Analysis from the Penn Wharton Budget Model

Americans consistently rank health care as one of the most important issues in the upcoming 2020 presidential election. In the Democratic primary, health care reform has taken center stage at several primary debates—specifically, proposals for “Medicare for All”.

Originally introduced by Sen. Bernie Sanders, the Medicare for All Act of 2019 (S.1129) would provide universal health insurance to U.S. residents and displace almost all private insurers. Benefits under Medicare for All would be very generous. This program would cover a much broader range of services than current Medicare, including dental, vision, hearing, and home and community-based long-term care. And under Medicare for All, participants would have no copayments or premiums.

Today, we at the Penn Wharton Budget Model (PWBM) — a nonpartisan, independent applied research organization housed at the Wharton School of the University of Pennsylvania — are rolling out a new, integrated model of health and the economy. This model goes beyond any previous analysis of Medicare for All, and allows us both to look at how health evolves under current law and to analyze the effects of Senator Sanders’ proposal.

Here are 6 key takeaways from our analysis:

1. Without any reform, the uninsured rate will more than double over the next 40 years.

Using our model, we project that the uninsured rate will grow from around 10 percent today to more than 27 percent in 2060. Similarly, the percent of the population that forgoes medical treatment will rise from about 4 percent for this year to more than 27 percent for 2060.

2. In the long run, Medicare for All would improve health in the United States.

Under Medicare for All, the uninsured rate by design falls to zero. And because there are no copayments, in our model, no one chooses to forgo medical treatment. By 2060, we project that this increased coverage would reduce the share of the population that is seriously ill from 15 percent to 13 percent, increasing life expectancy by about 2 years and growing the U.S. population by 3 percent.

3. Medicare for All would make the healthcare sector more efficient.

There are two main cost containment measures in Medicare for All:

  • The program would likely have overhead costs closer to current Medicare (about 2 percent of spending) than to private insurance (about 15 percent).
  • Medicare for All would pay healthcare providers at current Medicare rates, immediately cutting payments by, on average,16 percent.

These provisions would rein in costs somewhat, although there is debate as to whether current Medicare should spend more on overhead in order to prevent fraud and whether such low payments are sustainable for providers.

4. On balance, the Medicare for All Act would shrink the economy by 24 percent in 2060 if financed through deficits.

Sanders’ bill, as written, contains no plan to pay for the costs of Medicare for All, and so—following long-standing conventions — we score it as increasing deficits. Despite the potential cost savings described above, we project that Sanders’ bill would increase the federal debt by 92 percent in 2060. This increase swamps the economic boost from a healthier, larger population, and creates a drag on long-run economic growth.

5. Under other financing options, these negative economic effects could be smaller or even turn slightly positive.

Although it’s missing from his bill, Sanders has stated his intention to pay for Medicare for All through higher taxes. Recognizing this, we analyzed two alternative financing options: increasing the payroll tax rate and a new, flat insurance premium on all workers (subsidized for lower-income workers). Under the payroll tax financing option, the economy is 15 percent smaller in 2060. Under the premium financing option, the economy is slightly larger in 2060, by about 0.2 percent.

6. Other modifications to Medicare for All could make the economic benefits much larger, boosting the economy by as much as 12 percent in 2060.

We also scored some versions of Medicare for All that are less generous. For example, when analyzing a version of Medicare for All that: (i) does not expand benefits to include long-term care or dental services, and (ii) is financed with premiums, we find that the economy would be 12 percent larger in 2060.

*One notable caveat to the above analysis is that the overall size of the economy is not a perfect (or even good) measure of overall economic welfare. It’s possible that most people would be better off under Medicare for All even with a smaller economy. We’ll release an analysis exploring these welfare effects sometime in February 2020.

— Kody Carmody of the Penn Wharton Budget Model


Posted: January 30, 2020

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