(Bloomberg View) — So Bernie Sanders has a health care plan. It sounds wonderful. It covers everything, from dental to long-term care. There will be no co-pays or deductibles. You will not have to hassle with an insurer over what’s covered. There’s just one small problem, which is how Sanders is planning to pay for this.
Yes, his health care plan lays out revenue estimates in great detail. But the revenue estimates and the cost estimates are perhaps just a trifle too rosy for me to take seriously.
To see what I mean, consider the National Health Expenditure data. It says we spent about $3 trillion on health care in 2014 from all sources — government insurance, private insurance, out of pocket. Now the government already spends $1.3 trillion, or thereabouts, so we can’t fairly count that against Sanders’s health care plan. However, that leaves us with about $1.7 trillion to go. Yet Sanders claims that his plan, despite providing vastly more generous health benefits than basically any plan in existence, will cost only $1.35 trillion a year. That’s a pretty big gap. How does he get there?
“Reforming our health care system, simplifying our payment structure and incentivizing new ways to make sure patients are actually getting better health care will generate massive savings.”
When Reagan proposed his first federal budget, his budget director, David Stockman, notoriously disappeared the ballooning deficits into a multi-billion-dollar line item of savings to be named later. This became known among wonks as the Magic Asterisk, and though all budget proposals have a whiff of this about them, few have displayed the daring of Mr. Stockman (at least, not until Obamacare came around).
But Sanders has surpassed his predecessors by a wide margin. He is the Jesus to Stockman’s John the Baptist, the Luke Skywalker to his Obi Wan Kenobi. He has proposed a Magic Asterisk worth a third of a trillion dollars a year. The thing is breathtaking, though not as breathtaking as the tax bills you’ll get if Sanders manages to push his plan through.
At this, we are being charitable. If you make health care absolutely free to patients, and refuse to allow your government insurer to deny treatments, then people are going to use more health care. “People use more health care when it costs them less” is one of the better-documented results in the health care-policy literature. So we shouldn’t be starting with a baseline of $3 trillion; we should be starting well above that. Call it $3.15 trillion, and we’ll put the total gap he needs to cover at around a half a trillion dollars a year.
By any reasonable measure, Sanders’s plan would put a bigger hole in the budget than Marco Rubio’s tax plan. Bit awkward for Democrats who are fond of claiming the mantle of fiscal responsibility for their side. And that is not, of course, counting the cost of any of his other proposals, just his single-payer system.
But don’t single-payer systems cost less? No, they don’t. At least, not unless you have a plan to make health care workers accept less pay, close the hospitals that are hovering on the verge of red ink, and otherwise massively drive down the prices that we pay for health care.
Before you say it: No, it can’t all come out of prescription drugs, which constitute only about a 10th of our health care spending, much of that on already-cheap generics. We also can’t make it up from preventive medicine (which costs money, rather than saves it, whatever its other benefits), or uncompensated hospital care, or any of the other “magic pots of money” that were hypothesized to exist when the Patient Protection and Affordable Care Act (PPACA) — Obamacare — was being debated. If we want to raise money to pay for single payer, we are going to have to take the boring, old-fashioned step of making someone empty their pockets and pay.
What makes our health care system expensive is not insurers, who have quite modest profit margins, nor high administrative overhead. What makes it expensive is the cost of labor in the health care system, the cost of the medical devices and fancy new drugs we’d all very much like to continue having invented, and the industry’s very pricey physical plant.