Despite the United States having the highest per capita healthcare expenditure globally, a significant portion of its population, over 37 million Americans, lacks health insurance entirely, and an additional 41 million face inadequate access to necessary medical care. Proposals for universal healthcare systems, such as the Medicare for All Act (MAA), present a potential solution to transform healthcare accessibility and efficiency in the US, especially when current efforts to repeal the Affordable Care Act risk worsening existing healthcare disparities. This article delves into the projected costs and savings associated with a single-payer, universal healthcare system like the MAA, demonstrating its potential to not only expand coverage but also generate substantial financial benefits for the nation.
Projecting the Budgetary Impact of Single-Payer Universal Healthcare
The concept of single-payer universal healthcare has often been deemed economically unrealistic in the US. However, the existing Medicare system, a successful government-funded healthcare model for seniors for over five decades, provides a real-world example of its viability. Medicare has effectively improved health outcomes and controlled costs for the elderly, a demographic known for higher healthcare needs. Given Medicare’s success, extending similar coverage to all Americans appears not only feasible but potentially more cost-effective on a per-capita basis.
Estimates for the national healthcare expenditure under a Medicare for All system vary, ranging from a 16.9% increase to a 27% decrease. This analysis projects the national healthcare costs under the MAA’s proposed single-payer universal system, considering various factors influencing healthcare expenses. To address the uncertainties and differing expert opinions surrounding these projections, the Single-payer Healthcare Interactive Financing Tool (SHIFT) was developed (http://shift.cidma.us/). This tool allows users to adjust key parameters, such as service utilization and administrative efficiency, and explore different financing models, including replacing employer and individual premiums with tax-based funding. Projections from SHIFT indicate that, across a broad range of assumptions regarding coverage expansion, service enhancements, administrative streamlining, and pharmaceutical pricing, the MAA is likely to result in net savings for the US healthcare system.
This interactive tool, accessible at http://shift.cidma.us/, empowers users to customize input parameters and assumptions, including utilization increases, to determine the projected healthcare budget. Users can also explore various revenue generation options to meet the calculated budget. The static image displayed here represents the tool’s interface with default parameter settings. The online tool features distinct tabs for “Healthcare Budget,” “Expansion in Utilization,” and “Revenue Generation.” Panel 1 provides details on parameter defaults and adjustable ranges.
(A) Demonstrates the impact of reductions in physician and clinical fees (base case: 7.38%, range: 0 to 19.23%) and hospital fees (5.54%, 0 to 18.74%) on the overall healthcare budget. (B) Shows the influence of fraud reduction (4%, 0 to 10%) and overhead cost reduction (2.2%, 2.2 to 12.4%) on the total budget. (C) Illustrates the impact of pharmaceutical price reduction (40%, 0 to 60%) and projected healthcare utilization increase by the previously uninsured upon gaining coverage, compared to those adequately insured (50.1%, 50.1 to 100%), on the total budget. For instance, a 5% reduction in both hospital and clinical fees results in a total budget of $3054 billion. Furthermore, assuming a 2.2% overhead rate and no fraud reduction leads to a total budget of $3144 billion. Lastly, with a 40% reduction in pharmaceutical costs and healthcare utilization among the newly insured rising to 50% of the adequately insured, the total budget would be $3034 billion.
Savings Through Reduced Hospital and Clinical Service Fees
Significant cost savings can be achieved by applying Medicare’s current fee schedule across all hospital and clinical services. These services constitute over a third of US healthcare expenditures. Private insurers often face inconsistent and inflated charges that are not necessarily linked to service quality. For example, the cost of an uncomplicated vaginal birth can vary tenfold across California, with only a small portion of this variation explained by location or patient demographics. Moreover, higher hospital fees do not correlate with improved maternal or neonatal health outcomes. This cost-outcome disparity is even more evident when comparing the US to other developed nations. The average cost of childbirth in Spain is approximately $2,333, while in the US it reaches $14,910, yet the neonatal mortality rate in the US is twice as high as in Spain. Similarly, appendectomy fees in the US range from $9,332 to $33,250, showing an inverse relationship with clinical outcomes. California, despite having the highest median appendectomy costs, also experiences higher rates of associated complications.
