Elizabeth Warren's most ambitious con

There are some common threads in Warren’s work as an academic and as a politician: gimmickry, shoddy research, and sleight of hand; tackling issues and problems that have a legitimate basis but then blowing them out of proportion; pitting victims of an always-“rigged” economy against villains, typically banks, billionaires, and major industries; and promising an easy fix, without any trade-offs, once somebody has the guts to take on the bad guys.

Like many grifters, Warren started off small. But her profile has grown with each deception, often in direct proportion to the brazenness of her dishonesty. Now, she’s attempting to pull off her biggest con yet: convincing Americans that everybody can have “free” and generous health coverage, estimated to cost $34 trillion, without anybody but the wealthy footing the bill and without any disruption to the quality or availability of care. Toward that end, Warren has released a healthcare financing plan that deploys a wide array of tricks on a mass scale. Her deceptions include double counting, inflating revenues, and dramatically overstating savings. If implemented as written, the plan would impose massive tax increases on individuals and businesses and dramatic cuts to hospitals and doctor salaries that could endanger access to care.

Emory health finance expert Kenneth Thorpe has for decades been a prominent advocate of expanding the government’s role in healthcare. In both 2006 and 2014, liberal legislators in Vermont hired him to determine the cost of doing single-payer at the state level. In other words, he’s no right-wing hack. When I went through the Warren proposal with him point by point, one phrase kept coming up: “That doesn’t make any sense.”

Thorpe referred to the plan’s claimed administrative savings as “unrealistically low” and said the promised cuts to drug prices “would be the end of any type of research and development and innovation in this country.” His own analysis, like several others, suggests the plan would be about $14 trillion more expensive than Warren lets on.

The stakes are high. After months of steady gains in the polls that had many analysts describing her as the Democratic front-runner, Warren’s obfuscations about how she would pay for such a sweeping overhaul of the healthcare system caught up with her. Now, she’s hoping that her latest charade can allow her to claim she has a plan and that voters ignore the details. If she can pull off this con job, she just might end up in the White House.

During her time as a Harvard Law professor in the 2000s, Warren built a national profile out of her research in bankruptcy. Her 2003 book, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, theorized that modern families with dual incomes were worse off than single-earner families of yesteryear because the increase in income was more than absorbed by rising living costs. The book helped vault Warren to the national stage, where she doled out personal financial advice on Dr. Phil.

There is no doubt some truth to this narrative. After all, many living expenses have grown over time, and if two parents are working, they have to pay for day care, which is extremely expensive. But Warren overstated the case and obscured the role that taxes played in eating into the income of two-earner households.

More egregious were two studies she did on medical bankruptcy in which she and her co-authors, using faulty methodologies, exaggerated the number of people forced into bankruptcy. As Aparna Mathur, an economic policy scholar at the American Enterprise Institute explains, Warren’s work “is flawed and overstates the extent to which people file for bankruptcy due to medical reasons.”

The 2005 study reported that half of bankruptcy filers had cited medical causes. However, the definition of medical causes included, among other factors, drug, alcohol, and gambling addictions. An updated study Warren did in 2009 found that “62.1% of all bankruptcies in 2007 were medical.” But even the survey results from the study itself found that just 29% of respondents said they were filing bankruptcy due to medical bills. To get to 62%, among other additions, Warren included filers who said they lost work time or income due to illness. Under the Warren definition, somebody could have $70,000 in credit card debt and report some lost time at work due to an illness, and it would be categorized as a medical bankruptcy.

A 2018 study published in the New England Journal of Medicine, which looked at filings among those who had been hospitalized, found that hospitalizations led to just 4% of bankruptcies among non-elderly adults. The authors assumed this would capture most medical bankruptcies because most people with costly illnesses would likely have been to hospitals at some point.

Nonetheless, Warren’s flawed medical bankruptcy research further elevated her and formed the basis of an important talking point for liberals making the case in favor of passing Obamacare. In kicking off the healthcare push at a March 2009 White House summit, President Barack Obama claimed, “The cost of healthcare now causes a bankruptcy in America every 30 seconds.”

Warren’s national political career got underway in earnest when Obama tapped her to head the new Consumer Financial Protection Bureau in 2010, an idea that arose out of one of her academic papers. When Republicans blocked her appointment to the CFPB, it bolstered her status as a liberal hero and propelled her to run for the Senate in 2012. The agency has been challenged as structurally unconstitutional for giving vast powers to its head, who is unaccountable to Congress and difficult for the president to fire. The question of its constitutionality is now before the Supreme Court.

