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Democrats seize on cherry-picked claim that ‘Medicare-for-all’ would save $2 trillion

Democrats across the country are touting 'Medicare for All,' but many candidates are leaving out important context. (Video: Meg Kelly/The Washington Post)

“We know that Medicaid expansion and Medicare-for-all actually save this state and this nation $2 trillion if it were fully implemented.”
— Andrew Gillum, Democratic candidate for Florida governor, in a primary debate, Aug. 2, 2018

This fact check has been updated

As our colleague David Weigel reported, Democrats have latched onto the catchy idea of “Medicare-for-all” (also known as M4A) as a way of expressing their support for universal health care.

On July 30, the Mercatus Center at George Mason University released a working paper on the 10-year fiscal impact of the Medicare-for-all plan sponsored by Sen. Bernie Sanders (I-Vt.), which would transition everyone in the United States from a mostly employer-provided health system to Medicare over four years. The report was written by Charles Blahous, a former economic adviser to George W. Bush and a public trustee for Social Security and Medicare from 2010 through 2015.

Gillum, the mayor of Tallahassee, was quoted in Weigel’s article as having touted, during a debate, a $2 trillion cost-savings figure that is in the report. Sanders, too, has tweeted about this $2 trillion number, sarcastically thanking the conservative Koch brothers, whose foundation has contributed to Mercatus. “Let me thank the Koch brothers of all people for sponsoring a study that shows that Medicare for All would save the American people $2 trillion over a 10-year period,” Sanders says in a video with the tweet.

But Blahous is crying foul, saying Medicare-for-all proponents are misrepresenting his findings. Let’s take a look.

The Facts

We often warn readers that you can’t get something for nothing. In the health-care realm, even relatively small shifts can lead to major dislocation and changes; President Barack Obama discovered that, to his chagrin. As former Lyndon Johnson White House aide Joseph A. Califano Jr. once noted, congressional dealmaking during the passage of Medicaid unexpectedly led to one-third of the Medicaid budget going to nursing homes — an industry that was literally built on Medicaid funding.

In doing his research, Blahous decided to follow the text of the Sanders plan and assume that providers — doctors, hospitals, and the like — would face an immediate cut of roughly 40 percent for the treatment of patients now covered by private insurance. (Note: an earlier version of this fact check incorrectly included a reference to drug companies in the sentence above. The analysis found that drug costs would be $846 billion lower over ten years from an aggressive program to negotiate lower prescription drug prices but it would not be as much as a 40 percent decline.)

That in theory would reduce the country’s overall level of health expenditures by $2 trillion from 2022 to 2031. But he makes clear that it’s a pretty unrealistic assumption.

In the fourth sentence of the report’s abstract, Blahous wrote, “It is likely that the actual cost of M4A would be substantially greater than these estimates, which assume significant administrative and drug cost savings under the plan, and also assume that healthcare providers operating under M4A will be reimbursed at rates more than 40 percent lower than those currently paid by private health insurance.”

Under an alternative scenario, which assumes these cuts cannot be achieved, national health spending rises even faster than under current law because health-care demand would increase.

“To lend credibility to the $2 trillion savings number, one would have to argue that we can cut payments to providers by about 40 percent at the same time as increasing demand by about 11 percent,” Blahous said.

The main point of his study is being ignored by Democrats — that even by generously accepting Sanders’s assumptions that he could squeeze providers so much, the plan would still raise government expenditures by $32.6 trillion. This is in line with a 2016 estimate by the Urban Institute of an earlier version of the M4A plan — that it would cause federal expenditures to increase by $32 trillion. (Without the provider cuts, Blahous estimated  the additional federal budget cost at nearly $40 trillion over 10 years.)

Sanders has said an earlier version of his plan would add $1.38 trillion a year in new spending between 2017 and 2026, paid for in part with new taxes on employers and an income-based premium — an estimate that one analysis in 2016 (disputed by Sanders) said was underfinanced by $1.1 trillion a year.

Blahous estimates total federal spending under M4A would be closer to $3.3 trillion a year. (Note: Some readers correctly noted these estimates are for different budget windows and spending pots and so are not directly comparable.)

“For perspective on these figures, consider that doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan,” Blahous wrote. (He’s referring only to income tax collection, not existing Social Security and Medicare payroll taxes.)

Blahous told the Fact Checker: “Every table in the study (Tables 1-5) is very explicit that the additional costs arising from higher demand are substantially higher than the potential administrative efficiencies of going to a centralized national health insurance system. So whenever proponents argue that eliminating private sector insurance profits and overhead would enable us to cover more people for less money, that conflicts with the findings of the study.”

Congress has passed cuts to health-care providers that do not come to fruition. Most famously, the 1997 balanced-budget agreement between President Bill Clinton and the GOP-led Congress included cuts that Congress deferred for 17 years with an annual provision known as the “doc fix.” It was finally eliminated under a deal Obama reached with Congress in 2015, or else providers would have faced a cut of 21 percent. Other efforts to control spending in Medicare, however, have fared better, including as part of the enactment of the Affordable Care Act.

In 2012, Blahous wrote a study questioning the budget assumptions in the ACA, such as the political prospects for a tax on “Cadillac” health plans. He turned out to be right: The tax keeps getting pushed off and weakened. Health-care costs did decline after the passage of the ACA, but whether that pre-dated the law or not is a subject of continuing debate.

For the record, Blahous says the Kochs had nothing to do with his research. “It’s academic research, it goes through a blind review process, and it represents my own work,” he said. “I choose my own research subjects and follow the facts where they lead. You’d have to ask someone else about where funding comes from, I don’t follow that and it doesn’t affect me.”

We shared Blahous’s concerns with Gillum’s campaign, which confirmed that he relied on the Mercatus study, and received this response: “The Mayor’s a proud supporter of Medicare-for-All and this study shows the potential for significant savings,” said communications director Geoff Burgan. “It would be a strong improvement over the Republicans’ attempts to destroy our current system and rip health care away from people.”

In response to this fact check, Sanders’s office provided links to several articles, including in The Washington Post, that reported that Blahous concluded that the Sanders plan would reduce national health expenditures by $2 trillion. Blahous said these articles are good examples of the misinterpretation of his research: “It’s precisely because people have been saying that, that the correction is warranted.”

Note: Regular readers know we often provide links to thoughtful critiques of our fact checks. Economist Dean Baker, who has written carefully about the cost implications of shifting to Medicare-for-all, thought we were a little heavy-handed on the Pinocchios. He noted, however, that “I can sympathize with Kessler’s complaint that the Democrats aren’t giving the full story.” Other attacks, however, were misinformed or highly ideological, apparently because Medicare-for-all advocates were upset that our analysis undermined an effective talking point. The Fact Checker does not take policy positions but merely outlines the facts. Our analysis was confirmed by fact checks by, PolitiFact, the Associated Press and CNN. Blahous, the author, also wrote a question-and-answer article that explains how advocates have twisted his research for ideological purposes.

The Pinocchio Test

We don’t intend to pick on Gillum, who appears to have picked up a talking point that is circulating among Democrats. But we do want to lay down a marker because this goes too far.

All too often, politicians mischaracterize conclusions that are contained in academic or think tank studies. At the Fact Checker, we rely heavily on how a study’s author says the data should be presented. In this case, it’s clear that Blahous bent over backward  to accept Sanders’s assumptions, only to find they did not add up. Democrats cannot seize on one cherry-picked fact without acknowledging the broader implications of Blahous’s research.

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“Let me thank the Koch brothers of all people for sponsoring a study that shows that Medicare for All would save the American people $2 trillion over a 10-year period."
in a video in a tweet
Monday, July 30, 2018