See
How the Urban Institute’s Estimates of ‘Medicare for All’ Costs Stack Up Against Mine by Charles Blahous of Mercatus.
"Last week, a group of scholars from the Urban Institute (UI)
released cost estimates for several alternative approaches to health
care reform, including an updated estimate of the cost of Medicare for
All (M4A) in essentially the form proposed by Democratic presidential
candidates Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA). The
UI team found that M4A would add $34 trillion to federal spending over
its first tenyears. Several people have asked me how the UI team’s
estimate compares with my own that
M4A would add at least $32.6 trillion to federal budget costs over its
first ten years, and most likely substantially more (between $32.6
trillion and $38.8 trillion). To help with comparing the two estimates, I
will first offer some general observations and then some specific
numbers.
Observation #1: Scholars’ estimates of M4A’s costs are remarkably similar. Although
the UI team’s methodologies differ from mine, it is striking how
closely ours and other projections match one another, once adjusted for
what they are measuring, which years are analyzed, and for certain key
assumptions. Policy preferences do not enter into the estimating
process, which simply draws upon the best available data to quantify the
likely costs of M4A.
Observation #2: The UI team’s methodologies are different
from mine, enabling them to analyze a wider range of policies and
outcomes. The UI team makes use of a sophisticated
health insurance policy simulation model (HIPSM), as well as another
model for simulating future individual and household income (DYNASIM). I
did not have access to such models. The potential scope of my analysis
was therefore limited relative to the UI team’s. For example, because I
was working primarily with national aggregates for various categories of
health spending, and did not attempt to project how individuals will
respond to different options and incentives, I could only estimate the
cost of a universal system lacking significant individual choice. I was
able to do so for Sen. Sanders’ M4A proposal because it would provide
first-dollar coverage of nearly all health expenditures for nearly all
Americans. The UI team produced estimates for a wide range of policy
proposals in addition to M4A, and many of these estimates required a
capacity to project individual participation decisions in addition to
other key variables. As we have seen with the Affordable Care Act, it is very difficult for even the most knowledgeable experts to accurately project such outcomes.
Observation #3: My oft-cited figure of $32.6 trillion is a
lower-bound estimate, whereas the UI team’s $34 trillion is toward the
low end of a range. The $32.6 trillion number often
referenced from my study is the number that results from assuming M4A
fully delivers all the cost savings that its supporters aspire to
achieve. Accordingly, my study makes clear that actual costs would
almost certainly be substantially higher than that lower bound. The UI
team surrounds its top-line estimate with various sensitivity analyses
exploring possible deviations in either direction—both more expensive
and less expensive. The UI team’s analyses taken together make clear
that their top-line projection is more likely to underestimate costs
than to overestimate them, but they also indicate that it’s not the
lowest possible estimate.
Observation #4: We now have additional information indicating
that actual costs under M4A would likely be substantially higher than
under either of our headline estimates. Both my
lower-bound estimate as well as the UI team’s estimate assume
substantial cost savings from cutting health provider payment rates down
to or near Medicare levels. Developments throughout this year further substantiate that M4A is highly unlikely to be implemented with such dramatic payment cuts.
Observation #5: None of the approaches modeled by the UI team
would solve both the problems of unsustainable federal health spending
and national health cost growth. Experts generally agree that current federal health spending obligations are
unaffordable and that national health costs are excessive. Each of the
options modeled by the UI team would make at least one of these problems
worse, and half of them would actually make both problems worse.
Now let’s try to quantify more specifically how my estimate compares
to that of the UI team. The UI team’s analysis is most detailed with
respect to year 2020, so my comparisons will focus on that year. As a
starting point for comparison, consider that the UI team projects that
M4A would add $2.845 trillion in federal costs in 2020.
Adjustment #1: Offsetting tax revenues. If
we establish a single-payer system, the federal government will take on
more costs, while employers would no longer compensate workers with
pre-tax health benefits. To the extent that such worker compensation
subsequently takes the form of higher wages, these would be subject to
federal taxes. Taking this additional tax revenue into account reduces
the UI team’s projected net federal budget effect in 2020 from $2.845
trillion to $2.687 trillion. My estimates accounted for this effect, so
UI’s $2.687 trillion figure is the one that more closely mirrors my
analysis.
Adjustment #2: Years studied. My study
focused on the years 2022-31, the first ten years of full implementation
for Sen. Sanders’ 2017 bill at the time I studied it in 2018. Had I
assumed the bill was fully effective in 2020, my lower bound estimate
for that first year would have been $2.340 trillion.
Adjustments #3-5: Long-term care benefits, administrative costs, and hospital payment rates. The
previous Sanders bill I studied did not provide new long-term care
benefits whereas the latest Sanders bill, estimated by the UI team,
does. My administrative cost assumption was also lower than the one
employed by the UI team. The UI team assumed an administrative cost rate
of 6 percent for the entire M4A system, whereas I implicitly assumed a
lower rate by leaving unchanged the current administrative costs of
covering all those now covered by Medicare, Medicaid or other public
insurance. The UI team also assumes M4A would pay hospitals at 115
percent of Medicare rates, higher than the Medicare rates assumed in my
lower-bound projection. Adjusting my estimates for my best understanding
of the UI team’s assumptions would increase my estimate for 2020 from
my lower bound of $2.340 trillion to $2.703 trillion—nearly the same as
the UI team’s $2.687 trillion.
Adjustment #6: Other technical factors. Not
being familiar with the UI team’s models, I cannot know all of the ways
in which their assumptions differ from mine. The UI team uses a
different data base for national health expenditures than the one I
relied upon from the Centers for Medicare and Medicaid Services (CMS).
According to the UI team’s paper, reconciling their estimates with CMS
data would increase their NHE estimates for both current law and M4A by
equal amounts. It’s not fully clear to me whether or how their federal
cost estimates would be affected by this adjustment.
Their sensitivity
analysis also indicates that their headline estimate does not assume a
state-level Maintenance of Effort requirement, whereas my projections
assume one for long-term care. My best guess is that if I employed the
UI team’s assumptions for these factors, my estimates (already adjusted
for assumptions #2-5) would shift slightly downward, to $2.673 trillion.
This once again is extremely close to the UI team’s $2.687 trillion.
There are undoubtedly many other ways in which my assumptions differ
from those of the UI team. It appears that any other differences,
however, largely cancel one another.
Bottom line: The UI team estimates that
M4A’s net pressure on the federal budget in 2020 would be $2.687
trillion. Adjusting my lower-bound estimates for my best understanding
of the UI team’s assumptions would bring mine somewhere between
$2.673-2.703 trillion.
Ten-year cost estimate: The UI team
estimates that new federal costs over ten years (2020-29) would be $32.0
trillion, net of new federal taxes. My lower-bound estimate for 2020-29
would be $29.2 trillion using the best-case assumptions in my paper,
whereas if I employed the UI team’s assumptions as described above, it
would be somewhere between $31.8 trillion and $32.2 trillion.
The latest analysis from the UI team is another piece of information
substantiating what we already know about Medicare for All—that it would
add at least $32 trillion to federal budget costs over its first ten
years. We are still waiting to hear from M4A’s advocates how they intend
to finance this unprecedented increase in federal expenditures, as well
as how they would mitigate the economic damage that would result from imposing this amount of additional taxation upon the US economy."
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