Monday, September 28, 2015

How Expensive is Universal Healthcare, Anyway? (Part 1 of 13)

(This is the first in what will be a series of thirteen entries detailing specific aspects of Bernie Sanders's campaign platform, and their costs, see subsequent posts for more information: Part 2 Part 3 Part 4 Part 5 Part 6 Part 7)

I saw this posted on Twitter the other day, and I think it's worth taking a second look at, because it demonstrates a remarkable lack of understanding of Bernie Sanders's platform. Senator Sanders makes it very clear how we will pay for everything that he proposes, but understanding the nuance of this requires first that I disabuse you of a common misconception.

There are many in this country who decry government spending as if the government is incapable of doing anything well. But the critical issue of our times, as Robert Reich eloquently explains on a regular basis, is not how big government is. The critical issue of our times (and Bernie Sanders, more than any other Presidential candidate, understands this) is who government is working for. Whether we're talking about spending in the private sector or spending by the government, at the end of the day, everything that is spent in our economy counts as a cost for America. 

If Wal-Mart spends $1,000,000 improving the efficiency of the intersections near its stores, it has the same effect on our economy as if the state, local, or federal government spends $1,000,000 on an identical project. If, on the other hand, the government can do the exact same job for $900,000, then society as a whole has $100,000 more dollars to spend elsewhere than it would have without the government spending. It stands to reason, then, that if the government can do something better at the same price, or cheaper with the same quality, then the government should do it instead of private industry.

The first step in understand the costs of a policy is to understand what that policy is. Senator Sanders has not released his official issue statement on healthcare reform, but his position on a number of other issues can be found here. Fortunately for us, Senator Sanders's popularity and grassroots appeal has resulted in the volunteer participation of individuals with significant technological skill, who have put together this site where you can educate yourself on Senator Sanders's position on a huge variety of issues. According to that site, Senator Sanders's position on Healthcare can be summarized in six points:

If you have the time, check out all those links for a much more detailed explanation of Senator Sanders's position on healthcare. Then, whether you checked out those links or not, meet me after the jump for the skinny on the costs of Universal Healthcare, as described in the flyer:

We don't have Senator Sanders's specific proposal to crunch numbers with, but that's okay because I'm not an economist and wouldn't be qualified to do the actual number crunching on my own. Instead, I'm going to draw from sources that you could find on your own, but I'll put it all together here in one place to save you some time.

The Wall Street Journal has told us, and you may have heard, that Universal Healthcare would cost $15 trillion over ten years. This number is drawn from an analysis of a bill introduced in Congress in 2013 by Representative John Conyers of Michigan, HR 676 (here's the full text in a PDF if you're interested - it's only 30 pages). This piece correctly identifies the additional government spending that would result from HR 676, but it completely ignores the associated reduction in private spending that more than makes up for it.

Economist Gerald Friedman, the author of the study cited by the Wall Street Journal, responded to the mischaracterization of his work in the Huffington Post. He noted that the $15 trillion increase in government spending over ten years would result in a net reduction in aggregate healthcare spending of $5 trillion dollars over the same period. This is like the government being able to improve the intersections for $750,000 when it costs Wal-Mart $1,000,000.

In case you didn't look at any of the links about the plan, here's a brief summary. Every person who lives in or is visiting the United States would be eligible to sign up for a free "Medicare for All" card and unique ID number. They could take that card to any doctor or hospital and use it to obtain any medically necessary care, which includes basically everything except elective surgeries. Healthcare organizations would continue to operate as private entities, but they would be prohibited from issuing stock and over time would be converted to a not-for-profit business model. Private insurance companies would be prohibited from offering policies overlapping with the "Medicare for All" plan, but would be permitted to offer coverage for elective surgeries and other non-medically-necessary activities.

Right now, a typical family of four on the most common plan offered by employers spends $8,584 a year -- $5,114 in premiums and another $3,470 in out-of-pocket medical services, drugs, and supplies. The employer typically spends an additional $12,144 towards the coverage, bringing the total aggregate cost per household to $20,728. The total population of the United States is about 320 million, so if they were all divided into families of four, there would be about 80 million families of four, giving us an aggregate annual healthcare cost of $1,658,240,000,000 (about $1.6 trillion). If Senator Sanders' plan costs us $15 trillion over ten years, it represents a SAVINGS of $1 trillion.

This estimate for the savings is lower than it should be because I'm doing back-of-the-napkin amateur analysis. But at the end of the day, we're getting a lot of bang for our buck. By channeling the money we would have been spending on healthcare anyway through the government, we are able to leverage the economies of scale on the consumer side to reduce prices and slash overhead.

But, you asked HOW we're going to pay for it, and that's a reasonable question. Simple, slightly higher taxes. Instead of paying $20 trillion to private insurance companies and for-profit healthcare facilities, we'll pay $15 trillion to the government. The rest of the $5 trillion we get to keep. These are the potential revenue sources:

¨    Maintain current federal funding for health care.

¨    Increase personal income tax on the top 5 percent of income earners

¨    Institute a modest and progressive excise tax on payroll and self-employment income.

¨    Instituting a modest tax on unearned income.

¨    Institute a small tax on stock and bond transactions.

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