Running the Numbers: Why Biden's Medicare Plan Trumps Bernie's

Going into President Biden’s maiden speech before Congress last Thursday, the media had sought to set up the president’s health care agenda as a disappointment for progressives.

He would not advocate for expanding Medicare to include either more people or more services (such as dental, vision, and hearing), they said. He would instead choose to expand insurance coverage in the private market through bigger subsidies for individuals to purchase private plans in the Affordable Care Act exchanges (like that’s a bad thing). “Joe Biden is blowing a big moment on Medicare,” declared the New Republic.

As source material, most outlets I have reviewed pointed to a Washington Post piece from Wednesday that broke that news. “Biden’s proposal steers clear of his campaign promise to lower the Medicare enrollment age, despite pressure from liberal and some centrist House Democrats,” said the Post report.

Then came the president’s actual speech. And lo and behold, Biden’s $1.8 trillion proposal to help American families realize their full potential does, indeed, include significant reforms and improvements to Medicare.
THE PRESIDENT: Let’s do what we’ve always talked about for all the years I was down here in this — in this body — in Congress. Let’s give Medicare the power to save hundreds of billions of dollars by negotiating lower drug prescription prices. (Applause.)

And, by the way, that won’t just — that won’t just help people on Medicare; it will lower prescription drug costs for everyone.

And the money we save, which is billions of dollars, can go to strengthen the Affordable Care Act and expand Medicare coverage benefits without costing taxpayers an additional penny. It’s within our power to do it; let’s do it now. (Applause.)
The White House explained further in a fact sheet exactly what it is asking Congress to do on Medicare:
President Biden has a plan to build on the Affordable Care Act and lower prescription drug costs for everyone by letting Medicare negotiate prices, reducing health insurance premiums and deductibles for those who buy coverage on their own, creating a public option and the option for people to enroll in Medicare at age 60, and closing the Medicaid coverage gap to help millions of Americans gain health insurance.
While the President’s plan to strengthen Medicare is ambitious and popular, it is not as expansive as advocates of Medicare for All wanted. In a letter spearheaded by Bernie Sanders this week, 17 senators asked that the Medicare eligibility age be lowered to as low as 50, but at a minimum, to 60, along with other changes like covering vision, dental, and hearing, an out-of-pocket spending cap, and price negotiation authority for prescription drugs.

The chief differences between the President’s plan and that proposed by the Sanders-17 is that the President proposes an option for people between 60 and 65 to buy into Medicare, rather than simply making all 60-year-olds eligible for Medicare the way 65-year-olds are.

But the Biden plan is the only one that will keep Medicare solvent, while creating the possibility of working to fix certain structural cost problems within Medicare. The Sanders plan, which proposes to pay for itself entirely by having the government negotiate drug prices, will leave Medicare broke, bankrupt, and belly-up.

This is because the savings that Sanders himself says will be realized from prescription drug negotiations will not pay for even a small sliver of the expanded eligibility and benefits package he’s proposing. I’ve run the numbers.


One of the structural problems with traditional Medicare is that it chronically underpays for hospital care.

Typically, hospitals are compensated below-cost by fee-for-service (or traditional) Medicare. According to data from Medicare itself, Medicare undercompensated hospitals on inpatient and outpatient care by about 9% in 2019. FFS Medicare’s payment rates are about half of what private insurers pay, meaning that those on private insurance subsidize FFS Medicare.

Medicare certainly does not have to compete with private insurance for the business of hospitals, but adding more people to Medicare rolls without additional revenue would spell trouble for both enrollees and hospitals. For hospitals, a greater share of their patients would be underpaying (again, according to Medicare’s own data, not some industry conspiracy), exacerbating cost problems, especially for rural hospitals, which are disproportionately dependent on the Medicare population.

In 2018, Medicare spent $206 billion, or, on average, $5,564 per enrollee for the 37.7 million people enrolled in traditional Medicare on combined inpatient and outpatient care costs. Under the law, private Medicare plans (Medicare Advantage) are compensated per enrollee based on how much it would cost the government to cover the enrollee, which would, by definition, average to the same $5,564.

The Sanders letter says lowering the eligibility age to 60 would add 23 million people to Medicare rolls. If we assume that the government will pay the same average amount for these 23 million additional enrollees, that would add an additional expense $126 billion per year, or if reimbursement rates are raised to eliminate undercompensation - which the government may well have to do because of the amount of people whose payment rates would shift to Medicare rates - that would cost the government $155 billion a year combined for the increased rates and the expanded eligibility.

Sanders claims that Medicare drug negotiations would add roughly $50 billion a year to Medicare’s coffers. That’s enough to pay just about a third of the cost of additional enrollees if the eligibility age is lowered to 60.

But wouldn’t enrolling younger, healthier people actually lower the per-enrollee cost for Medicare?

Bernie’s letter appears to argue in the opposite direction. It talks about how people hold back care before they qualify for Medicare, and there’s a rush of expenses when they first enroll. If that’s true, then it’s more likely that the new beneficiaries will utilize, at least initially, more costly services, not less.

Given all this, what money is left to use for adding benefits, like dental, vision, etc, or for applying an out of pocket cap, which will also raise the cost Medicare pays? Since Bernie’s plan contemplates simply expanding Medicare to younger people, that presumably means no additional premium would be collected from this new population.

Not only does Bernie Sanders not account for over $100 billion in spending gap for his “plan,” he also doesn’t account for the likelihood that lowering the eligibility age will incentivize some to retire early, which means Medicare would receive less in payroll taxes.

The option for people between the ages of 60 and 65 to buy into Medicare, however, would solve the financial shortfall. The Medicare Part A premium - the part that is waived for the vast majority of beneficiaries - is currently $471/month. That is an annual premium of $5,652, almost the exact average cost Medicare spends per beneficiary, meaning it would not deplete the trust fund and leave money on the table to strengthen it instead.

The premium can be subsidized in the same way premiums are subsidized based on income for people purchasing insurance through the ACA exchanges. That would allow for money from the general fund to the Medicare trust fund as well.

That also means that savings from negotiating prescription drugs can actually go to shore up benefits, lowering out-of-pocket costs, and fully compensating hospitals for care, rather than simply to expand eligibility.

Democrats in Congress should move forward with President Biden’s plan and shelve Bernie’s.

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