What 'Medicare For All' Would Really Mean For The Middle Class

The answer is more complicated than the Democratic debates might suggest.

The question of whether “Medicare for All” would be a winner for the middle class has been a big topic in the 2020 presidential campaign and it came up again in Tuesday night’s Democratic debate.

By now, you may be familiar with the arguments. Sen. Bernie Sanders (I-Vt.), author of a leading Medicare for All proposal, openly concedes that it will require some new taxes to finance the cost of generous insurance for everybody.

Sen. Elizabeth Warren (D-Mass.), who has endorsed the Sanders bill, refuses to admit that taxes would go up, presumably because she doesn’t want to give Republicans fodder for an attack ad.

But the underlying arguments from the two are actually the same. Whatever middle-class Americans ended up paying into a new Medicare for All system, Sanders and Warren say, it would be less than what they pay for the current system in the form of private health insurance premiums, out-of-pocket costs and lost wages.

On Tuesday night, Warren turned that claim into a vow.

“Costs will go up for the wealthy,” Warren said. “They will go up for big corporations. And for middle-class families, they will go down. I will not sign a bill into law that does not lower costs for middle-class families.”

Can she deliver on that promise? Can Sanders? Can any backer of Medicare for All?

It’s impossible to say definitively right now because the answer depends on some key details still missing from the existing proposals. The Sanders bill, for example, doesn’t specify which taxes it would raise. It also doesn’t indicate exactly how the new program would pay doctors, hospitals and other providers of medical care.

But you can get a sense of how Medicare for All might look in practice by looking closely at a structurally similar state-level proposal in New York that progressives have been promoting and that was the subject of a thorough analysis last year.

The analysis found that the middle class really did come out ahead, although that determination came with a few, very important caveats that frequently get lost in these debates.

Overall, The Middle Class Could Be A Winner

The proposal is called the New York Health Act and, like Medicare for All, it would wipe out nearly all existing insurance arrangements to enroll everybody into a brand-new, state-run program. Financing under the NYHA would come from taxes on payrolls and non-wage income (interest, dividends, etc.).

Progressives have been pushing for the idea to get a serious hearing in the New York state legislature, now that Democrats finally have full control. So far, that hasn’t happened.

But last year, the Rand Corporation, an independent think tank with its own model for projecting the effects of health care proposals, produced a detailed report on how the NYHA might work out in practice.

It’s not an easy calculation to make, because introducing such a system would inevitably cause so many changes, some of which would push in opposite directions from others.

People would start using more health care services, for instance, because they had coverage for the first time or because the NYHA plan, like Medicare for All, would be more generous than existing coverage. That would tend to drive up the program’s costs.

On the other hand, the NYHA plan would simplify billing and administration, in part because doctors and hospitals wouldn’t have to spend time communicating and haggling with private insurers. That would tend to reduce costs.

The Rand Corporation's analysis of changes in health care payments, by income group, under the proposed New York Health Act.
The Rand Corporation's analysis of changes in health care payments, by income group, under the proposed New York Health Act.

In the end, Rand researchers determined, the NYHA as designed would reduce overall spending on medical care in New York state. And as long as taxes to pay for the program were sufficiently progressive, the benefits would flow primarily away from the rich and toward lower- and middle-income groups.

Specifically, the richest 10% of New Yorkers would be paying more for health care on average, while the other 90% would pay the same or less.

That sounds a lot like the kind of plan that Sanders and Warren promise ― which is to say, it sounds a lot like a plan that would work out well for most Americans.

Savings Depend On Cuts To Doctors And Hospitals

But this is where those caveats come in.

In a single-payer system like the NYHA or Medicare for All, the government sets prices for the suppliers and providers of medical care, including not just drug companies but also doctors and hospitals. That’s why these sorts of proposals can show such big savings.

The NYHA doesn’t actually specify what the plan would pay doctors and hospitals, so Rand researchers had to make some assumptions. They figured that, at the outset, health providers would be paid at rates that matched the average of what all the different payers in New York (Medicaid, private insurance, etc.) pay now. But over time, Rand researchers assumed, the new system would aggressively limit year-to-year inflation, imposing the kind of cost discipline that does not exist now.

“The overall tax revenue needed [to implement Medicare for All] would depend critically on how much providers are paid.”

