The cost of single payer: roughing it out

With sweeping ACA repeal apparently off the table for the moment, the Democratic imagination is turning once again toward some version of single payer, or Medicare for all.

I thought I'd try an overview from more than 30,000 feet -- say, from space -- of the tax revenue that might be required to move those now covered by commercial insurance into some kind of public insurance program.  That is, converting about a third of current total healthcare spending from private to public.  I hope this is not too general, or too vaguely informed, to be useful, but here goes...

1. According to the National Health Estimate, in 2015:

• Medicare spending was $646.2 billion, or 20 percent of total NHE.
• Medicaid spending was $545.1 billion, or 17 percent of total NHE.
• Private health insurance spending was $1,072.1 billion, or 33 percent of total NHE.
• Out of pocket spending was $338.1 billion, or 11 percent of total NHE.

2. Private health insurance covers more people than Medicare and Medicaid -- about 170 million (combining the employer and individual markets) vs. 120 million.* But it costs less in total -- about $1.1 billion vs. $1.2 billion.

3. At the same time, private insurance pays far higher rates to healthcare providers -- no one knows exactly how much more, but I've heard estimates in the 160% of Medicare range. Medicaid, in contrast, pays about two thirds of Medicare rates on average. [Update, 4/1: It's been pointed out to me that MEDPAC reports commercial rates for physician payments to be about 128% of Medicare -- that is, Medicare pays 78% of commercial rates on average. See p. 98 here. OTOH (added 4/4), a brand new CBO report estimates that commercial rates for hospital inpatient services average about 188% of Medicare, with wide variation. Hospital services accounted for a bit over $1 trillion in spending in 2015, compared to $635 billion for physician and clinical services.]

What about a state-level public option (with a remixed subsidy schedule?)

ACA marketplace plans work reasonably well for a majority of subsidy-eligible buyers -- but leave far too many underinsured, or paying premiums they can't readily afford. There's virtually a progressive consensus on that point by now.

The latest crystallization of this consensus is in an analysis of ACA plan holders' costs by the Urban Institute's* Linda Blumberg, John Holahan and Matthew Buettgens, which spotlights high combined premium and out-of-pocket costs for the sickest, oldest and wealthiest of subsidized plan holders in the ACA marketplace (as well as for those a notch above subsidy eligibility).

Among the subsidy-eligible, median costs are most acute for buyers with incomes over 200% of the Federal Poverty Level (FPL), the threshold at which strong Cost Sharing Reduction (CSR) subsidies phase out while subsidized premiums as a percentage of income rise. Median combined premium and out-of-pocket costs for marketplace customers with incomes ranging from 200-500% FPL range from 10,8% to 13.4%, according to the study authors. The spike in costs at the 200% FPL threshold is reflected in ACA takeup rates, which  according to a cited study,** fall off a cliff at 200% FPL, from 62% of eligible individuals to 29%.

The authors recommend, as Blumberg and Holahan have previously, that ACA subsidies be enriched across the board, and that tax credits be added above the current 400% FPL cap. While the cost would be relatively modest -- covered, in fact, by reduced spending projections for the ACA and Medicare-- the political lift is plainly impossible for the foreseeable future.

There may, however, be revenue-neutral steps that would boost affordability and so, takeup. If so, they will have to be taken at the state level. That's not only because Congress is incapable of constructive action where the ACA is concerned. It's also because the ACA benefit structure militates against any realized cost savings being passed directly to the consumer.