Last week, left-wing politicians, activists and columnists gleefully rejoiced that they had unlocked the easy path to single-payer health care in America: Just cut reimbursement payments to health providers by 40 percent and then raise taxes by $32 trillion over the decade. You know, nothing difficult or controversial.
These liberals are cheering — and broadly misinterpreting — a new report by Charles Blahous of the Mercatus Center. The report’s purpose was to estimate the cost of Sen. Bernie Sanders’ recent “Medicare-For-All” health plan.
Blahous estimates that, in the fantasy world of this proposal, projected national health spending over the 2022-2031 period would dip from $60 trillion to $58 trillion. However, by nationalizing health care, the share of health spending paid by the federal government — and our federal taxes — would rise by $32.6 trillion.
Cutting all hospital and medical providers to Medicare rates — without the ability to recover those losses... would bankrupt many health providers.
Liberal opinion leaders seized on the reduction in national projected health spending as proof that single-payer health care saves money and is thus a bargain. They should not spike the football yet. Under any fair reading of the report, single-payer health care remains as implausible as ever.
First, the 40 percent reduction in provider payments is wildly unrealistic. Sanders assumes that hospitals, physicians and others can be reimbursed at Medicare’s payment rates, which at the time of implementation would be 40 percent below what private insurers receive. Yet Medicare already underpays providers. Blahous explains that “[I]n 2014, hospitals were reimbursed just 89 percent of their costs of treating Medicare patients and 90 percent of their costs of treating Medicaid patients — losses that were offset by hospitals collecting private insurance reimbursement rates equaling 144 percent of their cost.”
Cutting all hospital and medical providers to Medicare rates — without the ability to recover those losses by charging higher insurance rates to others — would bankrupt many health providers.
Next, single-payer advocates haven’t grappled with the $32 trillion tax increase over the decade needed to finance this legislation. While state governments, businesses and families may cumulatively save a comparable amount on health care costs, those savings cannot be converted into a federal “single-payer tax” without enormous redistributive and economic side effects.
Even if we assume Washington could “tax” states for the $4 trillion they save by no longer running programs like Medicaid, they still need to raise everyone else’s taxes by roughly $28 trillion — which would represent a 60 percent increase in federal revenues. According to the Congressional Budget Office, this would require choosing among options such as:
Creating a new 31 percent payroll tax on top of the current 15.3 percent tax; imposing a 72 percent value-added tax (like a national sales tax); or raising income-tax rates by 35 percentage points across the board.
For the record, repealing the 2017 tax cuts would cover just $1.8 trillion of this cost. And even if lawmakers could find the taxes to pay for this plan, there remains the underlying $84 trillion baseline budget deficit projected by CBO over the next 30 years (driven mostly by the soaring costs of “single-payer” Medicare). Add another income tax rate increase of 15 percentage points to pay for that.
This is fantasyland. That’s why Sanders’ legislation skips the taxes altogether. Instead, he offers a webpage listing just $16 trillion of potential tax increases to pay for a $32 trillion bill — and even those questionable tax estimates fail to account for macroeconomic responses, interactions between tax proposals and in several places, political reality.
It is noteworthy that, for all the claims that single-payer health care can “easily” be paid for through provider payment reductions and new taxes that replace the existing health premiums, no one has actually produced a plan showing annual budget shortfalls of less than $1 trillion annually. Until that changes, “affordable single-payer health care” will remain just an empty talking point.
This piece originally appeared at the New York Post
Brian M. Riedl is a senior fellow at the Manhattan Institute. Previously, he worked for six years as chief economist to Senator Rob Portman (R-OH) and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. Follow him on Twitter here. Adapted from Economics21.
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