NCPA - National Center for Policy Analysis


October 29, 2007

The frequent claim that eliminating profits and private administrative expenses -- essentially creating a "Medicare for all" -- would more than pay for the cost of covering all the uninsured is wrong, says the Wall Street Journal.

According to Benjamin Zycher, a senior fellow at the Manhattan Institute and a former senior economist for the Reagan Council of Economic Advisers:

  • On paper Medicare's "administrative" costs are about 3 percent of outlays, compared to 11 percent to 14 percent for the private system.
  • But a more accurate measure of Medicare's administration would include other indirect federal services, such as tax collection, which round them up by about double.
  • Fold in the incentives for the uninsured to consume more medical services under single-payer than they do now, and those "savings" are revealed as make-believe.
  • Overall, the real economic costs of moving to single payer would be at least twice those of today's semimarket patchwork.

Further, according to Zycher:

  • The adverse effects of the increased taxation required for "Medicare for all" more than outweigh the potential efficiencies.
  • It costs the economy more than a dollar -- the bottom-rung estimate is 20 percent -- to send a dollar to Washington, so in the end Medicare clocks in substantially above private insurance.

All insurance systems impose limits on consumption, but single payer would remove any hint of the price mechanism, says the Journal.  That will either vastly inflate health spending and lead to tax hikes, or otherwise lead to government rationing.  Or, most likely, both.

Source: Editorial, "Medicare for All?" Wall Street Journal, October 29, 2007.

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