Miscalculating Medicare-for-all


A report from the Mercatus Center at George Mason University calculating the “cost” of Medicare-for-all has received much attention recently—first, because Bernie Sanders claimed the report concluded that Medicare-for-all would save the American people $2 trillion over a 10-year period. That claim was still warm when the report’s author, Charles Blahous, told the Washington Post that Bernie’s interpretation of the report’s conclusions were blatantly false. In fact, Blahous told the Post, he posited that savings scenario based on a set of assumptions which he subsequently proved were so highly unlikely as to be impossible.

The real conclusion of his report, Blahous said, was that Medicare-for-all will “raise government expenditures by $32.6 trillion” in the first decade—or, about $3.3 trillion per year. Blahous went on to say this: “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.”

So, there you have it: blown out of the water again. When will Democrats understand they can’t collect enough tax-dollars to pay for Medicare-for-all, or to pay America’s public college tuitions, or to pay for pre-school day-care for America’s working-class families? When are Democrats going to get REAL? End of conversation.

Except it should not be the end of the conversation at all, but rather the beginning of a learning experience to help Americans get it right when it comes to understanding what U.S. democracy can “afford” to do. It turns out the arguments framed by Mr. Blahous are, themselves, based upon a particular assumption which is illogical from the perspective of macro-economic bookkeeping in a modern money system—which is what the U.S. has been operating now for over three-quarters of a century.

To see why this is so, begin with the simple statement that Medicare-for-all will increase federal expenditures by $3.3 trillion per year. The first thing to notice is that this number—$3.3 trillion—represents the total amount of health-care services someone has calculated that Americans are going to need. To digress for a moment, I realize that a large part of the controversy around health-care stems from the belief that Americans are paying for services they don’t require and are paying too much for the services they get. Arguments about how to pay for health-care, then, get entangled with arguments about how to reduce its cost—and the entanglement renders clear thinking and debate difficult. So, for the moment, let’s not even consider whether the $3.3 trillion figure is an overpayment—let’s just accept the fact that it is a number somebody calculated about how many services and procedures American’s will need, and how much each service and procedure is estimated to cost. That total guestimate represents what we could call America’s “health-dollars”—i.e. the dollars Americans are going to spend on health-care one way or another, assuming they get the services they’ve been projected to need.

Here’s the second thing to notice about this $3.3 trillion in health-dollars: If Uncle Sam didn’t write the checks for those health-services, someone else would have to. In aggregate, then, if Uncle Sam pays $3.3 trillion for America’s health-care services, America’s families and businesses save $3.3 trillion in expenditures they don’t have to pay—which could be viewed as the same as “earning” an extra $3.3 trillion each year.

From a macro-economic bookkeeping perspective, then, if the folks who “earned” $3.3 trillion (by not having to spend it) “transferred” their $3.3 trillion windfall to Uncle Sam, they would have, remaining, the same number of dollars as if they had bought the health services. And, if Uncle Sam then uses the $3.3 trillion gained through the “transfer” to buy the health services, the net result would be exactly the same as if the folks needing the health services had paid for them in the first place—i.e. the net bookkeeping result would show this: Uncle Sam would have zero health-care dollars, the health-care industry would have earned $3.3 trillion health-care dollars, and the American people would have received the services they needed.

So, what is the point of this exercise? Why does Uncle Sam have to be involved at all? Why not just have everyone pay directly for the health-care services they need since, from an aggregate bookkeeping calculation, the net results are the same?

The answer, obviously, is because while the aggregate bookkeeping calculation works, the details assumed in the aggregate accounting don’t. Specifically, the $3.3 trillion health-care dollars that are to be spent on America’s services and procedures are not equally distributed amongst the Americans who would need to do the spending. A small percentage of the citizens have a huge surplus of the health-care dollars, while a very large slice of the citizenry has virtually none.

In America, this situation poses a profound and conflicting problem. Our foundational core belief is that if a person earns a lot of money through hard work, creative ingenuity, clever dealings, or even sheer good luck, he or she should be able to keep it—or at least keep the vast portion of it after having paid reasonable “dues” (taxes) for the benefits of being an American citizen. The idea of being forced to “redistribute” a portion of what has been hard-earned to others who, for whatever reasons of misfortune, bad luck, or laziness, have not earned enough themselves, is anathema to the American psyche.

