The blog of the Urban Institute
October 16, 2019

Don’t Confuse Changes in Federal Health Spending with National Health Spending

There has been confusion over estimates, like ours, that measure the effect of single-payer (i.e., Medicare for All) proposals on both federal spending and total national health spending.

The two are not the same, and too frequently, people use estimates of both and make misleading apples-to-oranges comparisons.

Federal spending versus national spending

Federal health care spending is the money the federal government spends on health care, whereas national health spending includes all health spending, regardless of who pays for it.

Federal health care spending includes spending on Medicare, Medicaid, the Children’s Health Insurance program, Affordable Care Act Marketplace premium subsidies, the Veterans Administration, US Department of Defense health care programs, support for health care professionals and hospitals providing uncompensated care, as well as other federal programs.

Changes in federal health spending represent amounts that would either need to be added to the federal budget (and funded through tax increases or additional government debt) or which would lead to cuts in other federal programs to free up sufficient federal funds.  

National health care spending includes spending by the federal government, state and local governments, households, and employers. National health expenditures (NHE) are estimated annually by the Centers for Medicare and Medicaid Services (CMS) as the National Health Expenditure Accounts. Using our models’ projections and extending the CMS’s estimate for spending categories we do not model, we estimate that NHE for the 10-year period from 2020 to 2029 will total approximately $52 trillion dollars under current law.

What increases or decreases in these estimates mean

It is possible, for example, for federal spending to increase while national health spending decreases, if new federal programs take over some of the expenses currently paid for by employers and households and do it at a lower cost.

But if a federal program takes over some of the private spending and ends up providing more generous benefits, total national spending could still increase. Regardless, it is important to separate changes in federal spending from changes in national spending to understand the implications of any health care reform approach.

In our most recent report, we estimate that a broad single-payer reform (referred to as Reform 8: Enhanced Single Payer in the report) would increase federal government spending by $34 trillion over the 2020–29 period, $34 trillion beyond what the federal government already spends on health care.

However, this reform would shift almost all of the spending currently done by households, employers, and state governments over to the federal government. All people, regardless of whether they have insurance coverage today, would be covered by the new federal program.

How single-payer reform would affect federal and national spending

Under the single-payer enhanced reform, the new federal government program would provide more covered benefits than typical insurance offers today (including typical medical benefits but adding a new home- and community-based long-term services and supports benefit and adult dental, vision, and hearing benefits). All the costs would be covered by the federal government; no one would pay premiums or out-of-pocket costs (i.e., no deductibles and no copayments or coinsurance), including undocumented residents.

As a result, many people would get insurance for the first time, and many others would get significantly more generous insurance than they currently have. And with their new or improved insurance, many people would use more medical care than they do today.

The federal government would limit the fees paid to doctors, hospitals, and prescription drug manufacturers, which would help lower the program’s costs, compared with what it would be otherwise. In addition, the system would be simpler than our current “patchwork” system, so the administrative costs of running the program would be lower than in most private insurance plans; this also helps offset some of the new costs.

However, by our estimates, the increase in spending for people with this new generous coverage would outweigh the savings from lower prices for health care providers and lower administrative costs. As a result, total national spending would increase, even taking into account greatly reduced household, employer, and state government spending.

For this approach to reform, federal spending would increase by $34 trillion over 10 years, but health spending by individuals, employers, and state governments would decrease by $27 trillion, so national health spending would increase by $7 trillion over the same 10-year period, from $52 to $59 trillion.

The figure below illustrates our estimates. In the first bar, we divide the $52 trillion estimated current-law spending on health care over 2020–29 into three pieces: $17 trillion in federal spending; $27 trillion in private spending and state and local government spending for medical care and dental care that would be subsumed into the new single-payer program; and $8 trillion in spending (a mix of government and private spending) that would not be affected by a single-payer program.

figure 1

The $8 trillion includes costs associated with an array of expenses, such as medical care for members of the military and their families while military members are deployed, services provided to foreign visitors, acute care provided to people living in institutions (e.g., prisons and nursing homes), and the value of new construction and equipment put in place by the medical sector. This spending also includes long-term services and supports by states and individuals that would continue under reform. For our purposes here, we refer to this $8 trillion in spending as “spending not affected by single-payer.”

The taller second bar shows that the total national spending under a single-payer program would be higher than under current law. The $17 trillion in federal spending under current law would be shifted to help fund the new program, and the federal government would take over the $27 trillion in current health care spending by employers, households, and state and local governments.

Fully funding a new single-payer program would require an additional $7 trillion in federal spending beyond that repurposed $44 trillion. The $8 trillion in spending not affected by the  single-payer program would continue to be funded by a mix of government and private sources.    

Thus, it is not appropriate to compare an estimated increase in federal spending of $34 trillion over 10 years with a current-law level of national health spending of $52 trillion over the same period and conclude these are savings in national health spending.

And although many advocates believe that a single-payer system would increase federal spending but with the benefit of reducing national health spending, our estimates contradict that. According to our analysis, a broad single-payer reform, similar to current Medicare for All bills, would increase federal spending and increase national spending.

But as our full report also shows, a single-payer program can be designed to decrease national health spending, as can other approaches to achieving universal coverage.

Illustration via Feodora Chiosea/Getty Images.

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As an organization, the Urban Institute does not take positions on issues. Experts are independent and empowered to share their evidence-based views and recommendations shaped by research.