In this episode I address the next shoe to drop in the biggest political scandal of our time. I also address the petty liberal response to the robust Trump economy. Finally, I discuss the disastrous Bernie Sanders healthcare plan.
Part 1 concluded by quoting Bernie Sanders and Alexandria Ocasio-Cortez misinterpreting the Mercatus’ Institute study analyzing Medicare for All, which they claimed proved that a MFA plan would save the nation money. They’re arriving at this conclusion by claiming that while their MFA plan would cost $32.6 trillion over 10 years according to Mercatus, our current system is projected to cost $34.6 trillion over 10 years, hence two trillion in savings. While most people’s money would have to be sent to the taxman rather than the insurance company, Sanders and Cortez believe that consumers would actually end up spending less money after all.
And they’re comically wrong.
Mercatus’ Cost Estimates Were a Bare Minimum in a Cartoonish Best Case Scenario
As already noted in part 1, the Mercatus findings are an absolute minimum cost, and one that includes countless unrealistic expectations that the study simply grants for the sake of evaluating what amounts to a MFA thought experiment. Mercatus personally responded to Sanders and co. to note that their study explicitly states that “It is likely that the actual cost of MFA would be substantially greater than these estimates…” Perhaps the most obvious reason is that Sanders MFA plan assumes that he would immediately cut provider payments by 40% (to reimburse providers at the same rate as Medicare) without any consequences, an impossible assumption.
In 2014, Medicare hospital payment rates were 62 percent of private insurance payment rates. That same year, hospitals were reimbursed roughly 90 cents on the dollar for their Medicare and Medicaid costs – which they had to offset by charging private insurers 144% of their costs for reimbursements. There would be no private market so subsidize government healthcare under Sanders’ MFA program.
The Sanders plan also contains plenty of other cost cutting ideas that are impractical. One such alleged saving would come from reducing overhead, as we’re supposed to believe that the government could administer the nation’s health care with less waste.
Sanders cites Medicare’s administrative costs of 2% (they’re actually roughly 3-4%) as lower than those in private insurance in the realm of 15-20%. During an appearance on Meet the Press, he said:
Private insurance companies in this country spend between 12 and 18 percent on administration costs… The cost of administering the Medicare program, a very popular program that works well for our seniors, is 2 percent. … We can save approximately $500 billion a year just in administration costs.
For the most part, this alleged gap in administrative costs is an illusion created by expressing costs as a percentage rather than a dollar amount. Because Medicare patients are older than the average person with private insurance, their care costs are higher ($11,000 per Medicare recipient in 2014, versus $4,600 per privately covered), so even identical administrative costs would show Medicare having lower administrative costs as a percent of each bill.
Additionally, state and federal taxes related to private insurance costs are counted as “administrative expenses,” while this is not the case for Medicare. Nor is the help that Medicare receives in administration from the Department of Health and Human Services (with help manage Medicare’s accounting), or IRS and Social Security Administration (which collect taxes to fund the program) counted as “administrative costs.” Medicare’s administrative costs would double to roughly 6-8% if their help from other agencies were included in administrative costs.
Even neglecting those three phenomena above, Medicare still has higher administrative costs per beneficiary. According to Robert Book:
In 2005, Medicare’s administrative costs were $509 per primary beneficiary, compared to private-sector administrative costs of $453. In the years from 2000 to 2005, Medicare’s administrative costs per beneficiary were consistently higher than that for private insurance, ranging from 5 to 48 percent higher, depending on the year.
Extrapolated, if the rest of America were added onto Medicare’s roles, and administrative expenses remained constant, they would increase by roughly $12.5 billion. While that’s not much in the context of total health care spending – it’s a world away from the $500 billion in savings that Sen. Sanders projects.
And to drive yet another nail in this myth’s coffin’s, Medicare is also more susceptible to fraud, with the Government Accountability Office (GAO) finding $96 billion in improper Medicare and Medicaid payments in 2016. For reference, $96 billion is double what Medicare and Medicaid spent on all administrative costs that year.
For Medicare For All To Work Under the Sanders Plan – Doctors Would Have to Work for 50 Cents on the Dollar
If Sanders really wants to save money, he would have to tackle a major component of health care spending: labor.
An inconvenient truth that few proponents of MFA will acknowledge is that their system will only be economically viable if doctors are willing to work for roughly half their current salaries. Good luck selling that to someone racking up six figures of debt in medical school (perhaps that’s why I haven’t seen groups like “Physicians for a National Health Program” acknowledge the effect their plan will have on their fellow physicians).
Look no further than countries that already have single payer/MFA systems if you want a hint on how much doctors have to earn to make such programs financially viable.
According to a study by the American Medical Association, “The average pay for specialist physicians in the U.S. was $316,000 in 2016, compared with an average of $182,657 for all 11 of the countries surveyed. Generalist physicians in the U.S. earned $218,173, compared with an average of $133,723 in all 11 countries. U.S. nurses earned $74,160 on average, compared with $51,795 in all 11 countries.”
Of the top fifteen highest paying jobs in America, the first 11 are all related to the medical field. To put this in more quantifiable terms:
Because our doctors are paid, on average, more than $250,000 a year (even after malpractice insurance and other expenses), and more than 900,000 doctors in the country, that means we pay an extra $100 billion a year in doctor salaries. That works out to more than $700 per U.S. household per year.