From the start of her Senate career, Warren showed an adeptness at proposing policy ideas that garnered a lot of attention regardless of whether they made any sense. The first piece of legislation she introduced was her 2013 proposal that would have allowed students who took out some federally subsidized loans to pay the same rate as banks pay the Federal Reserve’s discount window. The proposal was absurd on its face. The Fed rate Warren was demanding was the one used for short-term loans to banks (often overnight), not for loans that get paid off over years or decades such as college loans. What she was proposing would have meant student borrowers with a higher likelihood of default would have been paying a lower rate for long-term debt than even the U.S. government.

Though the Brookings Institution concluded Warren’s plan “should be quickly dismissed as a cheap political gimmick,” it spread like wildfire on the internet. It allowed her to highlight victims and villains and play into the soothing idea that we can relieve financial burdens by leveling the playing field between the powerless and the powerful. As Warren put it in her floor speech pitching the bill: “If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class.”

This has, in many ways, been the prototype for Warren’s policy proposals as a 2020 candidate — cheap political gimmicks that appeal to people’s perceptions of how the system works, unrealistic but emotionally satisfying. For example, Warren embraced the Green New Deal’s goal of net-zero carbon emissions. Replacing 64% of the nation’s electricity sources is a tall order to begin with, but Warren wants to do it while pledging to get rid of nuclear power, which would bring the figure to 83%. Climate experts widely agree that significantly increasing nuclear power (the largest proven non-carbon power source) is crucial to any plan to meet carbon targets.

To hammer special interests, Warren unveiled an “excessive lobbying tax” to be levied on corporations that spend more than $500,000 annually on lobbying. But lawyers were quick to point out that it would run smack into the First Amendment, which states that “Congress shall make no law … abridging … the right of the people … to petition the Government for a redress of grievances.”

When it comes to economic issues — Warren’s supposed area of expertise — time and again, her plans have been an illusion. Like many con artists, she targets the vulnerable and promises quick fixes. To be sure, many of the issues she’s speaking about involve genuine challenges facing many Americans, such as paying for healthcare, child care, education, and so on. But these are issues that serious policy experts have grappled with for decades, struggling with various trade-offs. Warren instead twists numbers to exaggerate the potential revenue from her taxes while downplaying the likely costs of her proposals. This allows her to ignore the trade-offs involved in implementing her policies and pretend that a European-style social welfare state can be achieved without requiring anybody but the wealthy to pay more. Meanwhile, she dismisses potential constitutional challenges that could significantly constrain her ability to implement her agenda.

Warren’s cons are enabled by policy writers on the Left, who are willing to give her a pass because they agree with her ideologically, and campaign reporters, most of whom have neither the time nor the inclination to fact-check some of the wild assumptions she’s making. So she’s able to roll out a blizzard of proposals, declare “I have a plan for that,” and perpetuate the myth of herself as a serious wonk.

Before the latest healthcare gambit, Warren had already made a $2.75 trillion wealth tax the backbone of her policy agenda. In its original incarnation, it would impose a 2% tax on wealth above $50 million and a 3% tax on billionaires. She has claimed her initial wealth tax would pay for universal child care, universal pre-K, a K-12 plan, a plan to raise child care worker pay, free college, and canceling student loan debt.

European countries have abandoned such taxes because they don’t raise as much money as promised and are difficult to administer. Millionaires and billionaires have the means to hire savvy tax lawyers, move money around, and relocate to adjust their tax burden. It also isn’t practical to do annual assessments of, say, individual art collections. Former Obama adviser Larry Summers and Wharton professor Natasha Sarin have estimated that a wealth tax would only raise a fraction of what Warren claims it would. Furthermore, any wealth tax would immediately be challenged in court as a violation of the prohibition against direct taxes that are not apportioned among the states, putting at risk the funding mechanism for a large part of her agenda.

Despite the policy and constitutional questions surrounding the wealth tax, it has proven a political winner. Warren has described it as a tax of “two cents” out of every dollar on the ultra-rich. Fans often scream out “two cents” at her campaign rallies, and the slogan has been plastered on T-shirts. But it wasn’t until her healthcare financing proposal was released that it became clear her deceptive tactics were building to something much bigger.

Warren backed herself into the corner of having to prove that she could pay for a $34 trillion healthcare proposal without raising taxes on the middle class. Liberal policy groups are advocating multiple alternate paths that would make insurance more generous and universal and that would be significantly cheaper and less disruptive.

