U.S. Democratic presidential candidate Bernie Sanders has championed for some time now a plan called Medicare for All, which aims to improve health care in the U.S. by ensuring that everyone can get coverage.
The Penn Wharton Budget Model (PWBM), a nonpartisan research initiative that analyzes the fiscal impact of public policy programs, has taken a deep dive into the numbers around the plan to explore if it can deliver on its promises. Sanders’ Medicare for All plan could potentially work with either of two financing mechanisms and without extending coverage to dental treatments and long-term care, according to Kent Smetters, PWBM faculty director and a Wharton professor of business economics and public policy. He recently spoke about the plan on the Wharton Business Daily show on Sirius XM. (Listen to the podcast using the player above.)
The Sanders bill, which was introduced last year, envisages workers as part of the Medicare system and sheds employer-based health care. “Everybody would then fall under Medicare, to try to take advantage of some of the lower administrative costs in the Medicare system,” said Smetters. Under the plan, almost everybody would be covered, unlike the 10% of the population who are currently not covered by any sort of health care, whether it be Medicare, Medicaid, or employer-based insurance or the insurance exchanges, he added. It also expands the benefits to dental and long-term care.
PWBM Findings
Below are the highlights of the PWBM analysis of the Sanders health care proposal:
- PWBM recently projected that under the current law, the percent of the population without medical insurance will more than double over the next 40 years, growing from around 10% today to more than 27% by 2060. Under Sanders’ Medicare for All, the uninsured rate would essentially fall to zero by design.
- The plan would improve population health by 2060, reduce the share of the population that is seriously ill from 15% to 13%, increase life expectancy by two years, grow the population 3%, and increase worker productivity.
- Taken literally, Sanders’ plan lacks a financing mechanism, which by long-standing conventions of the Congressional Budget Office and PWBM implies deficit financing. Under deficit financing, PWBM projects that the Sanders plan would reduce GDP by 24% by 2060, despite large efficiency gains from lower overhead and reimbursement costs.
- Sanders has stated his intent to increase taxes, although he has not specified the actual tax changes tied to Medicare for All. Accordingly, PWBM analyzed two alternative financing mechanisms that mostly finance benefits received by workers. With premium financing, where most workers pay the same insurance premium (subsidized for lower-income workers) — like private insurance with no risk adjustments — it projected that GDP increases slightly by 0.2% by 2060. With payroll tax financing, where workers with higher wages pay more, GDP falls by 15%.
- PWBM provided various robustness checks to key model assumptions and plan design. For example, without the expansion of plan benefits to include long-term care or dental, but still including the elimination of most deductibles while covering all workers, GDP increases by 12% under premium financing. These results indicate that Medicare for All could be designed in a way that boosts economic growth.
“In all my years of doing public policy research, I’ve never seen a plan where the funding mechanism could impact it this dramatically.” –Kent Smetters
Dealing with Long-term Care
“Long-term care is a tough issue,” Smetters said, noting that in 2008, insurers stopped offering long-term care policies. Many big providers pulled out of the private market, such as Met Life and Mass Mutual, he added. As a result, only about 7% of the population currently has a private insurance for long-term care. The bigger funder of long-term care now is the Medicaid system, he added.
In order to qualify for long-term care under Medicaid, an individual’s non-housing assets and income must be “pretty low,” Smetters noted. (The eligibility criteria vary by state, where some use income caps and others consider “medically needy” people. In states that use an income cap, it is three times the social security payment amount, and in 2020, this limit is $2,349 a month.)
The Sanders plan “greatly expands the long-term care benefit, and you don’t have to have those same income and asset tests to qualify,” Smetters said. Significantly, it covers home-based care, and not institutional care like a nursing home, unlike the existing system that covers both.
The Sanders plan lowers administrative costs, and “if it is funded in a very efficient way, it could lead to positive economic growth, despite its price tag,” said Smetters. That could be achieved if it focused solely on Medicare as it is today, and not expanding all the benefits to long-term care, dental treatments, and so forth, he added. “In that case, you could actually have a pretty nice expansion of the economy.”
Financing the Plan
In the absence of a funding mechanism, “it would be all spending that therefore would add to the deficit,” said Smetters.
“In all my years of doing public policy research, I’ve never seen a plan where the funding mechanism could impact it this dramatically – up to a quarter of all GDP within 40 years,” he added.
One of the funding mechanisms discussed by the PWBM — progressive premium financing — would help generate positive GDP, said Smetters, noting that this option is not being discussed on the campaign trail. “You have to take it with a grain of salt at this point, until you figure out what the funding mechanism is,” he said.
Sanders could consider financing his plan with income taxes or wealth taxes, but “payroll tax is probably the most favorable if you are not using premiums,” said Smetters.
If the Sanders plan does not include expansion of benefits to long-term care and dental treatments, beneficiaries would pay less in insurance premiums than they now do, said Smetters. But the key point is not the total outlays that matter, he added. “It’s the connection between what you pay and what you get.” The “premium financing” feature the PWBM discusses is “closer to what actually happens today,” he noted. “If you were to quit your job and not pay your health care insurance premium, you would lose that benefit. We don’t think of that as a tax. It’s not distorting your economic activity.”
“If [Sanders’ plan] is funded in a very efficient way, it could lead to positive economic growth, despite its price tag.” –Kent Smetters
With payroll tax financing, the premiums would be deducted from a beneficiary’s paycheck. “With payroll tax financing, you get the benefit even if you quit your job,” he said. “You could avoid the pain and still get your benefit.” Smetters noted that Social Security is a little like premium financing. “If you were to quit your job and not pay your payroll taxes on Social Security, you’re not going to get those benefits in the future as well.”
With premium financing, most people would pay the same premium, but lower-income people would be subsidized by Medicaid, Smetters pointed out. “It has a dramatic impact on the economics.”
A part of the Sanders plan is to ban Medicare Advantage, or managed plans, which are becoming much more popular, he continued. “It would only be a fee-for-service, traditional Medicare model, and that certainly could lead to some controversy.”
Learning from Other Countries
The U.S. could learn from health care coverage models in other countries, said Smetters. Germany and Japan, for instance, have a multi-payer system that covers everybody, where the individual pays an insurance premium, and if it gets unaffordable — say, if somebody quits their job — the government subsidizes that premium.
Those countries use a model like premium financing. It is technically a multi-payer model, because an insurance company collects the premiums and the government steps in with subsidies where needed. “But it has all the advantages of single-payer, with much lower overhead costs,” he noted. Under that model, the government processes claims and approvals, much like Medicare today, he added.
The Sanders approach would do away with private insurance. Other countries that went the Medicare for All route by banning private insurance have later re-privatized parts of their systems, said Smetters. For example, Austria has a basic system for health care coverage, but beneficiaries could add private insurance.
“There are lots of things to keep us busy here for the next several years [on the health care coverage front],” Smetters said. “There hasn’t been a silver bullet.”