At the same time, however, when a human being is suffering or injured, American’s will, by instinct, send the ambulance and open the emergency room doors first—and wonder about payment afterwards. There is a recognition, then, that health-care dollars will get spent no matter what, in any event, either through the front door, or via the back door. There is also a recognition that the general health of the entire population is a collective good that cannot be allowed to falter: communicative diseases do not check the bank balances of their victims.

These conflicting values pose what seems an unsolvable dilemma for American politics. This dilemma causes us to undertake all kinds of subterfuges—like, for example, “health-insurance markets”—to make ourselves believe we are doing something which we are not—or not doing something which we are. And the dilemma is instigated by one key, core-value word: “redistribute.” Implicit in that word is the un-assailed assumption that for Uncle Sam to spend the “health-dollars” Medicare-for-all will require, the dollars will first have to be removed from the bank accounts of the wealthy through taxation. Hence, we have Mr. Blahous’ admonition that even if projected individual and corporate taxes were doubled, it would not generate enough tax-dollars to pay for the health services. It’s simple mathematics.

But why should this surprise us? The fact of the matter is, as it has evolved since the days of Alexander Hamilton, America’s money system has never used tax-dollars to pay for the big-ticket items Congress has deemed necessary for our collective good. To do so has never been a mathematical possibility (as Hamilton himself acknowledged in his 1790 Report Relative To A Provision For The Support Of Public Credit)—nor is it a mathematical possibility today—nor will it ever be a possibility in the future (as most recently pointed out by Mr. Blahous).

But this does not mean that America cannot afford to have big-ticket items for the common good—really Big-Ticket items, in fact. The reality is that America, as a collective society, can afford to buy anything for which the real resources—labor, materiel, human ingenuity—are both available and for sale in U.S. dollars. This is because big-ticket items for the collective good are paid for with new dollars created—as needed—by U.S. treasury operations. Specifically, the operations involve the issuing of U.S. treasury bonds (which are, in effect, dollar-denominated, interest-bearing savings accounts) and trading them for existing currency in the private sector.

We habitually imagine these treasury operations to be “borrowing”—and even tally them up as something we call the “national debt.” But modern analysis and explanation shows that in a sovereign money system the definition of “borrowing” does not apply to treasury operations; the securities created by the operations, themselves, are “money” issued—as needed—by the federal government. Thus, the U.S. government can (and does) pay for anything that Congress deems necessary or desirable—so long as it’s for sale in U.S. dollars—without collecting tax-dollars.

Regarding Medicare-for-all, then, the initial pertinent question is NOT whether we can raise enough taxes to cover $3.3 trillion in new expenditures (that question is not pertinent at all!)—the question is whether the medical services to be purchased are actually available in America. Do we have the doctors and nurses, the hospitals and clinics, necessary to provide the care and procedures? If so, and if Congress decides it is in the interest of the American people to have access to that care, the U.S. treasury can, through its securities operations in coordination with the Federal Reserve, create the “health-dollars” necessary to pay the bill.

We should still ask if the “price” charged for those services is fair—or if some of those services and procedures might be unnecessary for the best health outcomes for American citizens. These inquiries would also include Mr. Blahous’ concern that if health-care is “free” for people to access, they’ll naturally access more of it—which might drive the price up even higher than his calculated $3.3 trillion. But those questions should be part of an ongoing process to imagine and implement the most effective system the American health-industry can operate. They have nothing to do with how many tax-dollars can be collected from individuals or businesses.

The actual macro-economic bookkeeping for Medicare-for-all, then, is this:

  1. Uncle Sam spends $3.3 trillion to pay for America’s health services;
  2. S. families and businesses save $3.3 trillion by not having to spend it for their health-care;
  3. The health-care industry earns $3.3 trillion by providing services;
  4. The U.S. financial sector owns $3.3 trillion in treasury bond “savings accounts.”

That is a proper way to calculate what America’s social democracy can do.

