Sen. Elizabeth Warren on Friday came out with her long-awaited plan to “pay for” the “Medicare for all” proposal she supports. But it is not actually a serious proposal to solve problems that have vexed health economists for decades. It is, instead, a complete joke. She may as well have said Mexico is going to pay for it.
Going through the plan this morning, these areas particularly strike me as laughable.
Warren comes up about $14 trillion short. Warren proposes a blizzard of tax hikes — on payrolls, financial transactions, corporations, and the wealthy — and promises to save money by combating tax fraud, impementing immigration reform, and cutting military spending. These add up to $20.5 trillion. So even if they raise all of the money she claims (doubtful), she would still be left with a huge gap relative to the $34 trillion cost of a program as generous as what she’s proposing, according to an estimate from the liberal Urban Institute.
She lies about middle-class tax increases. Warren’s effort to unveil a financing plan arose out of a campaign talking point that she wouldn’t raise middle-class taxes. In the new plan, she insists, “We don’t need to raise taxes on the middle class by one penny to finance Medicare for All.” But the largest single tax increase she proposes is an $8.8 trillion tax on payrolls, which inevitably will fall on the middle class. Her defense of this is that both the middle class and businesses would be better off on net because they’d be saving money on premiums and administrative costs. Yet even if this were true, this would still count as a tax increase. As I’ve noted before, people may believe that paying property taxes and sending their kids to public school is a good deal on net. But they still think of property taxes as taxes and increases in property taxes as tax increases. In reality, however, even this gives her too much credit because of the phantom savings.
Over $7 trillion in phantom savings. Warren’s plan leans heavily on the idea that the money the United States is already paying on healthcare is more than enough to finance her healthcare vision. As a nation, we are already on track to spend $52 trillion on healthcare over the next decade, and she claims her plan would be lower than that due to reduced administrative costs, insurer profits, and so on. Yet the Urban Institute looked at a plan along the lines of what she is proposing, considered potential savings from administration, and found it would raise national health spending by $7 trillion to $59 trillion. As their analysis concluded, “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.” In other words, even if the plan has some offsetting savings, it would still be promising free health, vision, and dental coverage to every American, without premiums, copays, deductibles — all of which should be expected to dramatically increase consumption.
$2.3 trillion in magic revenue from combating tax fraud. The Warren proposal ludicrously claims that with some increase in tax enforcement, the government would raise “about $2.3 trillion in additional federal revenue without a single new tax.” For decades, whenever politicians have drawn a blank in attempting to fill a financing nut, they always turn to eliminating “waste, fraud, and abuse” as a sort of free money. It’s an old trick, but it’s quite remarkable for Warren to count on it raising more money than the 10-year cost of Obamacare.
Miraculously claims to cut doctors’ pay without cutting doctors’ pay. One of the most difficult questions faced by policymakers trying to figure out the U.S. healthcare financing puzzle is what to do about compensation to doctors and hospitals. They make up a majority of U.S. health spending. Squeeze them too much, and it could lead to fewer providers and thus severe access problems when tens of millions of people are being added to the system. Let them continue to charge high prices while having the government pick up the tab, and the cost of socialized health insurance is that much more expensive. I dinged Warren in my column this week for not outlining what she would do about compensation. At first blush, it seems that she’s finally changing her tune and acknowledging the need to bring down their pay to achieve savings. Instead, she ended up presenting payment cuts as something totally cost-free. Warren claims that her plan would pay doctors and nonhospital providers at Medicare rates, which are higher than what Medicaid pays, but lower than what private insurance pays. That may sound like a pay cut, but Warren claims, “While private insurance companies pay higher rates, this system would be expected to continue compensating providers at roughly the same overall rate that they are currently receiving.” How can that be? Because of those exaggerated administrative savings! So there you have it — Warren came up with a magic way to cut doctors’ pay without cutting doctors’ pay that no health economist has previously thought of!
