Medicare for all -the Mercatus report

So there have been a few threads where the Mercatus report on the costs of Medicare for all have been brought up. Sometimes with the assumption that this can be used as a real-world estimate.

Now, I’ve read the report, and that seems fanciful to me. The report assumes savings in applying Medicare payment costs, drug costs and administrative costs. Savings total to slightly more than the costs of increased coverage. And so, 3.2 trillion healthcare costs per year over the next ten years.

Current US costs are 3.2 trillion per year, about twice what you would expect from population.

So it seems to me that it assumes that Medicare will pay for the profits of the insurance companies, the salaries of the health care insurance people, the people they employ to chase down bills, actuaries, the people who negotiate with hospitals, etc. And on the hospital side, that Medicare will beep paying for the people who do all the coding for all the different insurances, the people who negotiate bills with the insurance companies, etc, etc etc.

In other words, these costs seem about twice what you end up with if you just calculate Medicare cost per patient and putting everyone on Medicare.

The report is available here.

I hoped a separate debate about it woud keep the threads where it is referred to from rehearsing the same ground repeatedly.

Are there other credible estimates of the cost of Medicare for All?

Before reading the message, folks might want to know something about the messenger.

The Mercatus Center has received many millions of dollars from Charles and David Koch. If you’re unfamiliar with why these two push a “libertarian” agenda and have invested a billion dollars or so on right-wing politicians and right-wing think tanks, I’ve spoiled part of the answer:

  • A Koch-owned cellulose facility in Taylor County Florida was responsible for two successive chlorine dioxide chemical leaks in May, 2014.
  • Koch Pipeline Company spilled 17,000 gallons of crude oil (400 barrels) near Austin Texas in October, 2013. A road had to be built to access the spill site for cleanup, which contaminated livestock ponds. Months before the spill, Koch Pipeline was gifted its second annual “Environmental Performance Award” from the American Petroleum Institute, the top U.S. oil and gas lobbying organization.
  • Subsidiaries of Koch Carbon have accumulated massive piles of petroleum coke in U.S. cities like Detroit and Chicago, where the toxic dust has blown into peoples’ homes from a 5-story-tall pile of petcoke.
  • Ongoing, permitted releases of hazardous chemicals including benzene, sulfuric acid, hydrogen cyanide from Koch’s oil refinery in Corpus Christi, Texas, where refinery communities experience high rates of illnesses known to be associated with the chemicals released.
  • Millions of gallons of toxic paper mill waste from Koch-owned Georgia-Pacific facility in Crossett, Arkansas. A 2011 complaint to regional and national Environmental Protection Agency offices, filed by Public Employees for Environmental Responsibility (PEER) and Ouachita Riverkeeper, alleged that Koch’s plant was “Discharging 45 million gallons per day of paper-mill waste, including ammonia and chloride, and metals such as zinc, copper, and mercury.” … “Koch Industries has persuaded the State of Arkansas to issue the Georgia-Pacific mill a permit that in essence removes water quality standards for the creek, on the self-fulfilling grounds that it can never be restored to a biologically viable stream.”
  • In 2009, the US Justice Department and EPA announced in 2009 that Koch Industries’ Invista subsidiary would pay a $1.7 million penalty and spend $500 million to fix environmental violations at facilities in seven states, in an agreement with the US EPA and Department of Justice.
  • In May 2001, Koch Industries paid $25 million to settle … the company’s long-standing practice of illegally removing oil from federal and Indian lands. The value of oil that brother Bill Koch accused Koch Industries of stealing was worth $133 million over $255 million in 2014 dollars.
  • In late 2000, the company was charged with covering up the illegal releases of 91 tons of the known carcinogen benzene from its refinery in Corpus Christi. Initially facing a 97-count indictment and potential fines of $350 million, Koch cut a deal with then-Attorney General John Ashcroft to drop all major charges in exchange for a guilty plea for falsifying documents, and a $20 million settlement. Informing the federal case, a former Koch employee blew the whistle on the company for allegedly falsifying its emissions reports, downplaying the amounts of toxic chemicals it released.
  • In 2000, the EPA fined Koch Industries $30 million for its role in 300 oil spills that resulted in more than three million gallons of crude oil leaking into ponds, lakes, streams and coastal waters.
  • In 1999 a Koch subsidiary pleaded guilty to charges that it had negligently allowed aviation fuel to leak into waters near the Mississippi River from its refinery in Rosemount, Minnesota, and that it had illegally dumped a million gallons of high-ammonia wastewater onto the ground and into the Mississippi.
  • Koch’s negligence toward environmental safety has led to tragic losses of life. In 1996, a rusty Koch pipeline leaked flammable butane near a Texas residential neighborhood. Warned by the smell of gas, two teenagers drove their truck toward the nearest payphone to call for help, but they never made it. Sparks from their truck ignited the gas cloud and the two burned alive. The National Transportation Safety Board determined that “the probable cause of this accident was the failure of Koch to adequately protect its pipeline from corrosion” and the ineffectiveness of Koch’s program to educate local residents about how to respond during a pipeline leak.

