How Much Would Universal Healthcare Cost?

Universal health care would cost $70 Billion for 2009 if enacted using a market-based approach, but this cost will grow rapidly if overall health care inflation is not tamed.

How much would health coverage for all uninsured Americans really cost? Critics maintain that covering all Americans would break the US budget (which is already overstretched), while advocates maintain that covering all Americans can be done affordably. But how much would universal coverage really cost?

The Commonwealth Fund provides a great summary of the costs of proposals under consideration, including Medicare for all, a Building Blocks extension of the current system, and other proposals. Proponents of universal Medicare claim that it will save the US $58 Billion in 2010, since Medicare operates more efficiently than private insurers [1]. Providing universal coverage through incremental changes could cost anywhere between $48B and $120B, according to analyses by the Urban Institute and the Lewin Group, a private health care consultancy. And while Medicare for all would lower total health care spending, it would raise the Federal government’s share of spending by almost $200 Billion per year.

With numbers all over the map, is it possible to come up with a plausible estimate for comparison purposes? Sites like ehealthinsurance.com now make it much easier to get estimates for insurance coverage. Using this data, we can estimate how much basic health insurance coverage would cost for the 45 million uninsured Americans. The experience of Massachusetts, which has implemented universal health care, can also be used to project an estimate for the rest of the country. Since Massachusetts’ health care costs are above US average, this provides a high-side estimate.

Using market insurance quotes, the cost of providing a health insurance with a $1000 deductible and prescription coverage would amount to $2500 per person annually, or roughly $115B per year [2]. This calculation uses different insurance rates for different age groups among the uninsured, based on this demographic breakdown of the uninsured provided by the Kaiser Foundation. In Massachusetts’ experience, covering each uninsured individual costs roughly $3400 per year. Covering all 45 million uninsured Americans at this rate would cost $150 Billion per year.

The midpoint of these estimates is around $130 Billion per year. To get a final estimate, money currently spent on uncompensated care must be subtracted out, since there is no uncompensated care in a universal health care system. Approximately $58 Billion will be spent on uncompensated care in 2009 [3], and subtracting this figure out leaves roughly $70 Billion in annual expenditure required for universal health care.

While $70 Billion per year sounds like a lot of money, it’s actually less than many estimates. It looks increasingly likely that some kind of health care reform will be passed in 2009, and that money will be found to pay for it for the moment. The bigger question is, how will it be paid for tomorrow? Unless health care cost growth is pulled into line with inflation, no one has that answer.

[1] Medicare doesn’t have to perform medical underwriting, and it doesn’t have to spend money on advertising, sales, or shareholder dividends, so its overhead should be lower than private competitors, if it can maintain efficiency. Critics counter that Medicare suffers from high fraud rates precisely because it is a government bureaucracy without competition to force it to raise efficiency and tighten controls.

[2] Here is the rough cost estimate for each demographic group, taken from quotes on ehealthinsurance.com:

0-19: $100/month  (20% of all uninsured)

20-29: $150/month (29% of all uninsured)

30-44: $200/month (27% of all uninsured)

45-64: $400/month (24% of all uninsured)

Using these numbers, we calculate a weighted average cost per person of $213 per month, or $2556 per year. That’s $115 Billion for 45 million people.

[3] In 2004, uncompensated care expense was estimated at $40.7 Billion. Since health care spending (in nominal dollars) has grown at 7.5% per year during this decade, the adjusted number for 2009 is approximately $58 Billion. This assumes that uncompensated care is growing in line with health care costs as a whole.

12 thoughts on “How Much Would Universal Healthcare Cost?

  1. The costs may be accurate, but what isn’t accounted for is access to care. Even if Medicare is more efficient (which seems possible in theory, although history tells us about the efficiency of bureaucracies), it also has terrible reimbursement rates to providers. This has led to a number of practices refusing to accept Medicare (see http://www.aapsonline.org/medicare/medrep.htm ). Single payer coverage works if the rest of the system accepts it, but given that there’s not enough capacity for existing Medicare patients, broader reform is likely required to make this work.

