As health care costs continue to rise, we hear more and more calls for "Medicare for All".
Here is an example from a woman who is Executive Director of the "Campaign for New York Health" which is fighting to have universal, single-payer healthcare in the United States.
Advocates for Medicare for All seem to be under the delusion that there would be no premiums, deductibles and copays and medical dcbt should not exist under such a system
They claim that removing the insurance industry from the healthcare market would reduce administrative costs and industry profits would result in $650 billion in savings.
Let's take a look at some of these statements by looking at how Medicare actually works right now for senior citizens.
When you understand how the current Medicare program works I hope you can see how misleading all of this "Medicare for All" talk is.
The Funding of Medicare
Medicare was originally established as a program to cover Hospital costs (Part A) and non-Hospital costs (Part B) such as doctors visits, diagnostic tests, etc.
Medicare was originally established as a program to cover Hospital costs (Part A) and non-Hospital costs (Part B) such as doctors visits, diagnostic tests, etc.
A 1.45% payroll tax is levied as part of the FICA taxes on payrolls to fund Part A. This tax applies to both employees and employers so it amounts to 2.9% on all payrolls in the United States. It is a flat tax so it applies to everyone. This base amount is not a progressive tax like the income tax. However, those with incomes above $200,000 ($250,000 joint income) are subject to an additional 0.9% tax on wages.
Part B is paid for with 80% federal dollars (paid with general revenues) and 20% by those on Medicare through a monthly premium. The premium is $202.90 per month in 2026. There is no subsidy or reduction for those on low incomes. Everyone has to pay it to have Part B coverage for non-hospital costs. Those with annual incomes above $109,000 ($218,000 joint) pay more.
Prescription drug coverage was not a part of original Medicare. A big reason is that very few drugs were used in treatments in 1965 when Medicare was enacted. Drugs are now covered under Part D of Medicare but that requires an additional premium for coverage and there are also separate deductibles and coinsurance with that program as well. These plans are totally run by private insurers. The average premium is around $40/month and an annual deductible of of up to $615 is required.
Keep in mind the current Medicare FICA tax is to just pay for those currently on Medicare. How much higher would taxes have to be to also cover those under age 65 today? How high would the monthly Part B premium be under Medicare for All? What about the premium for drug coverage?
Medicare Does Not Pay Everything
Medicare as it exists today has fairly substantial deductibles and coinsurance amounts in addition to the monthly premiums and payroll taxes in effect.
There is a $1,736 annual deductible under Part A in 2026. That means the first $1,736 in hospital costs are paid by the individual. If you are in the hospital for more than 60 days there is a $434 coinsurance payment required for each day up to the 90th day. That goes up to $868 per day for days 91-150.
Under Part B there is an annual deductible of $288 and you also have to pay a 20% coinsurance amount on every bill.
As you can see, there are fairly substantial out of pockets deductibles and coinsurance under Medicare. The deductibles are also adjusted upwards each year with inflation.
Part B is paid for with 80% federal dollars (paid with general revenues) and 20% by those on Medicare through a monthly premium. The premium is $202.90 per month in 2026. There is no subsidy or reduction for those on low incomes. Everyone has to pay it to have Part B coverage for non-hospital costs. Those with annual incomes above $109,000 ($218,000 joint) pay more.
Prescription drug coverage was not a part of original Medicare. A big reason is that very few drugs were used in treatments in 1965 when Medicare was enacted. Drugs are now covered under Part D of Medicare but that requires an additional premium for coverage and there are also separate deductibles and coinsurance with that program as well. These plans are totally run by private insurers. The average premium is around $40/month and an annual deductible of of up to $615 is required.
Keep in mind the current Medicare FICA tax is to just pay for those currently on Medicare. How much higher would taxes have to be to also cover those under age 65 today? How high would the monthly Part B premium be under Medicare for All? What about the premium for drug coverage?
Medicare Does Not Pay Everything
Medicare as it exists today has fairly substantial deductibles and coinsurance amounts in addition to the monthly premiums and payroll taxes in effect.
There is a $1,736 annual deductible under Part A in 2026. That means the first $1,736 in hospital costs are paid by the individual. If you are in the hospital for more than 60 days there is a $434 coinsurance payment required for each day up to the 90th day. That goes up to $868 per day for days 91-150.
Under Part B there is an annual deductible of $288 and you also have to pay a 20% coinsurance amount on every bill.
As you can see, there are fairly substantial out of pockets deductibles and coinsurance under Medicare. The deductibles are also adjusted upwards each year with inflation.
While private insurance typically covers you for foreign travel, there is no coverage under Medicare.
How would anyone believe that "Medicare for All" would have no premiums or out of pocket costs when Medicare today charges monthly premiums and extensive deductibles and coinsurance?
How would anyone believe that "Medicare for All" would have no premiums or out of pocket costs when Medicare today charges monthly premiums and extensive deductibles and coinsurance?
In order for seniors to protect themselves against high deductibles and coinsurance amounts and to have coverage if they travel outside the country, most obtain private supplemental coverage.
For context, the average senior couple on traditional Medicare is paying the following per year and still may have some out of pocket costs on top of this.
Medicare Part B premium. $4.870
Medicare Part D premium. 960
Medigap Premium (see below) 4,800
Total Annual Cost $10,630
Some are paying much more.
Private Insurance
Due to the fact that Medicare does not pay for everything a robust private supplemental insurance market has been developed by private insurance companies to cover the gaps in coverage.