Even if we were to grant that doctors in America are overpaid, a halving of their salary represents a psychological hurdle that most doctors or prospective doctors would not be able to overcome. None of this is to say that lower physician salaries wouldn’t be a net benefit for healthcare consumers, but an immediate slashing in half with no other changes as required by the Sanders plan is an impossible hurdle to clear.
Practically all of the 2020 Democrat candidates have rallied their support behind a “Medicare for all” program, with differing levels of government involvement among their specific plans.
While some plans could take the form of achieving universal coverage by expanding already-existing public programs to those without health insurance, the likes of Bernie Sanders and Kamala Harris support a complete overhaul of the private insurance system whereas everyone ends up receiving the same government healthcare plan, and private insurance is banned. Over 100 House Democrats support banning private health insurance, so such an extreme concept is clearly gaining momentum on the Left.
Of all the 2020 candidates, Sen. Sanders has the most detailed Medicare for All (MFA) plan, and it has existed long enough that numerous organizations have studied its likely impact. For that reason, I’ll be criticizing the questionable math behind the Sanders MFA plan in particular (which other Democrats will likely mold their versions from).
Mercatus’ Sobering Study
According to a comprehensive review from the Mercatus Center, Bernie’s MFA plan would increase the federal budget’s healthcare expenditures by at least $32.6 trillion above current levels projected over the 10-year period from 2022-2031. For some perspective, doubling current projected federal income tax and corporate income tax revenues over the same time period wouldn’t be enough to pay for that increase. While defenders of MFA will point out that some of the new taxes people will pay will be offset by them no longer paying for private health insurance, Mercatus’ estimates prove those individuals would still be paying more overall under the Sanders proposal.
It must be emphasized that the $32.6 trillion figure is the absolute minimum increase in spending needed to facilitate a MFA plan, because Sen. Sanders’ plan assumes that healthcare providers will see their reimbursements fall 40% below current levels under private insurance, and also assumes large cost savings in pharmaceutical spending. These are unrealistic assumptions, but since they are included in Sen. Sanders plan, they are granted by the study to show what would happen in a best case scenario. Sanders also could’ve said he could cut healthcare expenses in half with a magic wand and the study would’ve granted it.
Another reason Mercatus’ estimates are conservative is due to the fact that Mercatus time-frame is from 2022-2031, assuming enactment of MFA in 2018 (due to when the study was conducted). Obviously, enactment would be in at least 2020, so the time-frame has to be pushed back at least two years. And since health care costs increase every year, there are an additional two years of healthcare inflation to account for in estimates.
Sanders’ MFA plan will increase health care costs for a number of reasons:
- The most obvious expense will stem from the previously uninsured becoming covered. While the uninsured do still spend money on healthcare as a category, they are expected to increase their health expenditures by 89% with MFA.
- Eliminating cost-shared for the already-insured.
- Increasing the range of health services offered.
- The absence of deductibles and “free” aspect of care will increase utilization among the previously insured too. While health care is not literally “free,” it is “free” to the individual user, and we all know how supply and demand works. The Sanders’s plan calls for “no cost-sharing, including deductibles, coinsurance, co-payments, or similar charges, be imposed on an individual.” Practically all single payer healthcare systems worldwide make the patient pay at least something, even if it is minuscule.
Quoting Mercatus, “These effects are estimated to add $435 billion to national healthcare spending. The plan would sharply cut payments to providers, subtracting $384 billion, and has also been credited with $61 billion in lowered prescription drug costs. Combining these effects results in projected (annual) personal health spending in 2022 of $3.849 trillion.”
Are Mercatus Findings Biased?
As some readers are already aware, the Mercatus Institute has libertarian-leanings and receives some funding from the Koch brothers (two modern boogeymen of the Left). It doesn’t take a genius to ask the question of if it’s really all that surprising that a libertarian-leaning think tank would come to the conclusion that MFA would cost an arm and a leg – but they’re hardly the only think tank coming to a similar conclusion.
The center-left Urban Institute projected a 10-year additional cost of $32 trillion from Sanders’ MFA plan when they analyzed it in 2016 (for the time period 2017-2026). Another 2016 study of the same time-frame from the Center for Health and Economy projected that Sanders’ MFA plan would increase deficits by $27.3 trillion (and total new spending by $34.67 trillion).
The discrepancy in estimates comes between the latter two studies comes from the fact that the Urban Institute’s projections include a $2.94 trillion cost estimate for Sanders’ plan’s provisions for covering long-term supports and services (LTSS), which the Center for Health and Economy does not.
Humorously, Sen. Sanders and others have completely misinterpreted the Mercatus study’s results as proving his plan would insure the nation at a lower cost than we spend currently on healthcare.
“Thank you, Koch brothers, for accidentally making the case for Medicare for All!” captioned a tweet where Bernie thanked the Kochs for helping fund a study that proves Medicare for All would save $2 trillion over a 10 year period.
Alexandria Ocasio Cortez also referenced the study when asked how to pay for her socialist proposals by CNN’s Jake Tapper; “One of the things that we need to realize when we look at something like ‘Medicare for all — ‘Medicare for all’ would save the American people a very large amount of money.”
They couldn’t be more wrong – stay tuned for that blunder in part two.
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