By Jon Walker for People’s Policy Project
Opponents of Medicare for All say that the cost will scare people away, but the truth is that, because of the way the CBO scores health care policy, any significant effort to reform health care in a progressive way is going to suffer from the exact same “big number problem” as Medicare for All.
The “big number problem” is the simple fact that the United States currently spends a lot of money on health care, some of which the Congressional Budget Office (CBO) considers part of the federal budget with the rest treated as private spending. Redirecting or reclassifying that private spending as public spending is going to technically result in a big increase in the federal budget.
Political operatives are so strongly convinced this big number is going to be a political problem for Medicare for All that you have a libertarian think tank actively promoting their study showing Medicare for All would eliminate cost-sharing, cover everyone, and reduce health care spending. This is treated as bad news for the proposal simply because it also shows federal spending on health care would be $32 trillion over ten years.
For progressives, though, there is no way around this. There is no way to design a health care system that provides quality insurance coverage for everyone but doesn’t appear to vastly increase the federal budget. This is due to the incoherent way the CBO decides what private activity is treated as part of the federal budget.
The CBO doesn’t follow the simple logic of only considering something part of the federal budget if it is directly paid for by the federal government. Nor does the CBO follow the basic logic of considering private activity part of the federal budget if it is required by federal law, like via an individual/employer mandate. Instead, the CBO considers health care reform an “essentially government program” if it crosses some arbitrary line of too much regulation.
According to a 2009 CBO paper on the topic, “insurance purchased through exchanges or in the private market—should be classified as federal revenues if there is an individual mandate and tight government control of the insurance market,” but not part of the federal budget if “there is an individual mandate and an active, loosely restricted private market, and if premiums are paid through nongovernmental exchanges or directly to insurers.”
In effect the CBO believes the government forcing you to pay premiums to insurance companies doesn’t make those premiums effectively a tax. But if the government also requires that private health insurance to actually be good, then it would be.
The CBO has provided only a general idea of what “tightly controlled” means, but even modest progressive reforms would cross this imaginary line. For example, requiring insurers to offer only one or two specific levels of benefits, like most managed competition countries do, would be too far. Similarly, requiring all insurance to have an actuarial value of more than 80 percent is too much, which for an individual would be a deductible of roughly $1,320 and out of pocket limit of $5,878. This is again well below international standards and what is necessary to make care affordable as 63% of single person households don’t have sufficient liquid assets to cover that out of pocket limit.
CBO’s weird decision about what is or is not too much regulation was extremely detrimental to the ACA and is responsible for one of the changes made to the law during drafting. Senators initially wanted to require that 90 percent of premium dollars had to be spent on actual care — a medical loss ratio, which again, is well below international norms. The CBO wrote them a letter warning them that this regulation would push the ACA over their imaginary line. The CBO would have considered the entire insurance market part of the federal budget if that regulation was included. Thus legislators decided they would only use a medical loss ratio of 80-85 percent — a move that ended up actually costing the government significantly more.
It is important to look at this in an international context. There is simply no industrialized country whose health care system wouldn’t be considered a government program entirely part of the federal budget according to the CBO. Even countries which are considered to be government-private hybrid systems or managed private insurance systems — such as Japan, Switzerland, the Netherlands, and Germany — all have actuarial value requirements, plan standard rules, and/or medical loss ratio regulations that would cause the CBO to score the entire health insurance market as federal spending.
While people often point to the Netherlands as an example of a regulated fully private insurance system, benefit requirements are heavily standardized and the deductible/out of pocket limit is just 385 euros. In effect, the CBO considers all currently existing “private” universal health care systems de facto single payer as far as their budget scoring is concerned.
What this means is that copying any of the private systems others point to as alternatives to Medicare for All would produce the same “big number problem” as Medicare for All. The ACA is effectively as far as you can go while staying within the CBO’s idea of what is private, and it clearly is insufficient. Even just modest improvements to a few existing regulations in the ACA, such as requiring a larger percentage of insurance payments go to actual medical care, would cross the CBO’s line and end up being scored as de facto nationalization.
Thus anyone who opposes Medicare for All on the basis that the CBO is going to produce a large number when scoring it are effectively saying they are opposed to all significant health insurance reforms.