"Medicare-for-All": Specification and Welfare Implications, Relative to a Public Option

For at least the past decade, households have borne an increasing degree of financial responsibility for healthcare. In response, policy analysts and politicians are considering proposals to address consumers’ healthcare spending concerns. These proposals coalesce around two directives: establishing a publicly-administered insurance product (“public option”) or financing healthcare through taxes (“single payer”). Both initiatives enjoy widespread support from voters and legislators. While the differences between these approaches have been well delineated for federal spending and for private insurance markets, their comparative impacts on consumer well-being remain quantitatively unclear. This paper empirically evaluates the impacts of the public option and single-payer approaches on consumers’ medical consumption, financial burdens, and exposure to financial risk.

This study uses data on medical expenditures from the 2015 and 2016 Medical Expenditure Panel Survey (MEPS). Prices of coverage public-option coverage are adjusted downward from prices of exchange policies in the HIX Compare database, based on forecasted rates of premium reduction in the public-option (which reimburses providers at Medicaid rates). Otherwise, consumers are assumed to have the benchmark exchange policy features with public-option coverage. Single-payer costs apply aggregate national cost of single-payer as estimated by the RAND Corporation. I estimate the tax rates necessary to fully finance the plan using the Survey of Consumer Finances with brackets comparable to the RAND simulation of single payer in New York state. These income tax rates are then applied to the levels of household income reported by individuals in the MEPS sample.

The value of healthcare consumption is assumed to be lower in each of these publicly-administered coverage options than with private insurance coverage, at levels assumed comparable to Medicaid beneficiaries’, conditional on demographic and medical characteristics. Furthermore, healthcare expenditures are deflated below the deductible, to reflect the effect of the consumer prices. Finally, I generate estimates of out-of-pocket spending, to which I apply a risk-aversion parameter from the existing literature to account for exposure to uncertain medical spending.

Single payer coverage is found to reduce healthcare spending across most of the income distribution relative to the status quo, by between 4.2 and 6.9 percent of income for individuals in middle-income households between 139% and 500% FPL, on average. Single payer increases spending by 2.9% of income on average for the top two percent of earners, above 1,500% FPL. With public-option coverage, consumers in the middle-income households reduce their healthcare spending by between 1.1 and 1.7 percent of income on average. Combining spending, consumption risk, and healthcare access, I find that in addition to improving the welfare of lower-income households, single payer generates greater improvements for those with greater healthcare needs, including the near-elderly and chronically ill on average, due to higher levels of cost-sharing.

The trade-off between a public option, which offers public levels of healthcare consumption with a high deductible, and single payer, which also offers a public healthcare plan but with no deductible and progressive income-based premiums, may swing in favor of single payer for most of the US income distribution.