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Getting to single-payer

Without a doubt, momentum within the Democratic party has shifted toward single-payer over the past year. When Bernie Sanders introduced a single-payer bill in the Senate back in 2009, it had no other cosponsors; now, just eight years later, 16 Democratic senators have endorsed the updated version, including potential presidential candidates like Elizabeth Warren, Cory Booker, Kamala Harris, and Kirsten Gillibrand. In the other chamber, more than 60% of House Democrats have endorsed a similar single-payer plan.

Another sign that the party establishment is taking single-payer seriously: the Center for American Progress (CAP), a think tank with close ties to the Clinton campaign (it’s current CEO, Neera Tanden, and its founder, John Podesta, were both Hillary advisors) just released a detailed plan for universal healthcare, which its calling Medicare Extra for All. It isn’t quite single-payer, but it would move our healthcare system pretty far in that direction.

Although not far enough for some apparently– Adam Gaffney, secretary of Physicians for a National Health Program (PNHP), has already called CAP’s proposal a “second-rate scheme” that “would exact sacrifices from patients to placate the insurance industry, and could serve to divert the single-payer movement.” On Twitter, the organization People for Bernie, drew a line in the sand, saying that any Democrat who backed it would be “ignoring the will of the party’s activists.”

It’s weird watching single-payer supporters attack CAP’s proposal right out of the gate, since not only would it put the U.S. on the path to single-payer, but it also at least tries to address a potentially fatal flaw in Sanders’ Medicare for All bill.

CAP proposal’s authors did something that single payer advocates rarely do: they put as much thought into how to pay for the plan as they did into the benefits it would provide. And since every single-payer plan proposed at the state level has hit a brick wall when it came time to figure out funding, maybe single-payer advocates could learn something from CAP’s approach.  

A quick intro to Medicare Extra

For all the criticism of CAP’s Medicare Extra plan from single payer advocates, it’s worth noting how much it shares in common with Sanders Medicare for All bill: both proposals would fold existing government health programs (Medicare, Medicaid, and CHIP) into a new enhanced Medicare plan that covers health, vision, and dental with much lower out-of-pocket costs than traditional Medicare.

That said, there are some significant differences:

Medicare for All: Sanders plan doesn’t just consolidate existing health federal programs– it eliminates private insurance entirely. Within four years, every American would be automatically enrolled into a new Medicare-for-All plan, with almost no out-of-pocket costs. So no co-pays, no co-insurance, no deductibles– you’d walk into a doctor’s office or hospital, give them your name, get treated, and walk out without paying a cent. There could be some cost-sharing on non-preventative prescription drugs (his plan leaves that up to the Secretary of Health and Human Services), but that would be capped at $200 per person annually.

Medicare Extra: CAP’s proposal is more complicated… It would automatically enroll newborns, individuals turning 65, Medicaid and CHIP recipients, and people who don’t already have other coverage into the new “Medicare Extra” plan. Premiums for Medicare Extra would be on a sliding scale from zero to 10% of their income, depending on how much they make, and current Medicare recipients could choose between traditional Medicare, Medicare Advantage (now called Medicare Choice), and Medicare Extra. CAP’s proposal wouldn’t eliminate private insurance: employers could continue offering private insurance coverage, but these plans would have to meet new minimum standards. Also employees wouldn’t have to enroll in their employer’s plan– they could choose to enroll in Medicare Extra instead. Private insurers would also be allowed to continue offering Medicare Advantage plans, although the program would now be called Medicare Choice and those plans would have to follow stricter guidelines.

Also, unlike Medicare for All, Medicare Extra would have out-of-pocket costs, on a sliding scale based on income. At the low end, for people making below 150% of the poverty line (currently $18,090 for an individual), there would be no cost-sharing; at the highest end people with “middle incomes or higher” plans would resemble Obamacare’s “gold” level plans (gold plans typically have deductibles hovering around $1,000, along with additional copays and/or coinsurance fees).

The (several) trillion dollar question

If the only factor in designing a health plan were the benefits, then there’d be no reason to consider CAP’s Medicare Extra proposal. However, designing the coverage side of a single payer system has always been the easy part– it’s in figuring out how to pay for it where things start to fall apart.