About 80% of those on Medicare have some type of private insurance to supplement Medicare. These "Medigap" plans, as they are popularly known, have different core plans with varying costs based on how much of the "gap" they cover, the age and gender of the individual, where they live and whether they smoke.
Does this look like it is "free"?
Private Insurance
Due to the fact that Medicare does not pay for everything a robust private supplemental insurance market has been developed by private insurance companies to cover the gaps in coverage.
About 80% of those on Medicare have some type of private insurance to supplement Medicare. These "Medigap" plans, as they are popularly known, have different core plans with varying costs based on how much of the "gap" they cover, the age and gender of the individual, where they live and whether they smoke.
Here is an sampling of rates for a 65-year old woman who does not smoke. This would be be the lowest cost coverage a senior could receive under a Medigap plan. Many would pay more based on age, gender and where they live. Plan G is the most popular plan at $180/month.
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| Source: https://www.valuepenguin.com/best-medicare-supplement-plans |
About 50% of those on Medicare rely on Medicare Advantage plans that are totally administered by private insurance companies. These are plans that Medicare enrollees can elect to participate in and forego traditional Medicare. The private insurance companies receive a flat amount from Medicare and the private companies assume all the risks and costs for the coverage of the individual.
These plans have proven popular as enrollees in these private plans typically can get better coverage with lower premiums than with traditional Medicare. However, they operate as managed care plans that mean you are limited to in-network hospitals and doctors.
As you can see, private insurance companies have a significant presence and role in Medicare. Is it realistic that we would completely eliminate private insurers from the healthcare landscape considering the presence they have in Medicare right now?
Administrative Costs
Advocates for Medicare for All argue that under such a system there would be enormous cost savings because all of the private insurance company costs and profits would be removed from the system.
However, as I have pointed out in a previous blog post, if you removed all of the costs of the insurance companies out of all the health expenditures in the United States you will still have 93% of the costs remaining.
I don't know where the Medicare for All advocate above concludes that $650 billion would be saved if private insurers would be removed from the system. Profits in the industry were a reported $71 billion. I assume the rest might be assumed administrative costs.
Let's assume her numbers are correct. Consider the fact almost $6 trillion will be spent tin 2026 in total healthcare expenditures in the United States. That means insurance company profits make up only about 1% of total healthcare costs. How much difference is that going to make in reducing costs?
Even is you take out all of the administrative costs (an impossibility) you still have only moved overall costs down by about 10%. That alone is equal to the annual increase in Medicare Part B premiums looking to 2026.
In other words, the health insurance companies are good targets for political rhetoric but eliminating them from the system will have almost no impact on total costs.
Medicare Reimbursements
What is likely to occur if we were to convert to a "Medicare for All" system is that countless numbers of hospitals would be forced out of business and we would surely see many doctors retire or quit the practice of medicine.
Why?
The truth about Medicare is that, on average, it only pays healthcare providers at a level that is about 80%-85%% of their actual costs. In other words, many hospitals would have to drastically cut services and/or costs in a Medicare for All world or they would quickly go bankrupt.
In other words, the health insurance companies are good targets for political rhetoric but eliminating them from the system will have almost no impact on total costs.
Medicare Reimbursements
What is likely to occur if we were to convert to a "Medicare for All" system is that countless numbers of hospitals would be forced out of business and we would surely see many doctors retire or quit the practice of medicine.
Why?
The truth about Medicare is that, on average, it only pays healthcare providers at a level that is about 80%-85%% of their actual costs. In other words, many hospitals would have to drastically cut services and/or costs in a Medicare for All world or they would quickly go bankrupt.
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| Source: https://www.aha.org/2024-01-10-infographic-medicare-significantly-underpays-hospitals-cost-patient-care |
The current system only works today because private insurers and payers pay providers at about 2x-3x the rates that Medicare and Medicaid pays. In effect, the private sector is subsidizing the costs of public sector programs such as Medicare and Medicaid.
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| Source: https://hospitalmedicaldirector.com/improving-physician-commercial-health-insurance-rates/ |
If Medicare reimbursement rates were universal doctors and hospitals would see their revenues and incomes drop drastically.
Since almost 50% of doctors in the United States are 55 years of age or older, it is not hard to predict that many would choose to retire rather than to continue operating their practices. What incentive would they have to continue practicing?
How do we not see substantial cutback in services if the revenues of healthcare providers are reduced to the level of Medicare reimbursements?
How do doctors, nurses and others who provide healthcare services not see their compensation reduced if the government is the only payer?
How do we not see substantial cutback in services if the revenues of healthcare providers are reduced to the level of Medicare reimbursements?
How do doctors, nurses and others who provide healthcare services not see their compensation reduced if the government is the only payer?
This would be the reality of a Medicare for All system.
Conclusion
Don't believe what you are being told about Medicare for All.
Most of the arguments in favor of it are misleading myths.
Medicare as we know it is going bankrupt as it is. The current payroll taxes are insufficient for the long-term needs of the system.
Medicare would already be bankrupt without the enormous amount of subsidies the private sector is providing to the health care system which simply could not function with current Medicare reimbursement rates.
Medicare is not free and it has extensive deductibles and coinsurance amounts in place.
Medicare relies heavily on private insurance companies to cover gaps in coverage.
You can take all of the costs and profits of private insurers and drug companies and you would barely put a dent in the nation's total healthcare expenditures.
Medicare for All is simply not workable without massive tax increases on every American and/or substantial reductions or cutbacks in the access to care that they are used to. There is no other way around the math wherein we are projected to spend almost $6 trillion on health care in the United States in 2026.
Anyone who tells you anything differently is simply not being honest with you.
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