the notion that enormous savings could be generated by dispensing with private insurance. Advocates claim that that insurer profits, as well as costs associated with managing risk and advertising plans, could be dispensed with, and that hospital fees could be greatly reduced by imposing Medicare rates, which are 40% lower under the M4All plans.Yet, it is notable that no such savings ever have materialized—even under the most propitious of circumstances.
The text of the Medicare for All bill specifies large and immediate reductions in payments to providers now treating patients under private insurance, cuts of more than 40% for hospitals and 30% for physicians, with these respective cuts growing more severe over time. We do not know the extent to which these cuts would disrupt the supply and timeliness of U.S. healthcare services. But without them, the costs of M4A would be substantially greater than $32.6 trillion in added federal costs over the first ten years.