We’ve seen this pattern repeat itself time and again in states that have tried to pursue single-payer: (1) single payer advocates put together a plan that covers everyone in the state with almost no cost-sharing; (2) outside groups analyze the plan and find that it costs way more and requires higher taxes than expected; (3) support for the plan collapses. For example:

California: In California, a single payer bill was recently working its way through the state legislature until an analysis found that it would cost $400 billion– more than twice the state’s current budget– and it would take a 15% payroll tax to pay for it. (To put that in perspective, the tax that currently pays for Medicare is 2.9% of payroll.) The state’s Democratic House Speaker eventually halted the bill, saying that it “does not address many serious issues, such as financing, delivery of care, [or] cost controls…”

Vermont: In 2011, Vermont looked like it was on its way to setting up the first single payer health system in the country— a single-payer bill passed in the legislature by a huge margin, which its governor, Peter Shumlin, supported. However, when the state did the math on how to pay for the new benefits, it found that moving to single payer would cost $3 billion a year (at the time Vermont’s entire state budget was only $2.7 billion). Paying for the plan would require at least an 11.5% payroll tax on all employers, and a new income tax on individuals of up to 9.5%. Shumlin said he had his team look into ways to make the system more affordable, like increasing out-of-pocket costs or eliminating a phase-in for businesses, but in the end, couldn’t make the numbers work.

Colorado: A 2016 single payer ballot initiative in Colorado failed for all sorts of reasons, but a big part of it was the cost of the plan. An analysis from the nonpartisan Colorado Health Institute (CHI) found that the plan’s proposed 6.67% payroll tax, 3.33% wage income tax, and 10% tax on non-wage income wouldn’t be enough to cover costs, and the gap would grow every year. Within ten years, CHI’s projections showed the plan would be running a nearly $8 billion annual deficit (again, for comparison, the state’s entire budget is only about $28.5 billion).

Sanders’ Medicare for All bill seems to be following a similar trajectory. For all the detail in the bill about the coverage it will provide, there is no explanation in the bill of how it would be funded. However, Sanders’ office did put out a list of options for financing Medicare for All, including a 7.5% payroll tax, a 4% income-based premium, and some new taxes on the wealthy, which he says would generate about $1.5 trillion per year. Assuming his numbers are right, even if every one of those options were adopted, it still likely wouldn’t be enough to pay for his plan.

We don’t have an official estimate of the cost of Sanders’ Medicare for All bill, but when he proposed a similar plan during the 2016 election, his campaign estimated a cost of about $1.38 trillion annually. However, a recent analysis from Dean Baker, an economist with the left-leaning Center for Economic and Policy Research, found that Sanders’ cost estimate was at least $500 billion too low. Another outside analysis, from Kenneth Thorpe, a professor of health policy at Emory University, found that Sanders 2016 plan would cost $2.5 trillion per year, leaving him the plan with a trillion dollar shortfall. Annually. (To get a sense of the size of these numbers, the entire Affordable Care Act costs about $120 billion per year.) In other words, paying for his plan might require nearly doubling the tax rates that Sanders originally proposed.

Why so high?

These higher cost estimates tend to come as a shock to single-payer supporters, who often respond by attacking the authors of those estimates. Single-payer supporters say that their plans create massive savings by (1) reducing administrative costs and (2) paying doctors, hospitals, and drug companies less. And it’s true, a single payer system would likely reduce those costs… eventually. But the folks writing single-payer plans tend to take the most optimistic projection for potential savings, and assume those cuts in spending would happen on day one of their plan.

So take administrative costs, for example. The Sanders campaign claimed that the savings on administrative costs from switching to single payer would be about $630 billion per year– or about 13.4% of our total current healthcare spending. But as Dean Baker pointed out in his analysis of Sanders’ plan, “the savings would come from providers, such as hospitals, doctors’ offices, and nursing homes, cutting back on their [medical billing] staff.” We did a quick, back-of-napkin calculation, and if you assume that the average person who works in medical billing makes $50,000 (which is probably too high– according to the Bureau of Labor Statistics, the median pay for a medical records worker is $38k per year), then cutting $630 billion in administrative spending would mean a loss of something like 12 million jobs. That’s not something most of us would want to happen all at once, but luckily for those employees, it’s unlikely that healthcare providers would adjust to the new system overnight. It’s much more likely– and frankly preferable– that the administrative savings would come as the healthcare system slowly adapts to a simpler system over a number of years.

