Mises Wire

Sorry, “Medicare for All” Won’t Save the Taxpayers Money

Socialists are jumping for joy due to the fact that a Mercatus Center study supposedly concluded that “Medicare for All” would save the nation $2 trillion over the span of ten years. This twist of the official report stems from Jacobin Magazine, an openly socialist publication when they claimed that Medicare for All will ultimately save money for the people. This, however, is not the case. Jacobin is vastly incorrect about what this study actually says. If anything, this study concludes that single-payer health care will cripple the US economy.

The Truth About “Medicare for All”

There is a hint of truth in Jacobin’s claim: Medicare for All would cut $2.054 trillion in administrative expenses and drug costs. In exchange for this $2.054 trillion dollar cut in costs over ten years, however, the United States would see a significant increase in the cost of health care, costing taxpayers $32.6 trillion over the span of ten years.

These “savings,” however, do not account for the nationalization of industry. While it is estimated that the US spent $3.3 trillion on health care last year (with $1 trillion coming from the federal government), it is important to realize that most of this spending comes from the private sector. If the US adopts Medicare for All, the federal government would assume the burden of all health expenses in the US. With this in mind, the government would entirely nationalize the market for health insurance. The people aren’t actually saving money. Rather, they are being forced to fund a government monopoly on healthcare. As this article will point out, the socialization of health care will inevitably lead to even higher costs than we could ever predict. In addition to the increase in costs due to monopolization, quality of care will severely decline. This system will lead to fewer people being treated, and those being treated will be left with subpar quality health care.

Take the current health care system where the government provides healthcare through Medicare and Medicaid; the US spent $980 billion per year in 2015 . Assuming the health care system remains the same as it is today, the US federal government would spend $10-15 trillion in ten years. In other words, Medicare for All adds at least $17 trillion dollars to the expenses to American taxpayers. The costs, however, is far from being the worst symptom of the disease that is Medicare for All.

“Medicare for All Will” Bolster an Inefficient Government.

The Medicare for All Plan Bernie Sanders introduced is ambitious in its effort to grow the size of the federal government. Not only is doubling all federal taxes insufficient in paying for the cost of this program – “Doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan” (Mercatus 2) – it would nationalize more than one-sixth of the United States economy. The proposal that Senator Sanders has introduced is nothing short of the federal government seizing the entire healthcare industry in the United States. When the government controls healthcare, it claims the power to decide who lives and who dies.

If the US provides a single payer system, it will have to cut costs in some way. One of the ways the United Kingdom has done so allows the NHS to deny treatment to those who smoke or are obese. When the government holds a monopoly on health care, people have no other options when the government refuses to treat them. In the market, however, other options exist. Single Payer Healthcare revokes the freedom to choose.

The issue of people going untreated is a natural consequence to socialized healthcare. As Ludwig von Mises points out in “Economic Calculation in the Socialist Commonwealth,” governments cannot determine the value of social resources. In other words, socialism lacks a price system, making it impossible for there to be a profit-loss mechanism. Such a problem leads to misallocation, and ultimately chaos.

The reason why people cannot afford healthcare in the status quo is almost entirely the fault of the illogical and immoral government prohibitions and regulations on health care. This gives a special few in the industry a leg up. This crowds competitors out of the market, making it much more difficult to access healthcare. If the nearly $1 trillion the US federal government funnels into health care every year is the cause of the current system’s problems, throwing more money at the system will not make things any better. If anything, it will make it worse.

Medicare for All Will Reduce the Quality of Healthcare

Medicare for All will also lead to a decrease in the quality of healthcare. The study that the Left is claiming to praise single payer actually makes it clear that by 2019, hospitals will lose money. As the study says:

“Furthermore, it is not precisely predictable how hospitals, physicians, and other healthcare providers would respond to a dramatic reduction in their reimbursements under M4A, well below their costs of care for all categories of patients combined. The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary has projected that even upholding current-law reimbursement rates for treating Medicare beneficiaries alone would cause nearly half of all hospitals to have negative total facility margins by 2040. The same study found that by 2019, over 80 percent of hospitals will lose money treating Medicare patients—a situation M4A would extend, to a first approximation, to all US patients. Perhaps some facilities and physicians would be able to generate heretofore unachieved cost savings that would enable their continued functioning without significant disruptions. However, at least some undoubtedly would not, thereby reducing the supply of healthcare services at the same time M4A sharply increases healthcare demand. It is impossible to say precisely how much the confluence of these factors would reduce individuals’ timely access to health care services, but some such access problems almost certainly must arise.”

Medicare Payment Rates are currently lower than market rates, and Sanders’s Medicare for All plan lowers the current payment rate for hospitals and other medical facilities.

Doing this would drastically restructure the incentive structures under which hospitals operate, leading to a decline in the quantity and quality of healthcare in America. Mercatus concluded that it is unknown exactly how much worse healthcare would get under Medicare for All, but that it certainly would get worse. Like all price ceilings , however, reducing the payment below the market rate would lead to shortages in health care as more people seek a product that fewer producers are willing to purchase.

What Is the Prescription to the Healthcare Crisis?

Now that it is clear that Jacobin’s conclusions about the findings of Mercatus were false, it is important to see what an actual cure for the healthcare crisis may look like. Instead of Medicare for All, we should cut more than just administrative costs. In other words, the federal government should deregulate and privatize the healthcare industry. With a plan like this, one not only saves $2 trillion in tax dollars, but also the remaining $980 billion per year in government healthcare. In other words, the should embrace capitalism in the healthcare industry.

Four Steps to Healthcare Freedom

In “ A Four-Step Healthcare Solution,” Hans-Hermann Hoppe outlines a proposal of how to privatize healthcare in the United States. His steps would save the US far more than just $2 trillion dollars in administrative costs over the span of ten years.

  1. “Eliminate all licensing requirements for medical schools, hospitals, pharmacies, and medical doctors and other health-care personnel.” Doing so would immediately make it cheaper to become a worker in the healthcare industry. With more production comes more competition. This would lead to a drop in the overall price of healthcare. The market tends to lower prices through competition, not increase prices through monopolization. That is what the government does by regulating and nationalizing industry.
  2. “Eliminate all government restrictions on the production and sale of pharmaceutical products and medical devices.” This would, of course, lead to the abolition of the FDA. FDA approval is a long and expensive process that is frequently unreliable .
  3. “Deregulate the health-insurance industry.” This is perhaps the largest problem in the States. When politicians discuss healthcare, they are attempting to find more ways the government can get involved with insurance. One of the biggest problems involves government non-discrimination policies that make it a crime to exclude potential customers. Insurance is ultimately gambling. If an insurance company can’t refuse to cover those at a greater risk, then costs will naturally increase for everyone.
  4. “Eliminate all subsidies to the sick or unhealthy.” Subsidies encourage the behavior it is subsidizing. If the US eliminates subsidies to the ill, then the need for healthcare will soon diminish as people will be more risk-averse.

Government is not the solution to healthcare. It is the problem. Medicare for All will only increase the size of government, make inefficiency inevitable, and ruin what little quality and innovation remain within American healthcare. Jacobin is wrong; Medicare for All, or more government in general, is not the solution to the current mess. Rather, privatizing the healthcare industry will not only expand human liberty. It will also make health care better and more affordable.

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