15 responses to “Miscalculating Medicare-for-all

  1. Superb, JD. And thanks for the reminder of Hamilton’s Report.

  2. “Our foundational core belief is that if a person earns a lot of money through hard work, creative ingenuity, clever dealings, or even sheer good luck, he or she should be able to keep it…”

    First point, if you study basic philosophy you quickly realize it is all luck even including your ability to work hard, but certainly your cleverness and ingenuity etc. Why you, J.D. ALT were not born a poor dim witted child with a hair lip and a club foot whose mother smoked and drank during pregnancy in war torn Somalia is luck. None of us picked our genes or our environment (which btw also affects our genes (see epigenetics).

    Second you could add wealth gained by whatever means, including by causing horrifying human suffering (a couple of examples, among far too many, just for effect – HSBC laundering drug money for the most violent drug cartels who commit “Game of Thrones” type crimes like skinning people alive and hanging them from light standards or say executives in arms manufacturing companies talking to people on the phone about how the unsettled world will result in many future wars and conflicts elevating their stock… this is all easily searchable and not “conspiracy theory”)

    When was the last time someone was questioned (including the drug cartel people) for how they gained their wealth in the market, like when they booked that first class ticket or that five star holliday or bought that yacht or whatever.

    I’m all for disseminating MMT’s understandings and the policies that follow from them like single payer health care, tuition free college (and beyond, actually providing a living allowance for students to educate themselves thus increasing their ability to contribute to a better society etc.) and even the Job Guarantee as it would remove much of the current precarity and anxiety for those at the bottom of the socio-economic hierarchy allowing them to start thinking and advocating themselves for further improvements and democratization of their society (including their workplaces), but realizing these as stepping stones (that will be (vehemently) opposed by most elites) to some form of democratic socialism. And until MMT scholars and proponents realize that this is how many wealthy elites see MMT understandings, as a stepping stone to the diminishing or even eliminating their wealth and power, they will not begin to think about better strategic methods to advance their ideas and causes. As Randall Wray said, for years you could count on your fingers the number of people who had some understanding of MMT, and then comparably the blogosphere exploded those numbers, but to where. A few thousand. Maybe a few hundred thousand world wide. I have no idea but when I watch videos from the MMT conference and see 229 views and zero comments, and never see it in the elite class owned mainstream media, I am guessing the increase in numbers is pretty insignificant as far as approaching any type of critical mass is concerned.

    As Warren Buffet said “We in a class war and my class is winning”. Until MMT advocates realize this and start acting in ways that represent this reality I suspect they will have little influence.

  3. // 4. The U.S. financial sector owns $3.3 trillion in treasury bond “savings accounts.”//

    Assuming you want to push the deficit from 1 to 4.3 trillion all at once. Is that really the plan?

    Otherwise, generally a good article.

  4. I think you’ll find Dean Baker’s post complementary: “Jake Tapper’s Inaccurate Fact Check On Bernie Sanders and Alexandria Ocasio-Cortez on Medicare for All” (at http://cepr.net/blogs/beat-the-press/jake-tapper-dishonest-fact-check-on-bernie-sanders-and-alexandria-ocasio-cortez-on-medicare-for-all ).

  5. It is an open question if we have enough “doctors and nurses, the hospitals and clinics, necessary to provide the care and procedures.” What was missing from this essay is a look at what system is the most capable of increasing and maintaining healthcare capital and skilled healthcare workers. There have been an explosion of miniature stand-alone emergency rooms across suburbia. The current system seems to reward these.

    If the financing of healthcare came from the government, what incentives would the government create to build and maintain healthcare capital & skilled labor? This question needs a real-world answer based on politics as we have it, not an idealized system of “could haves” if we just elected the right people.

  6. I like it. It took my mind to WWII, WWI, the Wall Street Bailout in 2008 & 9. Where’d the money come from? The full faith and credit of the United States. That the US Govt will develop, organize, and allocate resources as necessary to preserve a stable and prosperous society. It never has to do with money. Not within a country. Only for resources outside sovereignty.

