The Corner

Health Care

A Libertarian Think Tank (Still) Did Not Find That Medicare for All Saves Money

Senator Bernie Sanders (I, Vt.) greets attendees before an event to introduce the “Medicare for All Act of 2017” on Capitol Hill in Washington, D.C., September 13, 2017. (Yuri Gripas/Reuters)

From The Atlantic:

The right-wing Mercatus Center found in 2018 that the Sanders plan reduces overall health spending by $2 trillion in the first 10 years. The nonpartisan Rand Corporation has constructed a similar single-payer plan, with pay-fors, for New York State that would result in health-care savings for all families making less than 1,000 percent of the poverty line ($276,100 for a family of four).

This is nonsense, especially regarding the Mercatus study.

As I wrote when the Mercatus talking point started circulating last year:

The study points out that “Medicare for All” would require a ton of new federal spending. So if the author, Charles Blahous, had made assumptions that inflated the program’s costs, he could be accused of twisting reality to make it fit his narrative. To cut off this line of criticism, he made assumptions that slanted in the opposite direction. Specifically, he assumed that a Medicare for All program could pay doctors and hospitals at Medicare rates — even though these are “more than 40 percent lower than those currently paid by private health insurance” and for most hospitals don’t even cover the full costs of providing care — as well as “significant administrative and drug cost savings.”

One byproduct of these assumptions is that the nation’s total health-care spending goes down — that’s kind of what happens when you assume that Medicare is much more cost-efficient than private insurance and then transfer boatloads of people from private insurance to Medicare. The study explicitly notes this problem, and also provides separate estimates in which the program pays the average reimbursement rates rather than Medicare rates — and in which total spending goes up, not down, by trillions of dollars over ten years. Total health-care spending also went up trillions of dollars in an earlier Urban Institute estimate.

In other words, Blahous’s point was that the program would be incredibly expensive even under ridiculously favorable assumptions — and the Left is running around claiming Blahous’s work as support for the ridiculous assumptions. Blahous himself debunked to this misuse of his research in a piece called “No, My Study Didn’t Find Medicare for All Would Lower U.S. Health Costs by $2 Trillion.”

The RAND study, meanwhile, did find savings but also came with a lot of uncertainty, as I explained here:

What the study actually shows is that single-payer could do just about anything, depending on what assumptions you start with. . . .

The study’s “base case” estimate is that single payer would reduce total health-care spending in the state by 1 percent by 2022 and 3 percent by 2031. Some key assumptions, however, are that (a) administrative costs will eat up only 6 percent of the money for health-care services; (b) provider payment rates will “grow at a rate equal to that in Medicare and Medicaid” (which is lower than the rate at which private payments are growing); (c) drug prices will be 10 percent lower than status-quo Medicare prices; and, most troublingly, (d) “increased patient demand for services would not be fully met because of ‘congestion’ — nonfinancial factors limiting the supply of services.”

But the study also shows some alternative scenarios. In one, provider payments increase at the private rate, the administrative rate is 12 percent, and drug prices are higher. In that case, health spending goes up 7 percent by 2022 and 12 percent by 2031. And if you yank the assumptions in the opposite direction, costs go down quite dramatically, 12 percent by 2022 and 15 percent by 2031.

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