The Bernie Sanders Health Plan Is Too Good To Be True, Analyst Says

The Democratic hopeful could be wildly underestimating how much it would cost.

01/27/2016 03:44 pm ET | Updated Jan 27, 2016
  • Jonathan Cohn Senior National Correspondent, The Huffington Post
Joe Raedle/Getty Images
Sen. Bernie Sanders (I-Vt.) promised a sweet deal on health care, but his numbers are getting serious scrutiny now.

When Bernie Sanders released his universal health care plan last week, promising that most people would receive more generous insurance coverage while paying less for medical care, most policy experts said it sounded too good to be true.

Now, a veteran health economist has produced a more serious assessment of Sanders' proposal and concluded that the critics were right.

According to analysis from Emory University professor Kenneth Thorpe, a former Clinton administration advisor who has also done paid work for health industry clients, Sanders has wildly underestimated the cost of providing such comprehensive benefits to all Americans. Either his plan would blow a giant hole in the deficit, Thorpe predicts, or the new payroll and income taxes to finance the proposal would be more than twice as high as the Sanders campaign has projected.

Either way, Thorpe says, the Sanders plan would create both winners and losers, as any health reform proposal would. The winners would include workers for whom the new taxes would still be less than what they pay now, in premiums and out-of-pocket costs combined. The losers would include some Medicaid recipients with jobs, because their employers would pass along the expense of new payroll taxes as lower wages.

Thorpe’s analysis is preliminary, and the exact mix of people better or worse off financially would depend on a bunch of factors, not least among them the still-fuzzy details of how the Sanders plan would pay doctors, hospitals and drugmakers.

But under Thorpe’s assumptions, which he says take into account the difficulty of imposing the Sanders plan on existing U.S. health care infrastructure, 71 percent of working households that now have private insurance would end up paying more for their health care if Sanders had his way.

The Sanders campaign, which says that its plan would benefit 95 percent of Americans, is sharply disputing the analysis. Warren Gunnels, a senior policy advisor on the campaign, told The Huffington Post that Thorpe's estimate was a "complete hatchet job" and said it was "disappointing, but not surprising," given Thorpe's past work for industry.

So how did Thorpe get those figures? And why are they so different from the estimates that economist Gerald Friedman, from the University of Massachusetts Amherst, produced for the Sanders campaign?

It’s all about the assumptions that each analyst made.

Sanders, an independent senator from Vermont seeking the Democratic presidential nomination, has proposed to create a single-payer system -- that is, he would wipe out current insurance arrangements and put in their place a single federal insurance program that would cover everybody. The plan would have automatic enrollment so that it would truly cover just about everybody, even those who haven’t signed up for coverage under the Affordable Care Act.

Sanders calls his proposal a “Medicare-for-all” plan, but the insurance he proposes to give all Americans would nearly eliminate out-of-pocket spending, making the benefit package more generous that what most people with either private insurance or Medicare have now.

Covering more people and providing most of them with more generous benefits obviously requires a lot of money. But single-payer systems abroad manage to provide generous, universal coverage for much less than the U.S. spends -- because those foreign systems fritter away less money on administrative waste and profit, and because they give governments the power to set medical prices and salaries at much lower levels than the U.S. currently pays.

Taking those prospective savings into account, Friedman determined in his analysis, a single-payer system could dramatically reduce health care spending. That, in turn, would make it possible to finance the Sanders plan with payroll taxes of 6.2 percent plus an “income-related premium” (basically, an income tax) of 2.2 percent. That’d still be a lot of money, to be sure, but Friedman concluded that it would be less than what most people pay now in combined premiums and out-of-pocket expenses. The one group consistently paying a lot more would be the wealthy, since the Sanders plan would jack up their taxes to provide additional financing.

When the Sanders campaign released its plan and the accompanying analysis, Friedman was candid about the limits of his projection, particularly when it came to grappling with political and policy-related complications. “The pleasure of being an academic is I can just spell things out and leave the details to others,” Friedman told reporters at the time. “The details very quickly get very messy.”

Thorpe attempted to adjust for that messiness -- and found that, in order to pay for itself, Sanders would have to set the payroll tax at 14.3 percent and the income-related premium at 5.7 percent. Both tax hikes would be more than double what the Sanders campaign has said it would impose.

A big reason for the disparity, Thorpe said, would be that upgrade in benefits, since it would mean the government was paying for expenses that individuals with private insurance and Medicare currently pay out of their own pockets. The benefits upgrade would also boost spending indirectly, since people with lower out-of-pocket spending tend to consume more medical services. According to Thorpe, the Sanders analysis didn’t fully take into account these costs.

Thorpe also assumed that the new government insurance plan Sanders envisions would pay for medical services at roughly 105 percent of cost -- in other words, at 5 percent above what providers like hospitals need just to cover their expenses. That’s less than private insurance now pays, but more than Medicare and a lot more than Medicaid. Again, Thorpe said, Friedman’s analysis doesn’t adjust appropriately for that likely expense.

In theory, an insurance program like the one Sanders has sketched out could hold down costs by putting a lot more pressure on doctors, hospitals and drugmakers to deliver lower prices -- and, perhaps, by limiting access to services and drugs.

In practice, Thorpe says, doing so in the U.S. would require dramatic changes that neither the health care industry nor the public would tolerate, at least in one fell swoop. And that, Thorpe told HuffPost, makes the Sanders plan “completely implausible” without major changes.

Thorpe has been producing estimates like these since the 1990s, when he worked with then-first lady Hillary Clinton on crafting the reform bill that the administration tried and failed to get through Congress.

But Thorpe told HuffPost that he conducted his analysis on his own initiative. And his assumptions about the difficulties of imposing a single-payer system in the U.S. -- particularly the challenges of wringing huge efficiencies out of providers -- are broadly consistent with what most health policy experts believe. "Under a single-payer plan, the government would set prices paid to doctor, hospitals and drug companies," said Larry Levitt, senior vice president of the Henry J. Kaiser Family Foundation. "Whether or not that would produce huge savings in overall health care spending is more a matter of faith than economic analysis."

Of course, Thorpe's analysis is as subject to scrutiny and second-guessing as anybody's. Friedman told HuffPost that, based on a cursory inspection of the report, he thinks Thorpe made several overly pessimistic assumptions -- underestimating the savings from reduction in billing transactions and insurance overhead, for example, and slightly overestimating the generosity of benefits that Sanders has in mind. Friedman also thinks Thorpe didn't sufficiently account for savings from the cheaper drug prices a single-payer plan could achieve.

Still, Friedman noted, “Kenneth Thorpe is a serious scholar and his contribution to this dialogue is most welcome.”

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