The Mercatus Group is headed by Tyler Cowen.

And the author of the report cited by OP is Charles Blahous, architect of Bush-41’s plan to turn SocSec into a Wall St. boondoggle, who was described by Sen. Elizabeth Warren as “an anti-government zealot.”

In view of what this tells us about the messenger, I’ll let another Doper “take one for the team” and review this 24-page “Report.”

septimus’ attempt at an ad hominem notwithstanding, the Urban Institute came up with pretty much the same estimate.


The problem is not that the estimates are wrong, they are just unrealistic. If we make major cuts to health care spending, and cut payments to health care providers, and cut drug costs dramatically, and more than double federal income taxes, and if utilization doesn’t increase, and if we cut administrative costs, we can save money. OK, granted. Now, how exactly do we do these cuts, and how do we deal with the fallout?


There is something more weighty: A large number of real-world examples, all of which cluster incredibly much lower than this. On the face of it, this is a flat-out unbelievable result. That is why I though looking at this report might be interesting.

I was hoping we look at the report based on its own merits, whatever it might be.

That is interesting. Its a good cite. On an initial read, they seem to be making the same fundamental assumptions about Medicare paying for most things that are in the system today. I think this is where the numbers grow unrealistic.

Well, I am not sure I see how you’d need to increase income taxes after making severe cuts to expenses.

Thats besides the scope of the thread.

Now, if we take the costs per patient of Medicare as it stands, adjust for age and expand to add every other age to Medicare, we get a far lower number than this. Medicare is a system that falls within the cluster of “normal first world systems” and the cost we come up with is pretty close to the average first world cost.

If we adjust for the fact that current medicare pays 80 % of costs, we get to a number a bit above the current average, but normal for the US GDP per person. And pretty much what the US government currently spends on public health care.

(I can show the maths if anyone is interested)

But to me, its rather clear that there’s no special “US factor” that makes patients more expensive. Patients in a normal system ends up costing a normal amount, and are entirely comparable to other developed world systems.

So why does these reports end up with such an unrealistically high number, twice what other nations pay and twice what expanding the patient numbers for Medicare comes in at?

Overhead due to multiple payers is a big part of why healthcare in the U.S. is so expensive, but it’s not the biggest. Overhead at the insurance company is limited by law to 20%, and is more like 10% nationally. A funny thing happens in capitalism: companies compete and become more efficient, something the government has no motivation to you. Say you double or even triple that and eliminate it and you still have the most expensive system in the world.

Reasons that you can’t just extrapolate current Medicare costs to the overall population:

  1. Many providers don’t make any money on Medicare patients, or even lose money. They make up for it by the increased payment by private insurance. If everyone had Medicare at current reimbursement rates we’d have massive failures on the provider side.

  2. We have a real problem with the cost of education doctors. Everyone wants to go to college now since your choices are going to college to program computers or spending a lifetime asking if you want fries with that now that all our blue-collar, middle class factor jobs are in China. More demand for a fixed amount of slots combined with easy loans from the government mean demand is outstripping supply for the same undergrad slots that future doctors need.

  3. Medicare benefits are so unbelievably lousy (20% coinsurance with no out-of-pocket maximums, $1000 hospital deductibles, zero out of country coverage) that the majority of people on Medicare buy supplemental or replacement coverage. So you’d have to increase Medicare benefits to be somewhat reasonable, more along the lines with what commercial insurance provides, if it’s going to be the only insurance.

  4. Things like “eat your veggies” type advertising and healthy incentives programs, and aggressive fraud detection done by commercial insurance companies are included in overhead, but reduce healthcare costs to society.

According to the report, doubling federal corporate and personal income tax still leaves an undetermined amount that would be added to the deficit.


And yet, under the current U.S. system, where insurance purports to operate according to free market principles, healthcare costs twice as much per capita - and produces worse outcomes - when compared to other developed (and capitalist) countries with public UHC funded out of general taxation. So clearly there’s a massive flaw in any argument that suggests that healthcare costs will rise in the U.S. because of loss of competition if we change from multiple private insurance companies to a single pool of public insurance .

The laughable thing about this kind of report is that it’s basically imposing biased assumptions and speculation about what might happen if we did an experiment to test a hypothesis. And ignoring the fact that dozens of other countries have been running the experiment for decades, and we can see the results.