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Commentary By Avik Roy

Bernie Sanders' Single-Payer Health Care Plan Would Increase Federal Spending By At Least $28 Trillion

Health, Health, Health Affordable Care Act, Healthcare

On Sunday, January 17—hours before the Democratic presidential debate on NBC—Vermont Senator Bernie Sanders released details of his proposal to replace the entire U.S. health care system with a universal, government-run, single-payer one. “Twenty-nine million Americans today still do not have health insurance,” said Sanders in a white paper published on his campaign website. “We must…achieve the goal of universal health care.” Sanders also published an analysis indicating that his plan would increase federal spending by at least 55 percent, reigniting the debate about whether single-payer health care is worth the money.

(DISCLOSURE: I am advising Sen. Marco Rubio, but the opinions in this post are mine, and do not necessarily correspond to those of Sen. Rubio.)

Berniecare’s core concept: Free health care for everyone

In recent days, Hillary Clinton has criticized Sanders on health care policy. Clinton has claimed that Sanders’ single-payer plan would dismantle Obamacare, forcing Democrats to “start over again” and “set us back.” Her campaign has pressed Sanders for details on how his plan would work. Hence Sanders’ new publications.

“While Sanders bills his plan as “Medicare for all,” it bears little resemblance to Medicare, which does in fact require premiums and cost-sharing from its enrollees”

In Sanders’ eight-page campaign white paper, entitled “Medicare for All,” the self-described “democratic socialist” outlines his plan’s core principles.

The plan would effectively abolish the private health insurance industry, including companies like UnitedHealth Group, Aetna, and Anthem. It would charge the government with designing and administering a universal, comprehensive insurance product that would cover “the entire continuum of health care, from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics and treatments.”

Berniecare would also abolish cost-sharing by patients; i.e., no co-pays, deductibles, or coinsurance payments, and minimal premiums. “No more fighting with insurance companies when they fail to pay for charges,” says Sanders.

While Sanders bills his plan as “Medicare for all,” it bears little resemblance to Medicare, which does in fact require premiums and cost-sharing from its enrollees, though this cost-sharing is heavily subsidized by younger taxpayers.

In addition, Medicare does not cover every category of health care service, nor does it cover catastrophic health care needs. As Ezra Klein notes, “The list of what Sanders’s plan would cover far exceeds what Medicare offers, suggesting, more or less, that pretty much everything will be covered, under all circumstances.”

Berniecare would increase total federal spending by at least 55%

Warren Gunnels, Sanders’ policy director, retained Gerald Friedman, an economist at the University of Massachusetts at Amherst, to come up with a fiscal score of the Sanders plan. Friedman estimates that the plan would require $13.8 trillion in new government spending in the decade spanning 2017 through 2016. But that estimate is misleading, for reasons I’ll outline below.

(Bear with me; this section and the next one have a lot of numbers.)

The Centers for Medicare and Medicaid Services estimate that national health care spending from 2017–26 will approximate $47.4 trillion. $13.6 trillion of that is spent by the federal government and $8.4 trillion by state and local government; the remainder is spent directly by private businesses ($9.2 trillion) and individuals ($12.8 trillion).

Friedman, the UMass economist, believes that the Sanders plan will reduce national health care spending by $6.3 trillion, presumably by some combination of rationing care and government price controls, though these aren’t specified. Sanders misleadingly implies that his plan wouldn’t require rationing (“No more fighting with insurance companies”), but a footnote in the Friedman memo indicates that Berniecare would fail to cover “20% of out-of-pocket spending” because it is “deemed not medically necessary.”

Since Berniecare would replace the entirety of the existing U.S. health care system with a new single-payer one, Friedman projects its total cost to be $40.9 trillion from 2017 to 2026, and argues that the plan would raise enough in taxes to cover $13.7 trillion in new government spending.

But Friedman ignores a critical fact: a big chunk of today’s government health care spending is undertaken by states and localities, not the federal government.

As a result, even by Friedman’s own optimistic projections about what single-payer health care could save, Berniecare would increase federal spending by $28.3 trillion over ten years. If Friedman is wrong, and the plan fails to reduce the growth of health care spending, it would result in $32.7 trillion in new federal spending.

The Congressional Budget Office projects that total federal spending from 2017 to 2026, under current law, will approximate $51 trillion. So, under Friedman’s rosy scenario, Sanders’ health care plan would increase federal spending by an astounding 55 percent. If the promised savings fail to materialize, it would increase federal spending by 64 percent—or more.

Such a plan would, of course, be a boon to the budgets of states and localities, who would be freed from the need to pay for health insurance through programs like Medicaid. But there would be no guarantee that Americans would see those savings in the form of lower taxes. Indeed, in most cases, states would be likely to keep the money and spend it on other priorities.

At least $14 trillion in new taxes, deficits

Berniecare would partially pay for that $28.3 trillion in new federal spending by raising $13.9 trillion in new taxes. The plan would impose a new 6.2 percent payroll tax, raising $6.3 trillion. It would levy a 2.2 percent “income-based premium” on U.S. households, raising $2.1 trillion.

Berniecare would raise income taxes, taxes on capital gains and dividends, estate taxes, and cap tax deductions, raising another $2.4 trillion. Because the plan would replace employer-sponsored insurance with government-run health insurance, it would reap $3.1 trillion in new taxes from the workforce: a kind of super-charged Cadillac tax.

“Even when Democrats controlled 60 seats in the Senate—a filibuster-proof majority—they couldn’t enact single-payer health care. It’s hard to imagine Democrats regaining a 60-seat majority anytime soon, let alone control of the House.”

In sum, if Friedman is right that Berniecare could reduce the growth of national health spending, the plan would “only” increase the deficit by $14.4 trillion. If Friedman is wrong, the plan could increase the deficit by nearly $19 trillion.

And Friedman is almost certainly wrong. It’s far more likely that once Berniecare made virtually every health care service free to the consumer, that health care spending would go up, not down. Furthermore, the $14 trillion in new taxes would hammer the economy, leading to less federal revenue and greater deficits.

Kudos to Sanders for putting numbers on paper

Bernie Sanders’ single-payer fantasy will never happen. Even when Democrats controlled 60 seats in the Senate—a filibuster-proof majority—they couldn’t enact single-payer health care. It’s hard to imagine Democrats regaining a 60-seat majority anytime soon, let alone control of the House of Representatives.

But even 60 Democratic senators would face massive resistance if they attempted to increase federal deficits by $14 trillion—or more—by imposing single-payer health care.

So we owe Bernie Sanders and Gerald Friedman a measure of thanks. By unintentionally pointing out the utter foolishness of single-payer, government-run health care in America, they’ve given us more impetus to think about how we could make the health care system better—and expand access to more people—by putting individuals back in charge of their own health care dollars.

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UPDATE: John Goodman points out that if the point of single-payer is to save money through price controls, you don’t have to impose single-payer: just a price-control law. Ryan Ellis elaborates on the impact of Sanders’ proposal to hike the estate tax.

This piece originally appeared in Forbes.com's "The Apothecary"

This piece originally appeared in Forbes