The Mercatus Center on Sanders’ Medicare for All Plan

I have seen a lot of chatter on Twitter about the latest cost estimate of the Medicare for All program touted by Vermont Senator Bernie Sanders. The figure I see getting bandied about the most is $32 trillion. But apparently that’s only part of the story.

The $32 trillion government spending increase versus the $2 trillion overall spending reduction

I think the real story is that, overall, the shift to such a plan would shave $2 trillion off of US healthcare expenditures. Here’s how Business Insider reports the figures:

A new report on Bernie Sanders’ Medicare for All plan finds an whopping cost for the federal government. But the price tag may not be as overall eye-catching as it initially seems.

The report, from the libertarian Mercatus Center, showed that Sanders’ plan to extend Medicare to all Americans would increase federal healthcare costs by $32.6 trillion between 2022 and 2032 , if implemented as written…

But the eye-catching cost for the federal government cost only tells part of the story. The government is only one piece of the health system’s puzzle.

The Department of Health and Human Services also measures the total amount spent on healthcare in the US — including the amount paid by states, private citizens, the federal government, businesses, and more. This all-encompassing number is known as the national health expenditure, or NHE.

According to the Mercatus model, total health spending would actually come in approximately $303 billion lower in 2031 than under current projections, with $7.35 trillion going to healthcare that year versus the $7.65 trillion currently expected. Total national health spending would be $2 trillion lower between 2022 and 2031 under the Medicare for All plan, according to the report.

So it looks like a shift in who spends the money but an overall reduction in how much gets spent on healthcare

Other factors to consider

Let’s remember that the US is a special case when it comes to healthcare spending. I saw that when I looked at charts of life expectancy versus healthcare spending back in 2010. There was a clear correlation right across the developed economy with more spending leading to longer life expectancy. The US was the significant outlier.

So, systemic cost reductions are key.

Another factor to consider is Baumol’s cost disease. As wages rise across the economy, labor intensive economic sectors like healthcare come under pressure. That’s because there aren’t necessarily as many productivity gains available to reduce the impact of labor costs.

Much of those costs have to get passed on to consumers, causing healthcare costs to rise relative to the rest of the economy. And that hurts lower income people the most.

How do you reduce that burden?

Finally, my understanding is that the Mercatus report didn’t account for some associated healthcare costs that are relevant like healthcare administration costs and so on. Perhaps the overall savings are greater then.

To me, this Sanders system looks like an overall cost reduction and a cost shift, with the government picking up the tab that used to be paid for by healthcare users out of pocket. Think of it as a socialization or pooling of costs that garners an overall cost reduction. But there will be winners and losers as the government uses taxes to minimize the federal deficit associated with this pooling.

Source: The Costs of a National Single-Payer Healthcare System (pdf) – Mercatus Center