Medicare For All Cost

Share this post

Introduction

Medicare For All (or M4A for short), is currently being heavily debated in the US. It is clear to most people that the current healthcare system is broken and isn’t working for the vast majority of Americans. Approximately 41 million adults (between 19 to 64) are underinsured [1; pg. 19 Table 6] and approximately 40 million adults (between 19 and 64) are uninsured [1; pg. 19 Table 6], for a total of 81 million adults, or a staggering 41% of the population is under- or uninsured [2]. This is a HUGE problem.

In my discussions with people on M4A, people generally fall into two camps regarding their thoughts on M4A: they either love it or they hate it. Those that hate it, have not put forth their own workable solution. Regardless, what I am failing to see from either camp, is a simple back of the envelope calculation to see if the proposal passes what we like to call in engineering, ‘the funny look test.’ In other words, from a simple calculation, do things roughly make sense? Are we in the ball park and on the right order of magnitude?

In this post, I will give a mathematical breakdown of where things are currently at, and how I see M4A being implemented. To date, I have chosen to not read any of the major reports out there, so that the calculations are purely my own, from the data I have gathered on the internet. I am putting my calculations out into the world, in the hopes of stimulating discussion. Our healthcare system is broken, and we need all of the good ideas we can get.

NOTE: You will notice that for some statements I have numbers, figure numbers, exhibit numbers, and table numbers. The first number refers to the reference number, and the second part after the semicolon refers to the particular figure, table, or exhibit number in the article that I am using information from. As an example, [4; Figure 3] would mean that you navigate to reference 4, scroll down to Figure 3, and you will see where I pulled that piece of information from. I felt it important to point this out, as not a lot of people are familiar with this notation and it is important in understanding where things are coming from.

Current US Healthcare Rankings

Whenever I hear people talk about how great the US healthcare system is, I cringe. Rankings consistently show that while we spend the most on healthcare as compared to 10 other countries (Australia, Canada, France, Germany, Netherlands, New Zealand, Norway, Sweden, Switzerland, United Kingdom), we have the lowest health system performance [3; exhibits 3 and 5] as evidenced by how sick Americans are, and our higher rates of mortality [3; exhibit 4]. And in 2014, we spent almost 17% of our GDP on healthcare, which is way above all of the countries listed above [3; exhibit 1]. In a global ranking, while the US is the wealthiest country, we rank 29th in the world for our healthcare out of 195 countries [4; Figure 3]. While yes, our healthcare seems to generate ‘more innovation,’ people are usually unable to afford it unfortunately rendering the innovation useless, and nothing more than a piece of paper (i.e., any publications or patents that resulted from said innovation).

And now without further ado, the math!

Current Situation

The most current year I could find data for, was 2017 [5]. Here are the stats:

• Total annual cost of healthcare = $3,492,077,000,000 (3.5 trillion)
  • 10% Out-of-Pocket: $365,455,000,000 (365 billion)
  • 75% Health Insurance
    • 34% Private Health Insurance: $1,183,910,000,000 (1.2 trillion)
    • 20% Medicare: $705,859,000,000 (706 billion)
      
    • 17% Medicaid: $581,864,000,000 (582 billion)
    • 1% CHIP: $18,194,000,000 (18 billion)
      
    • 1% Department of Defense: $42,257,000,000 (42 billion)
    • 2% Department of Veterans Affairs: $72,134,000,000 (72 billion)
      
  • 8% Other Third Party Payers and Programs: $265,849,000,000 (266 billion)
  • 3% Public Health Activity: $88,934,000,000 (89 billion)
  • 5% Investment: $167,621,000,000 (168 billion)
• US Population: 325,719,178 [2]
• Annual cost per person: $10,721 ($893/month)

For those that are more visual, I have summarized the percentage breakdown of the 2017 US national health expenditures with a pie chart:

To check the validity of the cost per person, I calculated my own medical costs and found it to be on the same order of magnitude, and only a few thousand higher than the estimate. However, I believe this is due to the age demographics included in the figure. This assumes a cost for every single person, including kids aged 0-18. For most of the kids in this age bracket, I would guess that this cost estimate is probably way too high. If we recalculate the cost per person for people aged 18+ (252,063,800), we get: $13,854 ($1154/month). Now, we know this number is likely too high, because it assumes that the healthcare costs for that age bracket is $0, which we know to be untrue. So the true cost of healthcare per person lies somewhere between $10,721 and $13,854, which my number does happen to fall between. These two numbers that I calculated essentially bound the true answer.