    Until people have some incentive to monitor their own healthcare costs, throwing more money at the problem won’t make it go away.

    1. @JL Given that it would be a federal crime not to accept Medicare, what you are suggesting is “it won’t work because most doctors would rather become criminals than work with a bureaucracy”. The fact of the matter is, if doctors don’t like it then they’re out of a job. In 2012, 15.7% of people were covered by Medicare and 16.4% by Medicaid, for a total “government bureaucracy” coverage of 32.1%, or about 1/3 of the population. I am incidentally one of those people as I presently have low income, and I have not had any problems getting care nor have I heard of any such problems from other low income, elderly, or disabled people. This argument by you simply does not bear out in reality, it’s just FUD without substance.

  2. medicare could offer to pay 80% of what they do now, and they would tout they saved alot of money.

    medicare sets its own payments, what you don’t realize is that medicares low payments force hospitals to apply upward pressure on prices to private insurers. what is going to happen is if you expand medicare to cover more than they already do the system will be in big trouble.

  3. https://truecostblog.com/2009/02/05/healthcare-bubble/

    As I detailed in the healthcare bubble post, the US health care system is only a few years from going broke, and even a 20% reduction in Medicare payments won’t change that. Healthcare costs continue to grow at double the rate of inflation or more, and that simply cannot be sustained.

    In my opinion, the government really should focus more on fixing Medicare, rather than on the private market. Why? Because Medicare/Medicaid are paid for by taxpayers. Medicare and Medicaid are going to have to move to a system of rationing, and if you don’t believe me – just wait a couple of years. They simply don’t have enough money to continue in a simple fee-for-service structure.

    As for the private market – removing the tax deduction on health care would do wonders for reducing excess (subsidized) demand, while helping to plug the $1 Trillion deficit.

  4. The are also other estimates, as of August 30, 2009. The Lewin Group (subsidiary of UnitedHealth) estimates that pre-paid health care corresponding with the benefits required in Sec. 122 of HR 3200 would cost $12,000 per year IF a federal public plan is offered, or $16,000 per year if not.

    The Congressional Budget Office estimates a typical family plan similar to the required benefits package would cost about $13,000 right now.

    An actual price quote I obtained from the Massachussetts Health Connector came in at $17,000 for our family of four. (I do not live in MA but used their quote service to find a quote in a state with a similar requirement to HR 3200.)

    Your estimate, therefore, seems quite low compared to the others.

    I currently pay just over $500/month for the family. This coverage plan has high deductibles and no prescription coverage – except it does cover all meds if hospitalized. However, since it costs $6,000 per year, and the lowest estimate above is $12,000 per year, we could purchase a tremendous amount of prescription meds under our current plan, out of pocket, and still spend far less than $12,000 (or more likely about $16,000 per The Lewin Group).

  5. Ed,

    Thanks for the insightful comment. One difference between my low-end estimate (achieved using public price quotes) and your numbers is that the plans I looked at would not meet HR3200 standards. HR3200 specifies coverage that is very comprehensive, whereas I was looking at plans with $1000 deductibles (per-person) and total out-of-pocket max for a family around $10,000.

    I used that as the low-point estimate, and MA’s actual experience of $3400 per person as the high end estimate (MA has the most expensive health care in the country). So for my high end estimate I used $13,600 for a family of four, not dissimilar to the CBO number you mention.

  6. There is a need to think outside the box. Government clinics and hospitals should be set up. Salaries are paid to doctors and nurses. Salaries are based on the fact that if they sign up at say $50,000 per year (doctors) their student loans are forgiven over a period of time while working at the government agency. There is no need for huge administrative costs as there will be no billing, no utilization reviews and no fraud. Just something to think about.

  7. Do not understand why you guys just don’t get your medical care from those other countries. …and why do so many foreigner s come here for medical care

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s