We Don’t Know

Has there ever been a serious actuarial analysis of what “Medicare for All” would cost? In my cursory investigation so far I’ve found Glenn Kessler’s Washington Post back-of-the-envelope calculation:

The Medicare figure of 2 percent is artificially reduced because some key functions are undertaken by other agencies — and because Medicare’s patients are unhealthier. Meanwhile, the 18 percent figure for private plans appears to be inflated, so it would be more reasonable to rely just on the 12 percent estimate.

But even if Democrats were to be conservative and say Medicare had administrative costs of 5 percent and private plans 12 percent, previous estimates of the administrative costs per patient indicate that Medicare is actually more inefficient than private insurance. We would be interested to see more recent calculations on this issue, but it certainly indicates that single-payer advocates are counting savings that might not materialize.

I’ve seen lots of references to the Mercatus Center’s figures.

I’ve seen Heritage House’s analysis which found that Medicare’s administrative costs per beneficiary were actually about 10% higher than the administrative costs per beneficiary for private insurance.

I’ve seen a study from a number of years ago at the New England Journal of Medicine that found that on average administrative costs in Canada were about half what they are here (a pretty fair indicator but a far cry from the 5% figure frequently quoted).

So far the best analysis I’ve found is from Charles Blahouse at E21:

In sum, supporters of M4A are on fairly solid ground when they credit Medicare with having commendably low administrative costs. But in the aggregate, Medicare for All should be expected to drive total costs up, not down.

Dr. Blahouse was also responsible for the widely-touted Mercatus Center analysis.

What I haven’t seen is a serious actuarial analysis. What do I mean by that? What I mean is a complete analysis of the total costs of the program which takes into account all administrative costs for health care, which doesn’t assume putative non-administrative cost savings which may never materialize, and that takes into account the differences among the various populations involved. Simply assuming a linear extrapolation is not a serious analysis.

13 comments… add one
  • steve

    “The Medicare figure of 2 percent is artificially reduced because some key functions are undertaken by other agencies”

    Not so much. The Heritage report was not made out, IIRC, by health care economists ie people all that familiar with Medicare accounting. Frakt has pointed out several times that if you look at the Medicare reports they account for stuff like tax collection and the FBI doing fraud protection. So when you suggest Medicare admin costs at 50% of private costs, you are at the high end. To further make that clear, we can also use Medisare’s own numbers to compare the costs of its privately administered program, Medicare Advantage. They are much higher.

    https://www.nytimes.com/2018/10/15/upshot/is-medicare-for-all-the-answer-to-sky-high-administrative-costs.html

    Blahouse is correct that costs will go up under M4A. The real question is whether they would go up more than what we currently have. Medicare costs have generally gone up a bit slower that those of private insurers, while providing a more comprehensive product. My take on this is that Mercatus goes to great lengths to oppose saying anything good about the government. I suspect he was surprised at his own finding that M4A would actually reduce overall spending and needed to throw in something bad to keep his job. Also, he is really more of a Social Security guy, not a health care economist.

    Steve

  • I think I’ll take that as a “No”. Considering that changing our health care system from its present structure to a single-payer system would likely be a one-time only thing, I think it’s worth studying seriously, completely, and dispassionately.

    I’ll keep looking for better studies but IMO they have probably become less likely rather than more so since 2010.

  • steve

    Maybe, but my point here is that you have, for whatever reason, chosen the highest possible administrative costs for Medicare. You continue to cite the Heritage numbers when it has been shown that the numbers they claim should be included, are already included in current Medicare accounting. It also seems awfully unlikely that admin costs would actually increase on a per person basis when you would be adding a younger, healthier population. Granted we can never know anything for certain, but using existing numbers and knowing that the incoming population is likely healthier means that you really need to concoct a pretty unlikely scenario to end up with higher costs. (I think this is actually a named fallacy, just cant remember which one.)

    Steve

  • Andy

    Well, let’s do some envelope math.

    Private sector health care spending is about $1.8 trillion a year. Let’s assume the worst case for private administrative costs and the best case for Medicare costs – 18% and 2% respectively, a difference of 16%.