Yet Warren clearly determined that she could not leave rivals with any room to her left on this issue. Early in the campaign, she was taunted by supporters of Bernie Sanders for equivocating on the issue. So she declared, “I’m with Bernie,” and got stuck embracing a proposal that goes well beyond other socialist countries in important respects. For instance, in Canada, a system often praised by U.S. advocates of socialized insurance, two-thirds of residents have supplemental private insurance (primarily through their employers) to cover services that are not reimbursed by the government, including prescription drugs, vision, and dental care. The French system requires beneficiaries to pay some share of the cost of primary and specialist care. The Sanders plan that Warren has backed would kick about 180 million Americans off private insurance, effectively scrap employer coverage, eliminate premiums, deductibles, and virtually all forms of out-of-pocket spending, and cover medical, dental, vision, and long-term care costs.

Other countries, even those with less ambitious programs, have higher middle-class tax burdens than the United States and often rely on regressive value-added taxes. Sanders has conceded that middle-class taxes would have to go up under his plan but has also argued that the middle class would be better off, on net, because they would no longer be spending money on healthcare. Warren tried to make a version of that argument without acknowledging the middle-class taxes. When she tried that dodge again during the October debate, repeating her line that “costs will go up for the wealthy and for big corporations, and for hard-working middle-class families, costs will go down,” finally her rivals had enough. After they landed enough punches challenging her claim, she announced she’d come out with a plan to prove them wrong.

For decades, healthcare policy scholars considering the idea of universal coverage have debated various questions. How do we make coverage generous enough so that individuals can afford care without leading to excessive spending? How do we save money on prescription drugs without stifling innovation? How can we reduce payments to doctors, hospitals, and other medical providers while ensuring enough of them remain in business as tens of millions of more people are granted coverage? Warren expects us to believe that in a matter of weeks, her policy team solved all of these riddles, somehow managing to design a system that would mean a free lunch for everybody but the super rich.

Proponents of socialized health insurance usually argue that consolidating the market so there’s one single purchaser of nearly all care would create administrative efficiencies and give the government leverage to bargain for lower prices. While these factors could result in savings, without proper constraints, providing free coverage to everybody would mean a dramatic increase in the consumption of healthcare. This is especially true with a proposal like Warren’s, which promises to virtually eliminate any out-of-pocket spending.

As a demonstration of how unserious Warren’s plan is, as part of the rollout, her campaign released a calculator, urging people to use it “to find out what Elizabeth’s plan for Medicare for All will mean for you.” But users quickly found out that whatever they entered as the amount they spend on healthcare was the amount that the calculator claims they’d save. As of this writing, I entered that I spent $900 trillion on healthcare, and a page came up with the banner “More Money In Your Pocket” and told me: “You’d bring home an estimated $900,000,000,000,000 more per year under Elizabeth’s Medicare for All plan.”

Warren argues that even if the federal component of spending goes up dramatically as the government absorbs costs currently borne by states, employers, and individuals, the overall spending on healthcare in the U.S. would be lower over the next decade than the $52 trillion it’s expected to be. This allows her to make the argument that she’s simply using the money that’s already being spent. But the liberal Urban Institute considered potential savings from having a single government program and found that overall U.S. healthcare spending would nonetheless be $7 trillion higher under the approach Warren supports, reaching $59 trillion. As the study reasoned, “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.”

When discussing the plan’s financing, it’s important to focus on the amount by which the plan would increase federal spending. The Urban Institute determined that a plan like Warren’s would boost federal spending by $34 trillion over the next decade, which is in line with other projections. To provide a sense of how large a pot of money that is, consider that over the same 10-year horizon, the U.S. defense budget is projected to be $8.1 trillion, Social Security is projected to cost $14.4 trillion, and combined corporate and individual income tax collections are expected to bring in $26.8 trillion.

Warren’s answer to the “pay for” question can be divided into two broad categories: overly optimistic assumptions about spending and incredibly rosy revenue estimates.

The Warren campaign analysis assumes that the plan would cost $20.5 trillion over 10 years. While extravagant, it still is somehow $13.5 trillion lower than Urban and many other estimates, conveniently allowing her to immediately cut by 40% the necessary taxes and savings she’d have to come up with to finance her plan. How to explain this massive gap?