Medicare’s fixed reimbursement rates for hospitals and physicians offer a stark contrast. By extending Medicare-negotiated fees to all healthcare services, it is estimated that hospital fees could be reduced by 5.54% and clinical service fees by 7.38%, resulting in annual savings of $100 billion. Healthcare providers would also benefit from this system through reduced administrative burdens associated with billing and insurance complexities, which currently cost providers an estimated $768 billion annually. A unified billing system has the potential to cut these expenses by $284 billion, more than offsetting the proposed fee reductions. Additionally, the elimination of unpaid medical bills, which currently exceed $35 billion annually for hospitals alone, would further improve provider finances. Reduced paperwork and administrative hassles can also alleviate physician burnout, allowing them to focus more on patient care, potentially increasing both job satisfaction and revenue. The anticipated increase in healthcare utilization under universal coverage would further necessitate and justify this reallocation of provider time.
Organizations like National Nurses United and Physicians for a National Health Program have voiced their support for the MAA, recognizing its benefits for both providers and patients. Conversely, the American Hospital Association opposes the MAA, arguing that private insurance payments subsidize care for Medicare and Medicaid patients. However, under the MAA, lower Medicaid fees would be replaced by higher Medicare reimbursements, and the elimination of unpaid bills would significantly improve hospital finances, particularly for those serving low-income communities. The financial relief from streamlined administration and eliminated bad debt may be an underappreciated benefit for many stakeholders.
Streamlining Billing and Administration through a Unified System
Overhead costs in the US private insurance system account for 12.4% of spending, compared to just 2.2% under Medicare. While scaling Medicare’s efficiency to a universal system presents potential challenges, it is plausible that expanding the existing Medicare framework could enhance overall efficiency. Applying Medicare’s current overhead rate to a universal system could generate annual savings of $225 billion. This reduction stems from eliminating redundant corporate structures within the insurance industry and capping executive compensation. The salary of the head of a single-payer system would be capped at the Secretary of Health and Human Services’ salary ($210,700), eliminating exorbitant executive pay packages, some exceeding $20 million annually in private insurance companies.
Beyond overhead savings, a comprehensive healthcare billing database would significantly improve fraud detection, which currently drains $85.7 billion annually from the US healthcare system. Taiwan’s transition to a single-payer system resulted in an 8% reduction in national healthcare expenditure attributed to fraud reduction. A unified system makes it easier to detect irregularities in provider claims compared to the fragmented US system. While fraud detection has advanced since Taiwan’s transition, conservatively assuming a 4% reduction in US healthcare expenditure due to improved fraud detection under a single-payer system is reasonable. Sensitivity analysis indicates that even without fraud reduction savings, the MAA would still be cost-saving.
Negotiating Pharmaceutical Prices to Reduce Costs
The US spends $469 billion annually on pharmaceuticals, driven by prices that are the highest in the world and continue to outpace inflation. For example, a vial of insulin costs around $300 in the US compared to $30 in Canada. Current legislation prevents Medicare from negotiating drug prices, hindering cost control. In contrast, the MAA includes negotiating authority as a key component. Representing the entire US market, the Department of Health and Human Services would possess significant negotiating power. The Department of Veterans Affairs (VA), a federal single-payer system, serves as a model, successfully negotiating drug prices 40% lower than Medicare by aligning prices with therapeutic value. Applying similar negotiation power to the MAA could yield savings exceeding $180 billion annually. These savings align with those proposed by Senator Elizabeth Warren through alternative pharmaceutical price reduction mechanisms.
Concerns exist that reduced pharmaceutical company profits might stifle biomedical innovation. However, declining scientific investment alongside consistently high pharmaceutical industry profits suggests that this concern might be overstated. Nonetheless, recognizing potential variations in optimal drug prices, the SHIFT tool allows for price reduction adjustments from 0% to 60%. Importantly, even without pharmaceutical price reductions, the MAA is projected to lower overall healthcare system costs.
Coverage and Service Expansion: Addressing Unmet Needs
Universal healthcare inherently involves expanded utilization of health services, particularly by the currently uninsured and underinsured populations who often face financial barriers to care, such as high co-pays and deductibles. The 38 million uninsured Americans often forgo necessary treatments and preventative care. Specifically, uninsured individuals utilize healthcare at roughly half the rate (50.1%) of adequately insured individuals. Additionally, 41 million underinsured Americans with high out-of-pocket costs utilize healthcare at 86% of the rate of the adequately insured. This analysis assumes that under the MAA, healthcare utilization for both uninsured and underinsured individuals would rise to match that of adequately insured individuals, where cost is not a deterrent to seeking care. While some argue that uninsured individuals may be less in need of healthcare, evidenced by the higher proportion of younger uninsured individuals, studies suggest that the uninsured may have undiagnosed conditions and comorbidities requiring increased healthcare resources.
