How CBO Analyzes the Costs of Proposals for Single-Payer Health Care Systems That Are Based on Medicare’s Fee-for-Service Program: Working Paper 2020-08

Working Paper Series

Congressional Budget Office

Washington, D.C.

How CBO Analyzes the Costs of Proposals for

Single-Payer Health Care Systems

That Are Based on Medicare's Fee-for-Service Program

CBO's Single-Payer Health Care Systems Team

Congressional Budget Office

[e-mail]

Working Paper 2020-08

December 2020

To enhance the transparency of the work of the Congressional Budget Office and to encourage external review of that work, CBO's working paper series includes papers that provide technical descriptions of official CBO analyses as well as papers that represent independent research by CBO analysts. Papers in this series are available at http://go.usa.gov/xUzd7.

CBO's single-payer health care systems team consisted of Alice Burns, Noelia Duchovny, Katherine Feinerman, Kate Fritzsche (formerly of CBO), Philippa Haven (formerly of CBO), Tamara Hayford, Keren Hendel (formerly of CBO), Grace Hwang, Jamease Kowalczyk (formerly of CBO), Scott Laughery, Jared Maeda, Rachel Matthews, Eamon Molloy, Ryan Mutter, Xiaotong Niu, Daria Pelech, Karen Stockley, and Katherine Young. Justin Falk, Ann Futrell, Stuart Hammond, Lori Housman, Yash Patel, Allison Percy, Lisa Ramirez- Branum, Sarah Sajewski, Matt Schmit, Robert Stewart, Carolyn Ugolino, Emily Vreeland, and Sarah Zavislan (formerly of CBO) provided valuable contributions to the analysis. The staff of the Joint Committee on Taxation provided data and analysis of revenue effects.

This work was led by Sarah Masi, with support from Chad Chirico, Theresa Gullo, Jeffrey Kling, Leo Lex, Paul Masi, Alex Minicozzi, Lyle Nelson, and Chapin White. Christian Howlett was the editor, and Robert Rebach was the graphics editor. Helpful comments were provided within CBO by Colin Baker, Jessica Banthin (formerly of CBO), Aaron Betz, Gloria Chen, Devrim Demirel, Mark Doms, Sebastien Gay, Mark Hadley, Junghoon Lee, John McClelland, Jaeger Nelson, James Otterson, Kerk Phillips, Molly Saunders-Scott, Julie Topoleski, Jeffrey Werling, and Sarah Zavislan (formerly of CBO). The paper was fact-checked by Michael Cohen, Katherine Feinerman, Ryan Greenfield, Christian Henry, Rachel Matthews, Yash Patel, Allison Percy, Rebecca Sachs, Jordan Trinh, and Carolyn Ugolino of CBO.

Useful comments were also provided by Charles Blahous of the Mercatus Center; Linda Blumberg, Melissa Favreault, and Brenda Spillman of the Urban Institute; Vicki Freedman of the University of Michigan; David Grabowski of Harvard University; Douglas Holtz-Eakin of the American Action Forum; Michael Hurd of RAND; Stephen Kaye of the University of California, San Francisco; and Paul Saucier of the Maine Department of Health and Human Services. In addition, Stephen Heffler and John Shatto of the Office of the Actuary at the Centers for Medicare & Medicaid Services provided useful comments on the appendix describing CBO's projections of national health expenditures. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.)

Abstract

In this paper, CBO describes the methods it has developed to analyze the federal budgetary costs of proposals for single-payer health care systems that are based on the Medicare fee-for-service program. Five illustrative options show how differences in payment rates, cost sharing, and coverage of long-term services and supports under a single-payer system would affect the federal budget in 2030 and other outcomes. CBO's projections of national health expenditures under current law are a key basis for the estimates.

CBO projects that federal subsidies for health care in 2030 would increase by amounts ranging from $1.5 trillion to $3.0 trillion under the illustrative single-payeroptions-compared with federal subsidies in 2030 projected under current law-raising the share of spending on health care financed by the federal government. National health expenditures in 2030 would change by amounts ranging from a decrease of $0.7 trillion to an increase of $0.3 trillion. Lower payment rates for providers and reductions in payers' administrative spending are the largest factors contributing to the decrease. Increased use of care is the largest factor contributing to the increase.