A note on the medicare, which will be important for the calculations in the next section. Medicare is funded by a Medicare tax of 2.9%, if your income falls below a certain threshold (which depends on your filing status). That 2.9%, if you are employed, is split 50/50 between you and your employer [6]. In other words, you pay a 1.45% tax rate and your employer pays a 1.45% tax rate. If your income is above the threshold, then you pay an additional surtax. For the sake of simplicity, we will assume that the vast majority of people fall into the 2.9% tax range.

And finally, to calculate your total annual healthcare costs to see how they stack up against the figures above, you would need to know the total cost of your medical, dental and vision premiums per month (both yours and the employers contributions) and the total out-of-pocket costs for prescriptions, co-pays, deductibles, balance billing, services not covered, etc. Generally you can find this information within your healthcare portals. As for your premiums, questions would need to be directed at the benefits administrator.

Medicare For All (M4A)

The cost of M4A was stated in a working paper by Mercatus to be $32.6 trillion over the course of a decade (10 years), or $3.3 trillion/year [7]. Now, before we even get into the mathematical details of the proposal, right off the bat you can see that the cost of M4A is roughly the same as what we are already spending. So that passes the first engineering ‘funny look test.’ Next, let’s calculate how much people would be paying per month, for this type of plan.

• Total annual cost of medicare for all = $3,300,000,000,000 (3.3 trillion)
  • 31% of funds above (half of the medicare) would likely get redirected: $1,023,000,000,000 (1 trillion)
  • Remaining cost: $2,277,000,000,000 (2.3 trillion)
• 2017 US (18+) population: 252,063,800
• Annual cost per person
  • If employers do not subsidize costs: $9,033 ($753/month)
  • If employers do subsidize costs: $1,626 ($136/month) [9]

A note on the last bullet point above. A study by the Kaiser Family Foundation found that on average, workers who had insurance through their employer contributed 18% (employers 82%) towards their premiums for a single policy, and 29% (employers 71%) for a family policy [8]. Because everything is being calculated on a per person basis, I used the number for a single policy holder. Again, from knowledge of my situation, my numbers agree with these estimates.

The important point here is that if employers contribute to worker’s healthcare in a similar way (which they have verbally indicated they are in favor of), then the premium costs on a per person basis are roughly the same as what we are paying now. Where the savings will come in, is you will no longer have deductibles to meet, or co-pays or co-insurance to pay.

Conclusions

From a mathematical perspective with the information we have publicly available, one can reasonably conclude that M4A compares favorably with the current patchwork system of private and public healthcare that we have today. There are many people that have died or avoided getting critical medical care, because they couldn’t afford it. Medical debt is also the top cause of bankruptcies in the US. It’s not right that you can lose everything you’ve ever worked for, because of a medical problem. The US healthcare system desperately needs to be revamped, and I think this proposal for M4A should be given serious consideration.

If you see any errors in this analysis, please contact me privately. Thank you.

Do you have other ideas to fix the US healthcare system? Leave them in the comments below!

References

[1] How Well Does Insurance Coverage Protect Consumers from Health Care Costs? (number of under- and uninsured)

[2] Annual estimates of the resident population by single year of age and sex for the United States: April 1, 2010 to July 1, 2017 (NC-EST2017-AGESEX-RES)  

[3] Mirror, Mirror 2017:International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care (ranking among 11 countries)

[4] Measuring performance on the Healthcare Access and Quality Index for 195 countries and territories and selected subnational locations: a systematic analysis from the Global Burden of Disease Study 2016 (global ranking)

[5] NHE Summary including share of GDP, CY 1960-2017 [ZIP, 27KB] (current situation raw data)

[6] Topic Number 751 – Social Security and Medicare Withholding Rates (Medicare tax rates)

[7] The Costs of a National Single-Payer Healthcare System (Mercatus Working Paper)

[8] 2018 Employer Health Benefits Survey (Kaiser summary of employer contributions for single and family)