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No, My Study Didn’t Find Medicare for All Would Lower U.S. Health Costs by $2 Trillion

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No, My Study Didn’t Find Medicare for All Would Lower U.S. Health Costs by $2 Trillion

June 4, 2019

Last year I published a study with the Mercatus Center projecting that enacting Medicare for All (M4A) would add at least $32.6 trillion to federal budget costs over the first 10 years. After the study was published, some advocates misattributed a finding to it, specifically that M4A would lower national healthcare costs by $2 trillion over that same time period. This misattribution has since been repeated in various press reports. Multiple fact-checking sites have pointed out that the study contains no such finding, as did a follow-up piece I published with e21 last year. However, because the mistake continues to appear occasionally, this article provides additional detail about how and why it is wrong.

First, some brief background on the study itself. The study estimated the federal budget costs of M4A, as this is an important number that would guide Congress’s procedural points of order if such legislation were considered. The study did not focus on aggregate changes to national health spending under M4A, in part because such estimates do not affect Congress’s legislative procedures. Whenever Congress considers legislation with budgetary significance, such as a new federal program or a tax cut, its procedures are affected by what the bill would do to federal spending, revenues, and deficits, but not private-sector spending. For example, no Congress would consider a large tax cut as having zero budgetary effect, based on the irrelevant rationale that the reduction in federal revenues would be offset by an equal gain in taxpayers’ after-tax income.

Accordingly, my study’s estimates, like any performed by the Congressional Budget Office, focused on M4A’s effects on the federal budget rather than on other areas of the U.S. economy. This is a primary reason why neither the $2 trillion figure nor any other such estimate appears in the study.

However, a critical additional reason why the attribution of $2 trillion in savings is wrong is that it is inconsistent with the study’s conclusions. Some have attempted to convert the study’s lower-bound federal cost estimate of $32.6 trillion into an estimate of savings in national health spending, arriving at the $2 trillion number. It is incorrect to do so, as the following analogy may help to explain.

Imagine that members of a family have separate cell-phone data plans that add up to $57 a month. Now imagine the following conversation:

Q: How much would it cost my mother to buy my cell-phone data for me instead of continuing to pay it for myself? I think she’s better than I am at negotiating a good deal.

A: Well, if she buys it and allows you to use it for free, your usage will typically go up. Even if she’s the brilliant negotiator that you say, it’s going to cost her at least another $33 a month on top of her current expenses. Most likely her extra costs would be between $33-$39, possibly more.

Q: But then it wouldn’t cost me anything, right? Don’t you have to think of it in terms of how much money everyone in the family, together, would pay? If she bought it, how much would my family as a whole be paying?

A: Well, she was already paying $22 each month, so altogether the family would pay at least $55, probably between $55-$61, again possibly more.

Q: But otherwise we’d pay $57. So, you’re saying we’ll save $2 a month because of her superior negotiating skills?

A: No, I didn’t say anything about her negotiating skills; you did. Her actual history shows a tendency to overspend. I’m just saying that even under your assumption, it’s going to cost the family at least $55, probably somewhere between $55-$61. It’s actually highly unlikely it would be as low as $55.

Q: Great, so you’re saying we’ll save $2!

Basically, what some advocates have done is the equivalent of the above. They’ve done this by taking my study’s lower-bound federal cost estimate and converting it into a claim of savings relative to currently projected national health spending. The study does indeed emphasize the lower-bound estimate, but it does so only by way of explaining that the federal costs of M4A would be at least $32.6 trillion over 10 years, and more likely substantially higher. The study does not present the $32.6 trillion number in a manner consistent with a finding of $2 trillion in national health cost savings.

The study is clear and explicit that the $32.6 trillion estimate is a lower-bound (best case) estimate, and repeats this caveat throughout the report. This point is made in the study’s abstract, on its first page of text, and in many other passages. To cite but some of the quotes from the study explaining the nature of the lower-bound estimate:

  • It is likely that the actual cost of M4A would be substantially greater than these estimates” (Abstract)
  •  “Conservative estimates” (Abstract); “conservative estimates” (p.3)
  • “It is likely that the actual cost of M4A would be substantially greater” (p. 3)
  • “These cost estimates essentially represent a lower bound” (p. 4)
  • “Actual savings (from lower drug prices) are likely to be less than assumed under these projections (p. 14)
  • “This is an aggressive estimate of administrative savings that is more likely to lead to M4A costs being underestimated than overestimated” (p. 14)
  •  “The resulting implicit estimates of national and federal spending on LTSS should be regarded as conservative” (p. 17)
  • “This study’s assumption of no net increase in LTSS benefit utilization. . . is an additional factor contributing to these projections’ being more likely to underestimate costs than to overestimate them” (p. 17)

The study does contain a couple of isolated references to scenarios in which national health spending would decrease relative to current projections. One such reference is preceded by a reminder that the actual cost of M4A would likely be “substantially greater” than this “lower bound” estimate, while the other one notes that this decrease would only occur “under the assumption that provider payments for treating patients now covered by private insurance are reduced by over 40 percent,” along with other aggressive assumptions, and that “whether providers could sustain such losses and remain in operation” was a “critically important” unanswered question.

In other words, the study emphasizes that the $32.6 trillion federal cost minimum cannot be accurately converted into a claim of $2 trillion in national health cost savings. Actual costs would likely be substantially greater (specifically, factors such as drug costs, health provider payment rates and long-term care utilization would probably all be greater than assumed in that lower-bound estimate). It is the same principle by which, if someone tells you that something now costing $57 would cost somewhere between $55-$61 after a policy change, it would be incorrect to claim thereafter that the person had concluded you would save $2.

It is not possible to correct every advocate’s mistaken claim that my study found that M4A would lower national health costs by $2 trillion over 10 years. But anyone interested in accurately understanding the study should be aware that it contains no such finding.

Charles Blahous is the J. Fish and Lillian F. Smith Chair and Senior Research Strategist at the Mercatus Center, a visiting fellow with the Hoover Institution, and a contributor to E21. He recently served as a public trustee for Social Security and Medicare.

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Photo by Drew Angerer / Getty Images

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