  7. While I understand this, I have to admit, isn’t this a case where maybe “paying for it” (to use the common language) is a good thing? MMT has always said its not accurate to say “deficits don’t matter” and of course inflation CAN be a problem. While I think its logical for transfer payments/public assistance to not “be paid for” 3 trillion a year IS a lot to just debit into the economy.
    Of course I think the fears are largely unfounded as private spending would fall and all that, in reality I don’t think there’s much concern but from a purely theoretical: 3+ trillion a year does seem like a bit much even for MMT standards?

    I guess perhaps a better question is: What should be “paid for”? I was always of the opinion we should not be concerned with transfer payments/automatic stabilizers since that is the point. But more “permanent” things such as healthcare maybe should not be left simply to the federal gov debit?
    Though no doubt it would add ALOT of private sector wealth!

  8. «The idea of being forced to “redistribute” a portion of what has been hard-earned to others who, for whatever reasons of misfortune, bad luck, or laziness, have not earned enough themselves, is anathema to the American psyche.»

    This is just the usual right-wing propaganda that medical insurance is actually re-distributive, which is absurd: but then the same idea sometimes is applied to insurance against fire or accidents of any sort, that if your house burns down or a tree falls on your head and you get an insurance payout you are a “lucky ducky” who is re-distributing money into your pocket from the pockets of those deserving people whose houses did not burn down or who were not injured by falling trees.

    Because medical insurance is *insurance*: nobody gets sick to enjoy the luxury of surgery or chemotherapy, no lazy bum does thinks that surgery or chemotherapy beats doing work.

    Also single-payer state medical insurance, and a lot of right-wing propagandists like the author of this piece try hard to obfuscate this, actually contains two insurance packages: one to pay for medical accidents if they happen, and one to pay the premium of the first package if it becomes unaffordable, and the second is the one that really matters for most middle and upper-middle class families.

    Single-payer state medical insurance has the following amazing property: that if you become too poor to pay medical insurance premiums, that’s fine, and vice-versa . I’ll explain numerically.

    Health-care in the USA costs around 15% of GDP, so on average a household should pay around 15% of GDP in health insurance premiums. The average (not median) household income is around $60,000/y so on average an USA household should pay £10,000/y to cover with insurance their health care costs.
    Indeed USA households, whatever their income, should be able to cover their healthcare needs by paying just $10,000/y.
    But if the law were to say that single payer were to cost 15% of income then a household with an income of $18,000/y would only pay $3,000 per year and one with an income of $180,000/y would pay $30,000 per year; a discount of $7,000/y for the former and a surcharge of $20,000/y for the latter.
    Would this be re-distribution? Absolutely not, it would be insurance again poverty, because of the $30,000 /y paid by the household with an income of $180,000/y the extra $20,000 would be a premium against being unable to pay full price for future premiums, because if their income fell from $180,000 to $18,000 they would be entitled to pay just $3,000 instead of $10,000; that $20,000 is not a surcharge, it is an insurance premium to buy a $7,000 discount if their income were to fall.

    Insurance against being unable to pay the full premiums in the future is necessarily extremely expensive, and there are several reasons why only the state can provide it to everybody.

    I have seen many households on $180,000/y fall to levels like $18,000/y because of losing their jobs, house price crashes, losing their health, etc.

  9. So how come all these other countries in the world are able to afford it, particularly ala Scandinavia’s version of it, together with free education ? That the richest country in the world is not able to do the same, doesn’t pass the smell test.

  10. You make some good points JD but then you completely contradict the diagram you published in your book, “Diagrams and Dollars”. By saying that the Treasury creates “money” by issuing a bond certificate is not correct. The certificate is actually worthless until it is sold. You then imply that the “money” needed to buy the certificates has to come from the private financial sector, which as we all know, creates the bulk of the money supply as interest-bearing debt.
    It is an obvious fact that many of today’s Governments can create a virtually unlimited type of “money” in the form of Government bonds, simply at the cost of printing a bond on a bit of paper. In a way, this is probably an unconscious acceptance of the MMT concept that the idea of monetary sovereignty is valid, at least to Central Bank thinking. But if a Government accepts the fact they have this authority to print unlimited “money” in the form of bond certificates, albeit, in a controlled manner, it is both illogical and irrational as to why any Government would agree to pay interest on borrowing their own money from the private sector through the sale of these bonds.
    The Government could simply issue the bond certificates in payment of whatever services and goods they need.
    Those certificates become exactly the same as a dollar note – a tradable medium of exchange – nobody pays interest on the dollar notes they have in their pockets.

