Medicare For All Could Shutter Hospitals

If all Americans switched to Medicare, taking patients would become a losing financial proposition for hospitals

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June 28, 2019

Amid an ever-more-left-leaning field, Democratic contender Rep. John Delaney (Md.) issued a dire warning Wednesday night about his opponents' plan to socialize medicine through Medicare for All.

"If you go to any hospital in this country and ask them one question: how would it have been for you last year if every one of your bills were paid at the Medicare rate, every single hospital administrator said they would close," Delaney said during the first Democratic debate. "To some extent we are basically supporting a bill that would have every hospital close."

Delaney is in the minority among 2020 contenders. Of the 23 candidates that the Washington Post has tracked, 13 support some version of Medicare for All, while Delaney and most of the remaining 10 support a public option. But would putting every American on Medicare actually run hospitals out of business?

"No one can say but the data are absolutely consistent with that concern," Charles Blauhous, an economic policy expert at the Mercatus Center, told the Washington Free Beacon.

Under current Medicare payment rates, medical providers are compensated 87 to 89 cents on the dollar on average, compared to roughly $1.45 from private insurers. This means that if all Americans were to switch from market insurance to Medicare, taking patients would become a losing financial proposition for hospitals.

Research from the office of the Medicare Actuary bears this out. Using current payment rates, they estimate that four in five hospitals will have negative margins on Medicare payments by 2027. If everyone becomes a Medicare patient, therefore, it is reasonable to predict that something like 80 percent of hospitals would begin losing money.

It is of course possible that things play out differently, especially as a hypothetical future Democratic administration comes face-to-face with the declining supply problem. A PolitiFact fact-check of Delaney's claim noted that Sen. Bernie Sanders's (I., Vt.) Medicare for All bill does not actually require that hospitals be paid at Medicare rates.

On the other hand, higher Medicare payment rates would likely offset the potential benefits of Medicare for All. Blahous published a paper in July of last year estimating that such proposals would cost roughly $32.6 trillion over ten years of implementation. But, as many on the left were quick to note, he also found that national health expenditures — the total amount of money spent by the government and private actors on healthcare — would fall by about $2 trillion in the same period.

Yet Blahous's final estimate turns on the assumption that hospitals would be paid Medicare reimbursement rates. In a different paper, he estimates that higher rates would increase national health expenditures by roughly 7 percent over the status quo. Raising rates to preserve the existence of providers would lead to not only more government spending, but a net increase to total healthcare spending in the economy — already the highest per capita in the developed world.

When it comes to Medicare for All, there is one thing everyone can agree on: It would disrupt the healthcare economy. As Blauhous put it, "no one can really say how facilities would adapt or react," especially as universal first-dollar coverage drives an increase in demand for medical services across the population. Still, many of Delaney's opponents remain unwilling to address the potential negative effects of this disruption.