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"Medicare for All" Is Much Costlier than Most Admit

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Ever since Senator Bernie Sanders centered his campaign for the Democratic Presidential nomination on “Medicare for all,” it has attracted increasing support. In a Kaiser Family Foundation poll last month, 56 percent of all respondents and 81 percent of Democrats backed “a national health plan, sometimes called Medicare for all,” which has been used to advance the assertion that its time has come.

Since it is not at all clear what M4A actually means to a given candidate, and even the best articulated plans presented so far are more like political talking points, backed by questionable if not provably incorrect assumptions, and often vague to the point of meaninglessness, the goal is clearly to pass a bill that would be very hard to undo, before most citizens have any clear idea of what is involved.

Consequently, it is important to remember what most stories hyping M4A leave out — that when people were informed it would entail a large increase in costs and taxes, support cratered. Given that Sanders’ proposal could add $3.2 trillion in government spending a year (when America now spends $3.5 trillion annually on health care), that is not hard to imagine. However, there is also another multi-trillion-dollar reason why many who now support M4A might switch sides if they understood Medicare’s massive unfunded liability.

As with other Social Security expansions, when Medicare was created in 1966, those in or near retirement paid little or nothing more in taxes, but got substantial benefits throughout retirement. That imposed an unfunded off-budget liability on later generations. And every expansion since (most recently, Medicare Part D’s prescription drug benefit, whose officially estimated unfunded liability at the time was $17 trillion) has created another free lunch for those older Americans, while expanding the huge tab facing later generations.

The same sort of conclusions were reached in an Urban Institute study of Medicare, which found that, in 2012, average-earning males were “buying” $180,000 in Medicare benefits for $61,000, while similarly situated females, with smaller lifetime contributions and longer life expectancies, did even better. The result, as reported by Michael Tanner, was an 2015 forecast of almost $48 trillion of unfunded liabilities under implausibly optimistic assumptions. A return to higher medical cost inflation rates could make it $88 trillion. A continuance of lower birthrates than forecast would push it higher . So would including future commitments to recipients who have qualified for, but not yet received, all their benefits as of the end date of a study.

Why would understanding that massive unfunded liability, and its continued growth, move Americans into the “anti-M4A” camp? Because Medicare provided a great deal to those older during its early years, as well as from ensuing expansions, it makes many of those recipients (and family members who have heard their stories) positively inclined toward extending a similar great deal to others.

However, the massive unfunded liabilities that have built up in the process means that the cost was massively higher than believed, and continues to be so (even underestimates of unfunded liability growth add more than $1 trillion per year of hidden costs to Medicare). Understanding that what may have looked pretty good to uninformed beneficiaries in the past may look highly questionable, or even extremely adverse, to informed Americans now. And far fewer of us would want to extend that to everyone. Along with the recognition that we must also increasingly face the tab for earlier free lunches, the combination could produce a substantial double dose of opposition.

Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read.


Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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