So why is it viewed as such a radical proposal? All the candidates are afraid to fully explain the economics of how it would work and how it would actually reduce health costs for most Americans, especially lower income. We hear these ridiculous statements about how it would cost $44 trillion over 10 years, something Biden knows is pure fantasy but repeats it because he is smart enough to know that vast majority of uninformed voters will believe it. Sanders is the only one who occasionally says the right things about the cost but has not done an adequate job of fully explaining it. So here are facts...
1) As any current Medicare recipient will tell you the government DOES NOT PICK YOUR DOCTORS. You have many options for coverage.
- You can just take medicare without any other insurance and be reimbursed 80% of your medical costs that are allowed by Medicare. You can pick any doctor or hospital that takes medicare.
- You can buy a supplement that pays the 20% not covered by medicare and pick any doctor that accepts medicare.
- You can join an advantage program like Kaiser and pay nothing extra but you are locked into their system and their doctors.
Why the advocates for MFA don't run ads interviewing current medicare recipients letting them tell people how much they like the system and what freedom of choice they have is a mystery to me.
2) Medicare is not free. Each recipient pays a monthly fee based on income. Base cost for 2020 is $144 but can be higher if your income is much higher.
3) Today, all people who have employer based health insurance are paying on average $462per month per person covered and the employer is paying about $1,172 per month for their part of the insurance premium. So employees pay about $5,547 per year and employers pay about $14,069 per year for a total of $19,616. With 132 million working Americans that multiplies out to a 10 year cost of $26 trillion. The total average total cost of health is about $28,125 per year per household which equates to $36 trillion in year 1 and with 4.8% inflation would equal $44 trillion. This extra cost is what's paid out of pocket.
4) People without employer insurance and not eligible for medicare are paying on average $18,000 per year for a decent coverage plan.
So today when you add up all the costs for medical care it does come up to about $44 trillion over 10 years.
5) Administrative costs are estimated to be 14% of all costs for insurance companies and all the people in companies and health care who are employed to handle insurance claims, etc. This amounts to $5.0 trillion over 10 years.
So if you could cut admin expenses by 90%, saving $4.5 trillion over 10 years, the total cost of healthcare would be about $38 trillion over 10 years.
Now the idea that we would offer totally free healthcare to everyone with neither employers or employees paying anything would indeed require a tax increase of $38 trillion. But that is an absurd assumption. So the obvious solution is to levy a health care tax just like social security. In 2019 a health tax rate of 15% for both employee and employer (30% total) would generate $38 trillion over 10 years.
The table below shows how much employees would have taken out of their earnings. For 77% of the population the annual cost would be less than what they are paying today. And those making over $200K per year the cost would go up.
And the employer part of the cost would represent a big savings to the employers because it's less than what they pay now and they don't have to have administrative people to manage the programs.
Now if you assume that voters would go along with this, which is highly unlikely, then the next big question is how to actually implement this. A sudden shift would be a colossal disaster because the system could not possible cope with any sort or overnight change. So it would have to be phased in over many years. The only thing I think might work would be to lower the medicare eligibility age to gradually convert, something like this:
But even this type of gradual change would probably be very disruptive over many years as unexpected things come out of the woodwork. And doing it over a long period of time would enable endless attempts by those most affected to lobby for change or killing it outright.
And two other big things would have to be adjusted:
One is the loss of revenue for hospitals and doctors if 100% of their income was based on medicare reimbursement rates. This would have to be dealt with and the only option is to up the rates to an acceptable level. This would be a true cost to the government.
The other is cost of drugs. The only way that other countries have much lower drug cost is that Americans are subsidizing the rest of the world. If the price of a given drug was the same in every country then our costs would go way down and the rest of the world would go up. But our percentage decrease would be significantly greater and the rest of the world would go up much less. Any new program would have to demand that prices are the same world wide.
All of this is way to much change for our partisan political system so my thinking is that the only solution is to adopt the Biden plan.... Revive the Affordable Care Act and offer a public option which would be run by medicare. Then the system could evolve at a more organic rate. Many good things could be done within that framework, especially on prescription drug costs.