One answer is that Warren’s campaign assumed massive administrative savings from instituting a single government-run plan. Though many health policy analysts agree that there could be a reduction in such expenses if one program were to consolidate various functions currently performed by many different entities, Warren’s estimates far exceed what is deemed realistic. The Urban Institute already assumed administrative savings and lower payments for doctors and hospitals in its $34 trillion estimate. “We thought we were being pretty aggressive in the assumptions we are making in terms of lowering the cost of the program over time,” Linda Blumberg, a co-author of the Urban Institute study, told the Atlantic. “They were clearly more aggressive.”

The Warren campaign claims that through more aggressive negotiation and threats to rescind patent and licensing protections, it could cut the price that Medicare pays by 70% for brand-name prescription drugs and by 30% for generics, saving $1.7 trillion relative to the Urban Institute forecast. But Emory’s Thorpe says such targets are “not even close” to realistic. “It would be the end of any type of research and development and innovation in this country,” Thorpe says. “Nobody would invest in the pharmaceutical industry at those numbers.”

The financing proposal also argues that traditional Medicare has much lower administrative costs than private insurance, at 2.3% of money spent, and that if the government were to replace the insurance industry, it could replicate this across the entire system and save an additional $1.8 trillion beyond what Urban already assumed. “The administrative cost assumptions are just unrealistically low,” counters Thorpe. “You couldn’t set 5,000 hospital budgets and run a system like this at 2.3%.” He explains that to get to that level, Warren would have to eliminate many other functions of Medicare that currently carry higher administrative spending but also reduce costs and improve outcomes, such as coordinating healthcare for chronically ill patients among providers. “They’re assuming that all administrative costs out there are a waste, and they’re not,” he says.

Doctors and hospitals make up a majority of healthcare spending. Any plan to have the government take over health insurance has to decide how hard to squeeze these providers because cutting their payments too low could drive them out of business and deprive patients of access. Doctors and hospitals earn less money from treating Medicare patients, but they are currently able to shift costs by charging more to those with private insurance. That would no longer be an option in the system that Warren wants. But her plan assumes that she can aggressively cut payment rates (paying doctors at Medicare levels and hospitals at 110% of Medicare levels), without doctors or hospitals facing financial stress, because they’d be helped by additional administrative savings. Though the Urban Institute already assumes nearly the same payment rates, Warren’s team claims further reductions will save an additional $600 billion.

Thorpe says that while he does think that doctors would have lower administrative costs in a system in which they didn’t have to deal with multiple insurance companies and government programs, they would still have to deal with billing and with premiums for medical malpractice. Furthermore, paying Medicare rates to all primary care physicians means “we’re going to have a real problem in terms of primary care in this country.” Some specialists, such as cardiologists, would be hit even harder.

In addition to savings from cutting the amount that government would pay to doctors and hospitals, Warren’s campaign claims an additional $2.3 trillion in savings from further reforms to the way providers are paid. Thorpe sees this as double counting. “I don’t know how in the world you get additional savings from additional payment reforms when you’ve also set the payment rates low,” he wonders.

Warren’s plan also ignores the political constraints involved in slashing drug, doctor, and hospital prices. It’s true that an insurance company might have less leverage over providers than a government program with over 300 million beneficiaries. But insurance companies also do not have to face voters. Right now, politicians can scapegoat insurance companies for saying “no” to certain spending, but with the government fully in control, people’s wrath will turn to public officials. Government negotiators might have more difficulty driving down drug prices than Warren lets on because pharmaceutical companies know politicians could face tremendous political backlash from voters who are denied access to certain drugs. Doctors, hospitals, and drug companies have plenty of resources to take out ads urging voters to pressure Congress to avoid cuts to care. In the late 1990s, the Republican Congress and the Clinton administration struck a deal to limit doctors’ payments in Medicare. But when the automatic cuts were to be implemented, Congress repeatedly buckled under heavy lobbying and delayed them. Eventually, in 2015, lawmakers agreed to permanently do away with the charade and eliminate the cuts, and Obama signed the change into law — a rare example of bipartisan agreement in a polarized era.

On top of all of these changes, Warren claims an additional $1.1 trillion in savings from “slowing medical costs growth over time,” which presumably should have already been accounted for in the sections detailing savings from administrative efficiencies and provider payment cuts.