Health insurance coverage would be nearly universal and out-of-pocket spending on health care would be lower-resulting in increased demand for health care-under the design specifications that CBO analyzed. The supply of health care would increase because of fewer restrictions on patients' use of health care and on billing, less money and time spent by providers on administrative activities, and providers' responses to increased demand. The amount of care used would rise, and in that sense, overall access to care would be greater. The increase in demand would exceed the increase in supply, resulting in greater unmet demand than the amount under current law, CBO projects. Those effects on overall access to care and unmet demand would occur simultaneously because people would use more care and would have used even more if it were supplied. The increase in unmet demand would correspond to increased congestion in the health care system-including delays and forgone care-particularly under scenarios with lower cost sharing and lower payment rates.

Keywords: Costs of single-payer health care systems

JEL Classification: I13

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Contents

Abstract ...........................................................................................................................................	1
Notes ...............................................................................................................................................	6
Section 1. Summary ........................................................................................................................	7
What Design Features Did CBO Analyze?.................................................................................	7
What Is the Scope of This Analysis? ........................................................................................	10
What Are the Effects of the Design Features CBO Analyzed? ................................................	11
Section 2. Specifications of CBO's Illustrative Options and Comparisons With
Existing Proposals.........................................................................................................................	22
Overview of the Five Illustrative Options ................................................................................	22
Administration of the Single-Payer System..............................................................................	24
Box 2-1. Key Accounting Concepts and Definitions Used in This Analysis .............................	25
Eligibility ..................................................................................................................................	27
Covered Services ......................................................................................................................	27
Changes in the Role of Existing Health Care Systems and Programs ......................................	28
Provider Payment Rates and Prescription Drug Prices.............................................................	29
Cost Sharing..............................................................................................................................	37
Provider Opt-Outs.....................................................................................................................	38
How CBO's Illustrative Options Compare With Proposed Legislation ...................................	38
Section 3. How CBO Estimated the Effects of a Single-Payer System on the Federal
Budget and National Health Expenditures....................................................................................	43
How CBO Projected National Health Expenditures Under Current Law ................................	43
How CBO Used Its Current-Law Projections of NHE to Estimate the Effects of the
Illustrative Options ...................................................................................................................	44
How CBO Estimated the Effects of the Illustrative Options on Federal Subsidies for
Health Care ...............................................................................................................................	46
Section 4. How CBO Analyzed the Effects of Changes in Provider Payment Rates ...................	47
Estimating the Effects of Changes in Payment Rates, With the Supply of Care
Unchanged From Current Law .................................................................................................	47
Estimating How Providers Would Alter the Supply of Care in Response to Changes in
Payment Rates...........................................................................................................................	52
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Section 5. How CBO Analyzed the Effects of Changes in Cost Sharing and Coverage ..............	56
Estimating Increases in Demand for Care Among People Who Would Be Insured
Under Current Law ...................................................................................................................	56
Estimating Increases in Demand for Care Among People Who Would Be Uninsured
Under Current Law ...................................................................................................................	59
Section 6. How CBO Analyzed Other Factors That Would Affect the Demand for
and Supply of Care........................................................................................................................	63
Patients' and Providers' Reponses to Having Fewer Restrictions on Utilization,
Provider Networks, and Billing ................................................................................................	63
Providers' Responses to Changes in Administrative Activities ...............................................	66
Providers' Responses to Increased Demand .............................................................................	73
Providers' Opt-Outs Under the Illustrative Options .................................................................	76
Section 7. How CBO Analyzed Changes in Payers' Administrative Spending ...........................	78
Estimating Payers' Administrative Spending Under Current Law...........................................	78
Estimating Administrative Spending Under a Single-Payer System........................................	79
Estimating Administrative Spending for the Long-Term Services and Supports Benefit........	84
Estimating Administrative Spending for Current-Law Programs That Would Continue
Under a Single-Payer System ...................................................................................................	86
Section 8. How CBO Analyzed the Effects of Including Long-Term Services and
Supports in a Single-Payer System ...............................................................................................	88
Background on Long-Term Services and Supports ..................................................................	88
Data Availability and Gaps.......................................................................................................	91
Estimating Spending for LTSS Under Current Law.................................................................	93
Uncertainty About Future Use of LTSS Because of the Coronavirus Pandemic .....................	96
CBO's Illustrative Single-Payer LTSS Benefit ........................................................................	98
Estimating the Effects of a Single-Payer LTSS Benefit on Spending for Institutional Care ...	99
Estimating the Effects of a Single-Payer LTSS Benefit on Spending for Home- and
Community-Based Care..........................................................................................................	100
Section 9. Effects of the Illustrative Options on the Federal Budget and Uncertainty of
the Estimates ...............................................................................................................................	108
Effects on the Federal Budget.................................................................................................	109
Sources of Uncertainty in CBO's Estimates...........................................................................	112
Additional Uncertainty Stemming From the Coronavirus Pandemic .....................................	118
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