    • Graham Paterson,
      I’ve been waiting for someone to point out the contradiction with Diagrams & Dollars! So, I thank you for doing so. The diagram, apparently, needs to be revised/updated, which is something I’m contemplating. It is misleading to say that tax-dollars are destroyed or “drained.” They are applied, in an accounting fashion, to the account from which the Treasury spends when it buys goods and services. When Congress has instructed/authorized the Treasury to spend MORE dollars than are collected in taxes, the additional necessary dollars are “created” by the bond-issue operation. In that operation, bank reserves (not “loan-dollars” as you suggest) are traded for the bond. The bond itself is, essentially, a time-deposit, interest-bearing, savings account which “contains” new dollars that will be available to the holder in the future. The dollars (reserves—there is no “bank debt” associated with them) which are traded for the bond are put in the Treasury’s spending account—and used to buy goods and services.
      Thus, the American people get BOTH the goods and services AND the dollars the Treasury spends to buy those goods and services. What is strikingly important to me, in understanding this, is that the goods and services produced by the Treasury operations are generally things deemed necessary for public or collective benefit (i.e. the federal government is buying them FOR the people, while paying the people to produce them.) Banking operations which create “debt-dollars,” in contrast, cause everything else to be produced for profit. So, there’s two systems operating in parallel. The problem is we encourage one system to produce dollars (banking operations) while we discourage the other system (Treasury operations) with the false claims they are (a) inflationary and (b) create a “debt” that future generations will have to repay. You are right, the Treasury operations are theoretically unnecessary (the Fed could just deposit new dollars in the Treasury’s spending account as needed). But that’s moot. The point is it works the way it works, so there’s no need to change it. The only thing that’s NEEDED is for the American people to basically understand it.

  11. • I believe your’s and MMT’s presentations of the “Pay-for” is incomplete and damaging to it’s accerptance in the wider world. MMT folk like to yell into the microphone: “taxes and borrowings don’t fund spending, taxes and borrowings don’t fund spending, taxes and borrowings don’t fund spending, taxes and borrowings don’t fund spending!!!…” And in the wider view they are correct. But a close reading of Eric Tymoigne’a article makes it clear that due to restrictions in the Federal Reserve Act – prohibiting Treasury overdrafts at he FED – the truth is Treasury borrowings DO FUND SPENDING. MMT’s wording is highly damaging and prevents folks from embracing (see: Bernie Sanders). Better wording would be: “Taxes and borrowing would not be necessary in order to fund spending with an amendment to the Federal Reserve Act.” This has the advantage of being, what’s the word???………. TRUE. See my comments at: http://bilbo.economicoutlook.net/blog/?p=38885

    • Also spending $3 Trillion of additional dollars into the economy certainly increases the spending power of consumers who don’t have to pay for healthcare and so risks inflation if the spending hits and exceeeds the productive capacit of the economy. You didin’t address this fear and reality in your blurb, again, a damaging ommission. It should be addressed. Inflation is controlled by fair and equitable taxation, perhaps temporary increases in:
    * Income Taxes,
    * Sales/VAT taxes, and
    * Asset Value Taxes.
    That will cool things down pronto. But these are not dollars to “pay-for”. They are just a tool to manage inflation.

  12. RE: Graham’s assertion: “… But if a Government accepts the fact they have this authority to print unlimited “money” in the form of bond certificates, albeit, in a controlled manner, it is both illogical and irrational as to why any Government would agree to pay interest on borrowing their own money from the private sector through the sale of these bonds. … …”
    • The real reason the Govt doesn’t simply issue bonds in order to pay for goods and services is the same reason they don’t simply borrow the funds from the Fed or the banking/private sector —> The Debt Ceiling.
    • Also the Federal Reserve Act prohibiting the Fed from simply “gifting” money to the Treasury.