The same could be said about the savings from paying doctors, hospitals, and drug companies less to provide care in a single payer system. Other countries pay less than we do because their healthcare systems managed to keep health spending from growing a period of decades. Trying to slash U.S. reimbursement rates overnight to get them in line with other countries’ would be a disaster– providers wouldn’t be able to adjust quickly enough, and many would be forced out of business. Savings from single payer would come in the long run, which means that trying to switch to single-payer in a single step would require a lot more money in the early years (or possibly decades) than its supporters claim.

Medicare Extra to the rescue?

CAP’s Medicare Extra might reduce some of that sticker shock, since it moves healthcare spending over to the federal side more slowly than Sanders’ single payer plan. It does this a couple of ways.

For starters, CAP’s plan includes some cost-sharing. Single-payer supporters have argued that the cost sharing is too high, and they’re probably right– it’s possible some people wth Medicare Extra could still wind up owing over a thousand dollars in medical bills in a given year. However, some minimal amount of cost-sharing could help bring down the cost of the plan somewhat, while discouraging the use of unnecessary care. As Dean Baker pointed out in his analysis, if we paid just what Canada and the UK pay in out-of-pocket costs, it would reduce the shortfall in Sanders’ plan by at least $250 billion (i.e. two Affordable Care Acts) annually.

The CAP plan also gives employers a bunch of options for providing coverage to their employees:

  • They could continue to provide private health insurance (as long as it met the standards we mentioned earlier). Employees wouldn’t have to take it though, and could choose to enroll in Medicare Extra instead;
  • They could buy Medicare Extra as their employer-provided plan: employers would cover at least 70% of the cost of the premiums and employees would pay an income-based premium;
  • They could make “maintenance of effort” payments, which means they’d pay exactly what they’re paying now for private insurance, and enroll their employees in Medicare Extra; or
  • They could make aggregated payments of 0 to 8% of payroll (depending on their size), which is about what employers pay now on average for private health coverage, and enroll their employees in Medicare Extra.

Most people who get insurance through an employer say they like their coverage– the first option lets them keep it so long as the employer keeps offering it. (Clearly though, CAP believes that eventually most people will choose Medicare Extra.) The other options give employers different ways to provide Medicare Extra for their employees without paying more than they currently do for private coverage– but also without paying too much less. CAP says that any remaining gap in funding could be filled by bringing back some of the taxes on the wealthy that were cut in the recent Republican tax plan, additional taxes on high income earners, and higher taxes on cigarettes.

Unfortunately there isn’t even a rough estimate of how much Medicare Extra would cost (CAP says that it plans to “engage an independent third party to conduct modeling simulation.”), so we have no idea whether the numbers actually add up. But it’s an interesting idea that at least tries to address the issues that have doomed other promising attempts at single-payer in this country. Single-payer advocates shouldn’t be so quick to dismiss it.

{ 1 comment… add one }
  • Bob Hertz June 10, 2018, 9:02 am

    Thanks for your detailed analysis.

    I appreciated the comments on administrative savings. If we did get the savings, the job losses would almost certainly cause a recession.

    Plus as you say, the savings will not be that large. Medicare is a claims based system, and the private sector will be desperate to use upcoding to offset their lower fees. Upcoding and audits require a lot of administration.

    Plus, if a doctor’s office or a hospital saves money on administration, that is well and good but it does not create tax revenue in itself.

    Let’s look at the tax requirements in round numbers. If you leave Medicare and Medicaid alone, there are about 200 million persons left to cover. Giving them all a Medicaid type plan would cost between $5K and $6K a year apiece. Giving them a generous Sanders plan with dental and LTC benefits could easily cost $8K per person per year.

    So we need between $1.0 and $1.6 trillion a year.

    Total payrolls in this country are getting close to $7 trillion a year. So if a payroll tax is the main funding source, we need at least a 14% payroll tax. (this is not surprising to me. France and Germany have taxes at this level and have for years.)

    This would not be a big deal to a school system or a state gov’t or a unionized factory. These entities often pay 20% of payroll for health insurance right now.

    But this would be traumatic for the cheap labor sector. Say you own two McDonald’s and have a total payroll of $1 million a year. You the owner would owe $140,000 under single payer.

    This sector will fight single payer to the death. This was a major factor in the collapse of the Clinton plan in 1994.

    Big challenges!

    Bob hertz
    newlawsforamerica.blogspot.com

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