The good, the bad, and the ugly in Elizabeth Warren's Medicare-for-all plan
Elizabeth Warren now has a plan to pay for that.
After taking a lot of incoming fire from debate moderators and rivals for the Democratic presidential primary, the 2020 contender released on Friday a plan to fully fund Medicare-for-all. It's bold, detailed, and kind of sneaky.
By taking her critics super literally, Warren turns the demand to pay for Medicare-for-all into an excuse to do a whole bunch of policy tweaks — some to taxes, most to other government policies. Many of these ideas are good; a few are questionable or just plain bad. But the unifying theme is that all of them would leave the federal government with more money to spend without explicitly hiking taxes on the vast majority of Americans.
The basic challenge of Medicare-for-all is straightforward: Giving every American quality health insurance without making them pay premiums would be very expensive — a little under $52 trillion over a decade. Most everyone assumes that offsetting that enormous amount of spending would require broad tax hikes across the population. Democrats worry that once voters get a look at those tax hikes, people wouldn't understand how much they would save on net and would then turn on the program. Hence the relentless demands from reporters asking Warren to explain how she'll pay for it.
But Warren seems to have taken the demand that she match every dollar of Medicare-for-all spending with a dollar from elsewhere as a kind of dare. It's like she picked up every remaining lefty budget idea and just threw them into her plan.
Let's go through Warren's proposal: $52 trillion over a decade is actually slightly less than the country is expected to spend in total on health care on its current path. It's just that, right now, that spending comes from lots of sources: government, private health insurers, businesses, and consumers. Medicare-for-all simply replaces all that spending with one single stream of government spending. Warren rightly notes that total spending is so high because all sorts of hiccups in the current system permit hospitals, providers, insurers, and other players to jack prices through the roof. Thus, Warren's first batch of ideas includes a bunch of fixes to bring those prices down.
Warren wants to set up standardized reimbursement rates for hospitals and other providers across the system. They would be 10 percent more generous than Medicare's current rates, with extra boosts for rural hospitals and other providers in tough spots. Replacing the smorgasbord of private insurers with one government insurer will also wipe out a lot of excess administrative costs in the system. Warren wants to use federal regulators to start seriously enforcing antitrust law against big hospital chains and mergers, breaking up the consolidated power with which they ratchet up prices. Finally, she aims to use already-proposed legislation to force American drug prices to fall more in line with international prices — and if that fails, she has ready-to-go bills to start overriding pharmaceutical patents and use public funds to sponsor drug research directly. (Frankly, she ought to do both of those latter ideas regardless.)
Warren's first questionable idea is to take the $6 trillion that state and local governments currently spend on Medicaid and health insurance programs and redirect it into federal coffers instead. That proposal certainly doesn't leave states and localities any worse off, but it would be even better to free their budgets from having to meet those obligations entirely. In that regard, it's a missed opportunity.
Of course, the federal government already spends an enormous amount on Medicare, its share of Medicaid, and other programs. Once you throw in that, the $6 trillion from states and localities, and all the savings from the aforementioned proposals, there's roughly $20.5 trillion over the next decade left to account for.
This is where Warren really starts swinging for the fences.
She wants to reform Wall Street with a 0.1 percent tax on every financial trade plus a small fee on the forty or so biggest banks in the country. These two ideas would raise revenue but also come with two beneficial side effects: slowing down speculation in the financial system and encouraging big banks to downsize a bit. Warren also wants to provide undocumented immigrants a path to citizenship, which would bring new taxpayers into the country. Another way she wants to add revenue is to crack down hard on tax evasion by the wealthy by bolstering the Internal Revenue Service and passing other reforms. If all that's not enough, the senator also aims to cut a defense budget item — Overseas Contingency Operations — that's essentially served since 9/11 as a placeholder for extra spending on foreign wars.
All of the above gets her another $4.4 trillion over a decade. Granted, $2.3 trillion of that comes from the tax evasion crackdown, which seems really optimistic. And the explanation Warren links to doesn't provide much detail on how that estimate was reached.
Warren's next big change is to essentially take the money that businesses pay private insurers for job coverage and redirect it to the government through a specifically designed fee — read: a tax. This gets Warren $8.8 trillion over 10 years, but it's also her worst proposal. The fee/tax would charge employers a dollar amount per worker, rather than a percentage of each workers' income, like already-existing business-side payroll taxes do. You can argue over how much employer-side taxes pass through to employees' pay — it probably varies a lot depending on the state of the labor market — but to the degree it does pass through, it's the kind of broad-based tax increase Warren is ostensibly trying to avoid. It's severely regressive, and all else being equal, it will discourage hiring.
In the realm of straightforward taxes, Warren suggests ratcheting up the wealth tax she's already proposed: Instead of charging two cents annually on all wealth over $50 million and three cents on all wealth over $1 billion, she'd crank the latter charge up to six cents. More interestingly, Warren wants the richest 1 percent of Americans to pay capital gains tax rates at their income tax rates (a very good idea for everyone's capital gains, actually) and charge them annually based on the market value of their capital gains, rather than just at the moment of sale.
For corporations, Warren would impose a new international minimum tax to prevent American multinationals from shifting profits into foreign tax havens. She would also change the way business expenses are calculated: Instead of being able to expense investment in assets all at once, companies will have to space it out. This increases tax revenue, but there are actually strong arguments for why the alternative is preferable over Warren's approach.
All of these changes would bring in roughly $7.5 trillion over the decade.
Finally, all the money that people would've spent on premiums and deductibles and copays now gets freed up to go elsewhere. That will be a big boost to economic activity, which should increase the revenue already-existing taxes bring in. Warren estimates that will get her a final $1.4 trillion.
And that's the ball game. A lot of these ideas — the taxes on the rich, the reforms to tax accountability, the health system changes, etc — are good ideas. The change to corporate expensing and the use of state and local health spending are both questionable. The employer-side tax is straight-up ugly. Warren would be better taking the money she gets from those latter sources and just throwing them on the national credit card instead.
Warren's plan probably doesn't "pay for" Medicare-for-all the way her critics wanted: Instead of some clear tax increases on Americans, it's a grab bag of random changes and tax hikes on the wealthy, some of which are based on revenue assumptions that might not pan out. But it does satisfy the political letter, if not the spirit of the criticism, down to the dollar.
She's finally got a plan for that — even if it's not her best.
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