This is a contribution to Prospect Debate: The Cost of Sanders's Single-Payer Health Plan.
In his article “The False Lure of the Sanders Single-Payer Plan,” Paul Starr is wrong about Senator Bernie Sanders’s improved “Medicare for All” plan, and wrong about single-payer health care, because he relies on a flawed analysis by Kenneth Thorpe.
While Thorpe does not provide enough documentation to make an explicit comparison between his estimates and those provided in detail by the Sanders campaign, we can extract enough to conclude that his analysis relies on fundamentally flawed assumptions. To conclude that the Sanders health plan will cost $1.1 trillion more per year than estimated, Thorpe is assuming that national health expenditures over the next decade will total $51 trillion, or 21 percent of GDP. (This estimate is the sum of projected public spending for and outside of state Medicaid programs as well as Thorpe’s estimate of new federal spending in the Sanders plan, using a 100 percent actuarial value for the Sanders plan, rather than the plan’s 98 percent.)
This $51 trillion estimate is nearly $4 trillion above current projections from the Center for Medicare and Medicaid Services (or CMS, which estimates it to be 20 percent of GDP), and $10 trillion more than projected by Sanders (17 percent of GDP). Compared with CMS, however, Thorpe’s projection includes at least two areas of savings: He anticipates a 4.7 percent decrease in spending from reduced administrative waste, and a reduction in provider prices to save a further 1.3 percent of spending. With these savings, Thorpe must be assuming more health-care spending from a $6.6 trillion increase in real medical services, which includes $1.3 trillion from covering the uninsured and $5.3 trillion from increased utilization by Americans freed of copayments and deductibles. This is an 11 percent increase in spending, including an increase of nearly one-third for “discretionary” activities, such as doctor visits. (Freeing patients from copays and deductibles will have no effect on many medical expenses, including spending by Medicaid recipients and health-insurance administration.)
This rate of increase is inconsistent with the experience of other countries. When Canada, for example, adopted a single-payer program like that proposed here, there was no increase in average doctor visits per capita. When Taiwan adopted single-payer like that proposed here, visits by those previously uninsured increased, but there was no increase in utilization by those already insured. In both cases, there was a re-allocation of visits from higher-income to lower-income patients, suggesting that with supply constraints in place, physicians were more carefully regulating their activities and reducing unnecessary visits from healthy affluent patients so as to care better for those who are sick and less affluent, a re-allocation that will improve health and save lives.
While it is unlikely that utilization will substantially increase under the Sanders plan, the financing proposed for the plan includes an increase in utilization of more than 5 percent to allow for unexpected expenses. The difference in utilization assumptions explains almost a third of the added spending that Thorpe attributed to the Sanders plan. Much of the rest comes from Thorpe’s curious assumption that administrative costs would be reduced by only 4.7 percent. This is less than half what he has estimated would be saved in past studies for Massachusetts and for the United States as a whole. Thorpe is assuming savings less than what would be saved by eliminating the private insurance industry and raising the “Medical Loss Ratio” to the level of Medicare, not to mention the enormous savings from reducing the burden of billing and insurance-related activities in provider offices. Replacing his figure with a very conservative but more realistic estimate of savings explains half of the difference between his spending figure and that in the Sanders plan.
Thorpe also seriously underestimates the savings to be achieved from negotiating drug prices through a national agency. The Sanders plan assumes that the Medicare for All program would negotiate drug prices down to world levels; this assumes smaller savings than are already realized by the Veterans Health Administration . Over ten years, savings would average $211 billion. (Unfortunately, in an earlier, hastily prepared memo, I mistakenly told the Sanders campaign a different number, a figure that in no way entered into the estimates of savings for the Sanders plan. I regret the confusion.)
Without the inflated spending figures, the Thorpe claims about the cost and burden of the Sanders program disappear and the plan is shown to be based on relatively cautious and conservative assumptions. (In an earlier work, I outlined a procedure to estimate the financing needs for a single-payer program.) There still remains a vital area of savings from the Sanders health plan, savings recognized by Thorpe in acknowledging that a single-payer plan will “ultimately reduce the growth in per capita spending.” Health-care spending has increased faster in the United States than in countries with single-payer plans, and faster for private insurance than for Medicare, not because Americans use more health care but because health-care prices have risen faster in the United States than elsewhere. To be sure, we do use more specialists and technology, but those have not been the cost-drivers. Over the last 35 years, health-care prices in the United States have risen 1.5 percent a year faster than other prices; in Canada, by contrast, they have risen only 0.2 percent a year faster. This difference is enough to account for virtually all the excess growth in health-care spending in this country, compared with Canada and its single-payer system.
Between rising prices to cover a growing administrative burden and rising monopoly prices for drugs and for elite providers, we have been paying more and more for less health care. Bernie Sanders has a realistic and well-thought-out program to fix our health care and save lives. Now it is time for Paul Starr to join us in supporting it.
Next: Kenneth Thorpe, "Why Sanders's Single-Payer Plan Would Cost More Than His Campaign Says"