What Does 'Medicare for All' Mean?July 27, 2020
by Michelle Grochocinski
The rising cost of healthcare in America is of paramount concern to both everyday Americans and to the government. Politicians have proposed varying changes to the current healthcare system, but generally proposals fall into one of two camps: the creation of a public health insurance option or full conversion to a single-payer healthcare system.
The Status Quo
Currently, America has a multi-payer system: multiple insurance companies and government programs (Medicare, Medicaid, and the VA) provide health insurance to the population.
Beneficiaries also contribute to the cost of their care. Cost-sharing comes in the form of premiums (monthly payments the beneficiary makes to the insurance company), deductibles (a set amount that a beneficiary must pay out of pocket before the insurance company will cover any costs), copays (a flat fee charged for a service), and coinsurances (a set percentage charged for a service). Cost sharing has increased drastically in recent years. According to the Kaiser Family Foundation, in the last decade employer plan deductibles increased six times faster than wages. Out-of-pocket expenditures vary by demographic but average out to about $5,000 a year. Seniors on Medicare, who compose 15% of the population but account for about a third of national healthcare spending, also pay about $5,000 out-of-pocket annually, an amount that continues to grow at a rate of about 2% - 4% a year.
Private Insurance Example: Beneficiaries pay insurance companies premiums; the insurance companies pay providers; and the beneficiaries pay the providers deductibles and copays. Sometimes employers help beneficiaries with costs.
According to the Centers for Medicare & Medicaid Services and the Committee for a Responsible Federal Budget, the government spent $1.5 trillion on Medicare, Medicaid and the VA in 2017, and spending is projected to increase 5.5% a year. This is fueled in part by the aging of the baby boomer generation and the subsequent increased enrollment into Medicare, as well as the expansion of Medicaid in several states.
Public Option Proposals
The already-high, ever-increasing cost of healthcare in America spurred calls for a public option. These more conservative “Medicare for All” proposals are better described as “Medicare for some” or “Medicare as an option for all.” They would maintain the existing multi-payer system but expand existing government-run health insurance programs. The government has the power to negotiate contracts that are cheaper to beneficiaries. The addition of a more affordable public option into the private sector could increase competition and, consequently, drive down prices overall. Proposals include:
a) expanding Medicare so those aged 50-64 years old can enroll
b) expanding Medicare so anyone can enroll
c) expanding Medicaid so anyone can enroll
d) increasing subsidies for Affordable Care Act Marketplace plans
e) creating a new public insurance for certain individuals or employers
As these proposals vary widely, so too would the costs, but all theoretically would be cheaper for beneficiaries than existing options. Some proposals would add measures to reduce cost sharing in Medicare, like creating an out-of-pocket limit. One Marketplace proposal increases subsidies so beneficiaries would be responsible for, on average, 10% instead of 20% of their healthcare. The proposed new public option would cover 90% - 100% of costs depending on beneficiaries’ income level; the cost of premiums would vary based on beneficiary risk level, the magnitude of provider enrollment, and/or be capped as a percentage of income.
The Congressional Budget Office has not estimated the costs to the government of any of the public option proposals, so there are no numbers to compare or analyze. It would be expected that implementing one of the public option proposals would have lower up-front costs than creating a single-payer system, as they mostly build on, rather than replace, existing infrastructure. Expanding Medicare coverage would increase federal spending on the program, but could also lower costs by increasing the number of younger, potentially healthier enrollees. Of course, creating a brand-new public insurance option would be the most costly to develop. Regardless of the specific proposal, federal spending in general would increase if there is high enrollment in an implemented public option; the hope would be that controlled provider payments would offset incurred costs and result in overall lower or slowed spending.
Single-Payer System Proposals
Multiple so-called “Medicare for All” bills proposed to Congress would have America switch from a multi-payer to a single-payer healthcare system. A single-payer system is when only one party (the government) collects fees and pays for the healthcare of the entire population.
To be clear, this is not the same as socialized medicine, which is when one party (the government) owns the facilities, employs the providers, and pays for healthcare services.
If the United States switched to a single-payer system, private insurance, employer insurance, the VA, Medicare, and (in one bill) Medicaid would be replaced by a new, universal, government-run system financed by taxes. Coverage would be comprehensive, including dental, vision, hearing, and (in one plan that eliminated Medicaid) long-term care. Beneficiaries would have little to no cost-sharing.
It is difficult to project the overhead costs of establishing a single-payer system. According to the Committee for a Responsible Federal Budget, Medicare for All could cost the federal government anywhere from $13.8 to $36 trillion dollars over a decade. Compared to current total spending, this could ultimately result in a difference of a few trillion dollars, but the direction and size of that change is uncertain. To finance Medicare for All, payroll taxes would need to triple or all other taxes would need to double. The intention would be for the elimination of out-of-pocket medical expenses like premiums, deductibles, and co-pays to balance out the decrease in net income. Whether an individual would ultimately save money would depend on their personal income and health expenditures.
The goal would be, once the single-payer system is established, for the government to negotiate the cost of drugs and healthcare services and subsequently control and manage its spending on healthcare.
The U.S. spends more on healthcare than any other country. Health expenditures are about $10,000 per capita, which is $2,000 more per person than the second-highest spender, Sweden. Yet Americans’ life expectancy is not the highest, nor are we the healthiest, and roughly 8% are uninsured. As costs continue to increase, so do calls for reform.
Do you have questions about Medicare? We'd love share them, along with answers in the next issue of Engage E-news! Please email questions to email@example.com.