You can’t expand Medicare

I frequently see it alleged by liberals that getting health universal coverage is as simple as expanding Medicare so that it covers everyone. Many of them probably actually believe it, so I want to explain some basic economics.

The reason Medicare’s cost to the government is as low as it is (which is not all that low, by the way) is because Medicare’s reimbursement rate is just barely above marginal cost. That means that it is barely profitable to treat them, given that — and this is the key point — all the fixed cost has already been paid for by other patients.

In other words, Medicare is cheap (that is, cheaper than it would otherwise be) because its share of the cost of all our health care infrastructure (hospitals, equipment, etc.) is shifted onto other patients.

But you cannot shift the fixed cost off of everyone! For Medicare to work, there need to be people left off of it to bear Medicare’s share of the fixed cost. Try to put everyone on Medicare and the whole thing collapses.

This is nothing more than elementary economics. Whenever you see a politician proclaim we should have “Medicare for all”, they are proclaiming that they don’t understand economics. Or, if they actually do (I’m looking at you, Paul Krugman and Robert Reich) then they’re engaging in pure demagoguery.

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