    16% of 1.8 trillion is $288 billion – let’s just round that up to $300 billion. That means we still have to come up with some way to fund the remaining $1.5 trillion dollars per year.

    The whole administrative cost-savings argument is, in my view, both a canard and a red herring.

    No one seems to agree on what the actual comparable administrative costs are today, so to suggest we can know or predict what they will be after the complete overhaul of the largest sector in the US economy is, at best, wishful thinking. It’s all just a gateway for motivated reasoning.

  • TastyBits

    @steve

    (I think this is actually a named fallacy, just cant remember which one.)

    It is called the Obamacare Fallacy.

  • I’m an agnostic on the actual costs. And I’m not demanding excessive precision which I presume is what you’re referring to. I simply think that a move as serious as M4A would be should be considered seriously.

  • steve

    “some way to fund the remaining $1.5 trillion dollars per year.”

    We could use the $1.8 trillion going to private health care.

    Steve

  • Andy

    “We could use the $1.8 trillion going to private health care.”

    It’s so simple, just like we could get Mexico to pay for the wall.

    Even a cursory analysis shows that is not at all practicable given the balkanization of health care funding. It’s not a simple matter of turning health care payments into tax payments.

  • Guarneri

    Every government designed and administered program of any materiality costs more than predicted, and compared to the private sector. I’m supposed to believe that somehow M4A is going to be the one that magically is different. Right. Is it going to be designed and administered by some superior breed of which I’m unaware?

    Pensions? (SS). Education? Military? Welfare? Regulatory agencies? Where do I find these examples of government efficiency?

    Prove me wrong. And no bullshit white paper analyses not worth the paper they are written on. I think analysis is great. I don’t trust the producers of the analysis. They all have an ax to grind.

    It’s not because government is inherently bad, or privates inherently good, or government employees bad. It’s because the incentives in government are improper and run counter to efficiency.

    Wishing that reality away only works on paper.

  • TastyBits

    I was promised socialized healthcare, and all I got was some crummy Obamacare.

    NEWSFLASH: Medicare-for-all ain’t socialized healthcare, either.

  • Gray Shambler

    “No one asks how we’re gonna pay for this Space Force. No one asked how we paid for a $2 trillion tax cut. We only ask how we pay for it on issues of housing, healthcare and education.”

    Rep. Alexandria Ocasio-Cortez

    so there.

  • steve

    “It’s so simple, just like we could get Mexico to pay for the wall.”

    Trying to get another country to pay for something we want was just crazy. Converting private health care payments to pay for public care wouldn’t be easy, but it could be done. You actually have a source of money to work with. People would end up actually having more in their paychecks. Every study ever done on health care admin costs shows this, except for a very few like the Heritage paper which make claims that are incredibly easy to prove false.

    “Every government designed and administered program of any materiality costs more than predicted, and compared to the private sector.”

    But not true in health care. We know admin costs for standard Medicare and we know them for Medicare Advantage, the privately run product. Medicare Advantage costs 2-3 times as much. We also know that this hold true in other countries. Administrative costs in other countries are much cheaper than the costs of our privately administered programs.

    Steve

  • Andy

    “You actually have a source of money to work with. ”

    Only theoretically. There would have to be an industry-wide normalization of revenue to account for all the discrepancies and inequities. For example, on an individual/household basis, some people don’t have coverage and don’t pay anything – some are paying huge amounts out of pocket, some get employer coverage at various prices with various copays. You can’t simply turn what people are paying now into a tax. It has to be normalized and equalized somehow.

    In short out-of-pocket expenses account for ~10% of total healthcare spending and those expenses are not evenly divided across the total population. How will that be accounted for in terms of tax revenue?

    The details matter, they can’t be hand-waved away. The revenue
    stream from a tax-based system will be much different than the current system and that new system will have effects as well as winners and losers. In other words, the $1.5 trillion in M4A tax revenues will not be the same pot of money as the present $1.5 trillion in private revenues.

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