- Jodi Liu, Rand Corporation

This is how universal coverage systems in the rest of the world control costs. But here in the U.S., where such controls have never existed on such a widespread basis, lobbying groups representing the health care industry would fight hard to avoid such limits on their payments. And there’s good reason to think those lobbyists would prevail ― if not by killing Medicare for All outright, then by winning much more favorable terms on payment.

That would inflate the program’s cost, forcing the government to raise more revenue. But there are limits to how high taxes on high earners can go, because at some point “tax avoidance” ― that is, people finding ways to shield income or qualify for lower rates ― makes it difficult to increase revenue.

“Creating a single-payer plan where the wealthy pay more and everyone else comes out no worse or ahead would require a delicate balance of high tax rates for the wealthy that do not cause substantial tax avoidance and moderate to low tax rates for everyone else,” Jodi Liu, chief author of the Rand report, told HuffPost. “The overall tax revenue needed would depend critically on how much providers are paid.”

Even Within The Middle Class, Some Might Pay More

Then there is the other big asterisk in the Rand report.

It’s one thing to say that, on average, people in the lower 90% of the income scale would pay less for their health care. It’s quite another thing to say that every single person in the lower 90% of the income scale would pay less for their health care.

In reality, for each income group, at least some individuals would likely find themselves paying more, not less, once a Medicare for All system took effect.

Imagine, for example, a 30-year-old who today buys a minimalist policy directly from an insurer ― say, one of the “bronze” plans with relatively skimpy benefits that barely meet the Affordable Care Act’s coverage standards. Because that plan covers so little and because 30-year-olds pay lower premiums than older people, that bronze plan is probably pretty cheap.

The bronze plan could easily cost less than the new taxes for Medicare for All and maybe a lot less, depending on how much money the 30-year-old makes and just how skimpy that plan is.

A breakdown of how the New York Health Act, a state-level version of Medicare for All, would affect people within different income groups, based on a Rand Corporation analysis.
A breakdown of how the New York Health Act, a state-level version of Medicare for All, would affect people within different income groups, based on a Rand Corporation analysis.

The Rand analysis of the NYHA makes this quite clear. The report’s appendix breaks down the effect that the plan would have within specific income groups. Within the middle income groups ― those with annual income between 139% and 400% of the poverty line, or about $35,790 to $103,000 for a family of four ― there is always a fraction for whom the NYHA taxes are more than they would have spent for health care under the status quo.

The percentage of people on the hook for higher costs would generally be fairly small. But the “rate shock” that came with the Affordable Care Act, when people suddenly discovered their insurance cost more than it did the previous year, also affected a tiny portion of the population. It created a huge backlash anyway.

That doesn’t mean the same thing would happen with Medicare for All. One reason the Affordable Care Act’s rate shock led to so much anger is that the new Obamacare plans came with high deductibles. Lots of people felt like they were paying more but not getting great insurance in return. The whole point of Medicare for All, like the NYHA, is to give everybody better insurance than they have today.

Even people who felt worse off in the transition to Medicare for All might be grateful for the switch later on. That 30-year-old with a bronze policy today could be in real trouble if they got hit with serious medical expenses, given that deductibles on bronze plans can approach $7,000. And under Medicare for All, the 30-year-old would probably have more choices of doctors and hospitals. Bronze plans are famous for their tiny provider networks.

For Now, It’s Impossible To Be Certain

All of this assumes that Rand’s projections are basically on target ― and that the New York plan is a reasonable proxy for how Medicare for All might work out in the nation as a whole. But projections can be wrong and New York, like any state, has plenty of idiosyncrasies that make extrapolating from it difficult.

To the extent experts have tried to perform similar analyses on the Sanders proposal, the verdict has been mixed, depending in part on assumptions they made about missing details in the bill.

In 2016, Kenneth Thorpe, an Emory University economist who had served in the Clinton administration, concluded that tax hikes necessary to finance the Sanders proposal would leave nearly three-quarters of working households that previously had private coverage owing more in taxes than they would have owed in premiums and out-of-pocket costs.

But just this week, the Commonwealth Fund and the Urban Institute released a new report about health care options and concluded that, in a plan that looks like Medicare for All, “higher-income people will likely face the greatest increases in taxes, meaning their new tax burdens would likely exceed their savings; the reverse is likely true for lower-income populations.”

As Larry Levitt, executive vice president at the Henry J. Kaiser Family Foundation, told HuffPost, “A Medicare for All plan absolutely can be designed to fulfill the promise that the middle class would on average pay less for health care. But it requires some big trade-offs to do that.”

So far, those trade-offs haven’t gotten much attention.

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