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Sanders's Health-Care Plan Is Missing Its Price Tag

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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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 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.

We could force all health-care workers to take a double-digit across-the-board pay cut, of course. But we can do that without a single-payer system. What we lack is not the ability, but the political will. Judging from his health-care plan, which is studiously vague on who, exactly, will be making a lot less money, Sanders isn’t any braver than all the politicians before him who have resolutely failed to, say, slash Medicare physician reimbursements.

Meanwhile, on the tax side, he’s pushing the marginal income tax rates up on high earners while simultaneously limiting their deductions. Make $250,000 a year? You can look forward to a marginal rate of 37 percent, plus a 6.2 percent employer payroll tax (which your employer will of course subtract from your pay), plus a 2.2 percent income tax surcharge ( “income-based premium," I believe is the euphemism) to pay for Berniecare, plus whatever your state and local governments have seen fit to charge you. If you live in New York City or Washington, your marginal tax rate will be north of 50 percent. But good news: You no longer have to pay that $250 a month for your share of your employer-provided health-insurance premiums.

Perhaps your heart does not bleed for the poor corporate lawyer pulling down $300,000 a year. Fair enough. But her heart will bleed. She will call her senators and her representative. All the doctors and nurses will be calling too. So will a lot of other voters, when they see what the Congressional Budget Office projects this plan to cost. (CBO doesn’t use Magic Asterisks.) When all those voters call, all those members of Congress will panic. And Berniecare will be DOA.

But of course, it would be DOA anyway. Obamacare’s considerably more modest ambitions got through Congress only because the financial crisis had delivered Democrats a historic electoral victory and huge majorities in the House and the Senate. Those lawmakers voted for the plan on the promise that it would become popular, and they could brag about it in their campaigns in 2010. Instead, Democrats suffered a historic midterm defeat that fall, in large part because Obamacare didn’t become popular, and voters were still mad. Sanders won’t easily persuade congressional Democrats to embark upon another such bruising, vote-losing political battle.

In that sense, the Magic Asterisk doesn’t matter. Its magic fades upon cursory inspection. But the very fact that Sanders relies on the Magic Asterisk shows us just how impossible single payer is in this country. Even Sanders -- its fondest supporter, who never met a high-income tax he didn’t like -- knows he can’t be upfront about the cost and raise taxes accordingly. If Sanders won’t do it, then no one else will either.

Single payer’s off the table, for now and for the foreseeable future. The only place you’re going to see it is on Bernie Sanders’s website.

  1. I presume this is what he is proposing, though perhaps he is merely saying that you will no longer have to fight with your insurer over treatments, because you’ll be able to fight with a government bureaucrat instead.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Megan McArdle at mmcardle3@bloomberg.net

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