Medicare For All: A Public Finance Analysis

Medicare for seniors has been evolving for half a century and has performed very satisfactorily. Extending Medicare to cover everyone regardless of age would have several advantages. It would provide automatic coverage and portability for everyone regardless of employment, health status, income, marital status, or residential location. It would use single-payer bargaining power to reduce medical cost as a percent of GDP. It would eliminate the burden imposed by private health insurance premiums. It would eliminate health insurance distraction for business managers, entrepreneurs, and job seekers, thereby improving the productivity of the U.S. economy. It would remove that implicit tax on entrepreneurship and job mobility that is imposed by a system of employer-provided private health insurance, and thereby achieve a welfare gain equal to the magnitude of this deadweight loss. It would also remove the implicit tax on having a high expected medical cost that is imposed on individuals by a system of individually-purchased private insurance, and thereby achieve what many citizens would judge to be an improvement in the equity. Medicare for All, however, would require a significant increase in taxes as a percent of GDP (roughly 8 percent of GDP—from 30 percent to 38 percent of GDP) to replace the elimination of private insurance premiums, and this tax increase would impose some efficiency cost on the economy. Moreover, Medicare for All might have harmful effects on medical care if the government uses its payer bargaining power to force down medical prices severely rather than moderately or if public tax resistance reduces earmarked revenue for medical care (as a percent of GDP) severely rather than moderately. Thus, if Medicare for All is adopted, it would be important to finance it with taxes that have moderate rather than severe efficiency costs, and to raise sufficient taxes so Medicare can pay prices that are high enough to avoid waiting lists and achieve high quality.