Would Medicare for All Reduce Costs?

This question actually has two parts, because cost has several mean- ings. Moving to Medicare for all would reduce administrative costs for insurers and providers. Overall, private insurers’ administrative costs average 13 percent of premiums, and Medicare’s administrative costs are less than 2 percent of total spending. This change could save as much as $125 billion per year. How much dealing with just one insurer would reduce providers’ costs is not clear. It could be as little as $125 billion per year or as much as $500 billion per year if capitation were the norm.

From the perspective of patients, moving to Medicare for all would reduce some prices and increase others. If Medicare gradually replaced private insurance and kept Medicare prices, provider revenues would fall, because Medicare prices are lower than private prices. (This decrease would be partially offset by higher revenues if Medicare replaced Medicaid.) Overall, Medicaid fees average 72 percent of Medi- care fees, but state averages range from 38 percent in Rhode Island to 126 percent in Alaska. Private physi- cian fees average 125 percent of Medicare rates, and private hospital prices average 189 percent of Medicare rates. When Maryland moved to a global budget model for hospitals, it used prices between Medicare rates and private rates, so it is not completely clear how large a reduction would occur.

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