The Financial Bottom Line: Medicare for All as a Cost-Saving Measure
Through the combined savings from reduced service fees, administrative streamlining, and pharmaceutical price negotiation, a single-payer healthcare system is projected to cost $3.034 trillion annually, $458 billion less than the current US national healthcare expenditure. Even after accounting for the increased costs of expanding coverage to everyone, the base case scenario includes $210 billion savings on hospital care, $111 billion on physician and clinical services, $224 billion on overhead, and $180 billion on prescription drugs. This translates to a per-capita annual expenditure decrease from $10,739 to $9,330, a 13.1% reduction. This cost-saving projection remains robust even with variations in input parameters. For instance, even if overhead reduction is less optimistic, reaching 6% instead of Medicare’s 2.2%, the MAA still achieves a 10.3% cost reduction. Conversely, if the model overestimates the increased demand from the newly insured, savings could be even greater. Considering the existing $2261 billion in government and philanthropic healthcare allocations, an additional $773 billion in government funding would be needed to fully finance the MAA.
Overview of Single-Payer Healthcare Interactive Financing Tool Calculations. Arrows indicate changes in total National Healthcare Expenditure upon implementation of each step. Subtotals and changes in National Healthcare Expenditure have been rounded to the nearest billion. Additional details on steps in the enactment of the MAA and relevant calculations are provided in the Appendix and Appendix Tables.
Restructuring Healthcare Expenditure: Shifting from Premiums to Taxes
The rising cost of insurance premiums, exacerbated by the elimination of federal subsidies and reduced ACA enrollment, places a significant financial burden on individuals and employers. A single-payer healthcare system offers potential relief through cost savings. One proposed financing mechanism involves replacing employer and household insurance premiums with payroll and income taxes. Setting tax rates appropriately can ensure savings for both employers and households. This shift from premiums to taxes also represents a transfer of capital from the private to the public sector, with broader economic redistribution effects.
| Employer Premiums, National Total | Household Premiums and Out-of-Pocket Spending, Average |
|---|---|
| Current | Proposed |
| Annual expenditure | $536 billion |
| Equivalent tax rate | 11.29% |
Employer contributions to health insurance currently average $10,446 per employee, covering 71% of household premiums. These employer premiums are equivalent to an 11.29% payroll tax on payroll exceeding $2 million. A 10% payroll tax, as a proposed alternative, would generate $436 billion annually, saving employers $100 billion. Furthermore, employers would benefit from reduced administrative costs associated with managing employee health benefits, a factor not included in these conservative calculations. While taxes are often associated with economic drag, replacing the obligation to provide healthcare with a lower-rate tax is likely to stimulate the economy for employers.
The remaining $337 billion needed to fully fund the MAA could be generated through a 5% tax on household income exceeding the standard deduction, yielding $375 billion. This surplus could contribute to transition costs or act as a buffer against unforeseen expenses. Replacing current premiums with a 5% income tax is estimated to save households an average of $2369 annually. This tax structure is progressive, providing greater financial relief to lower-income households. Medicaid enrollees, for example, would continue to pay little to no income taxes towards healthcare due to their income levels often falling below the standard tax deduction. The MAA also eliminates deductibles and copayments, further easing the financial burden on low-income individuals.
While system efficiencies lead to cost savings, they also result in workforce adjustments, particularly in administrative and insurance-related roles. An estimated 936,000 administrative positions and 746,600 healthcare insurance industry positions may become redundant. However, transition plans propose funding for early retirement, severance packages, retraining programs, and relocation assistance, estimated to cost $61.5 billion annually for two years. These transition costs would be quickly recouped within the first year of healthcare savings. Financing the transition could involve a temporary 6% household income tax for the first two years, followed by a stabilization at 5%.
The Life-Saving Potential of Universal Healthcare
Beyond economic considerations, a primary goal of any healthcare system is to save lives. Providing health insurance to the currently uninsured through the MAA is projected to have a significant life-saving impact. Based on age-specific uninsurance rates and population demographics, approximately 37,977,297 Americans are uninsured. Uninsured individuals face a 40% higher age-specific mortality risk. Universal coverage is estimated to save 68,531 American lives annually, predominantly among younger populations, as most seniors are already covered by Medicare. Adults aged 25 to 35 constitute a significant portion of the uninsured, numbering over 9 million. These averted premature deaths translate to an estimated 1.73 million life-years saved annually. Repealing the ACA, as has been attempted, and causing 21 million Americans to lose coverage, would result in an estimated annual loss of 38,557 lives and 980,103 life-years.
The life-saving potential of Medicare for All compared to the present healthcare system.
Studies examining the relationship between insurance status and mortality face challenges in achieving statistical power and true randomization. Therefore, the estimated lives saved by universal healthcare are also presented as a function of the increased mortality risk among the uninsured. The calculated life-saving potential of the MAA is conservative. Improved continuity of care under a single-payer system and extending full coverage to the 41 million underinsured individuals would likely lead to even greater lives saved.
Lives saved by Medicare for All as a function of increased mortality among the uninsured. The number of uninsured Americans, and therefore the estimated lives saved, would be higher if the Affordable Care Act is repealed (blue line), compared to the current status quo (tan line). Vertical lines indicate studies which found a statistically significant relationship between insurance status and mortality, among those identified in a recent review.
Synergistic Benefits: Health and Economic Prosperity
Beyond mortality reduction, universal coverage and single-payer financing would significantly reduce morbidity. Universal coverage removes barriers to preventative and primary care, while a single-payer system encourages investment in preventative programs. Preventative care reduces the incidence of chronic diseases like diabetes, heart disease, and osteoporosis, improving quality of life and reducing long-term healthcare costs. Early diagnosis and intervention for conditions like prediabetes can significantly reduce progression to full-blown diabetes. A single-payer system, responsible for healthcare costs across the entire lifespan, has a financial incentive to invest in preventative care to avoid more costly future health issues. In contrast, private insurance companies, with transient patient enrollment, prioritize short-term cost minimization, potentially overlooking long-term health consequences. Canada’s single-payer system, for example, allocates a higher proportion of healthcare spending to prevention compared to the US, despite the US facing higher rates of chronic disease.
The US healthcare system’s cost-cutting measures also contribute to the opioid crisis. Despite the opioid epidemic, many insurance companies still prefer cheaper, more addictive opioid medications over less addictive alternatives and physical therapy for pain management. The long-term health and societal costs of addiction far outweigh the short-term cost savings from cheaper medications. Employer-based insurance, compared to Medicare, is more likely to favor opioids over more expensive alternatives. Aggressive marketing by opioid manufacturers, fueled by relaxed regulations and targeted physician training, further exacerbated the crisis. Opioid overdose mortality rates in the US are significantly higher than in single-payer countries like Canada. The MAA would cover treatment for substance use disorders, including medication-assisted treatment and behavioral therapies.
Universal health insurance also enhances workforce productivity. Diseases like prostate cancer and diabetes result in billions of dollars in lost productivity annually due to absenteeism, reduced work performance, and premature mortality. By expanding access to screening and preventative care, the MAA would help prevent these diseases and boost overall economic productivity.
Enhancing Continuity of Care and Patient Choice
Contrary to the misconception that federal healthcare restricts patient choice, a single-payer system, by integrating all providers under a unified financial framework, actually expands patient choice. It eliminates in-network and out-of-network distinctions and provider limitations based on insurance status. Decoupling insurance from employment also resolves care fragmentation during job transitions, preventing patients from losing access to established doctors due to network changes. This continuity is crucial for chronic disease management and timely care for acute conditions. Universal single-payer coverage eliminates the risk of losing healthcare access during times of greatest need, such as during serious illness, which often coincides with job loss and income reduction. The Americans with Disabilities Act does not protect employees whose medical needs become “burdensome,” and serious illnesses like cancer can lead to job loss and subsequent loss of employer-sponsored health insurance, severely impacting health outcomes.
Fragmentation is particularly detrimental in mental healthcare. A significant majority of Americans with mental illness do not receive treatment, primarily due to prohibitive costs. Even plans supposedly covering mental health often have limited provider networks and low treatment authorization rates. Weakening protections for pre-existing conditions would further escalate premiums for individuals with mental health or substance use disorders. By removing cost barriers and consolidating mental health practitioners into a single network, the MAA would address the growing gap between mental health needs and service access.
A Call to Action: Time for Healthcare Reform
As public support for healthcare reform grows in the US, policymakers have a crucial opportunity to transform the healthcare system and save thousands of lives annually. Single-payer universal healthcare, particularly through the Medicare for All Act, offers the potential to improve healthcare quality, cost-effectiveness, and accessibility. Projections indicate that the MAA is likely to generate net savings across various expenditure and financing scenarios, dispelling concerns about rising costs. While opposition from vested interests like insurance and pharmaceutical industries is expected, the moral imperative to provide healthcare as a human right, independent of employment or wealth, should prevail. This is a critical moment to enhance wellbeing, boost prosperity, and establish a more equitable healthcare system for all Americans.