Warren assumes an additional $6.1 trillion in savings relative to the Urban Institute by requiring states to pay money to the federal government they would have otherwise spent on Medicaid to help finance the new federal program. But some have questioned whether such requirements would be constitutional under the 2012 Supreme Court ruling that blocked the Obama administration from using the threat of withholding existing Medicaid funds in an effort to coerce states into expanding the program. Some constitutional workarounds have already been floated to address this concern. But giving states more leeway to decline to participate in Medicare for All could also undermine efforts to create a single national program. Regardless of any constitutional issues, Thorpe says that his own estimate assumed that states would keep pitching in around what they spend now, and he still came up with a cost for the program approaching $35 trillion.

Once Warren relies on these questionable assumptions to shave nearly $14 trillion off of the estimated cost, she leans on a series of questionable tax policies and other savings to cover the remaining $20.5 trillion.

The biggest item is a new $8.8 trillion payroll tax on employers, which will inevitably get passed on to workers, including the middle class. Her argument is that this would be less than the $9 trillion employers are projected to spend on employee healthcare over the same time period. Even if one were to accept her assumptions, there’s a serious design flaw. The plan would ask employers to calculate how much they’ve been spending per employee on healthcare over the past few years and send 98% of that to the federal government. However, this would punish companies that have been providing generous health benefits to their employees by subjecting them to a higher tax burden than companies that have spent less on employee coverage.

Some pay-fors are theoretically plausible. Warren, for instance, assumes that if workers aren’t having premiums taken out of their paychecks anymore and if they don’t need to take tax deductions for medical expenses, it will increase their taxable income, generating an additional $1.4 trillion. She also wants to slash defense spending by $800 billion over the next decade.

Other parts are absurd. Warren claims that she can raise $2.3 trillion (the equivalent of seven years of corporate income tax collections) by better enforcement “without a single new tax.” But the Congressional Budget Office, which would be the official scorekeeper for any Warren plan were she elected, has estimated that increasing the IRS enforcement budget by 35% over the next decade would on net generate just $35 billion — yes, with a “b.”

As a throwaway in the plan, Warren casually claims $400 billion in savings from implementing comprehensive immigration reform. Her analysis relies on a dated CBO assessment of the 2013 bill, which would not have taken into account how the immigration system would interact with the vast new entitlements she is proposing. From a political perspective, it’s worth noting that the reform push failed in 2013 when Republicans were reeling from a defeat that consultants convinced them was attributable to the alienation of Hispanics from the GOP due to hard-line anti-immigration stances. Subsequently, Donald Trump built a populist movement that went in the opposite direction and showed Republicans an alternate path to victory in 2016. Even if he loses in 2020, it’s difficult to imagine the party returning to a pre-Trump position on immigration. At the same time, Democrats have gotten more extreme on the issue, openly talking about decriminalizing illegal border crossings. This makes it less likely that a Warren immigration reform would be able to contain even the amount of enforcement that was in the 2013 bill, which would make any reform even tougher for Republicans to swallow.

That leaves Warren with an additional $6.8 trillion to come up with, for which she leans on her familiar targets: the wealthy and corporations. Having not even implemented her wealth tax, she already doubles it in the healthcare proposal, to 6% on billionaires.

For the top 1%, she wants to tax unrealized gains on investments. That is, if a couple’s house or a stock they purchased went up, they’d have to pay a tax on those gains even if they never sold the investment. In addition to the administrative challenges, this assumes that households with income of around $422,000 (the national cutoff in 2015) would have money laying around to pay massive tax increases if the value of their homes happens to go up. It also doesn’t make sense given that investments fluctuate — one big year in the stock market could easily be wiped out in the following year.

The rest of the tax revenue would come from a tax on financial transactions and on big banks; having businesses deduct the depreciation of equipment over time rather than all at once; and taxing foreign earnings and domestic earnings of foreign firms.

In addition to the issues discussed above, vacuuming up wealth so aggressively will diminish the tax base each year, meaning significant revenue shortfalls in subsequent decades. As Washington Post economics writer Megan McArdle calculated, “After adding in the ultra-millionaire’s tax and factoring in the other capital taxes Warren wants to levy — on financial transactions, on unrealized capital gains, on corporations — we’d be asking every billionaire to hand over more than two-thirds of their total wealth over a 10-year period. If the government actually managed to collect it, their fortunes would rapidly erode — and so would tax collections. The plan might be a good way to smash wealth, but it’s a terrible way to fund the nation’s health-care system.”

Defenders of Warren rely on a conceit that other countries spend significantly less on healthcare per person than the U.S. But philosophical concerns aside, most other countries instituted single-payer systems with price controls decades ago, when the industry was much less developed than it is now. Never before in human history has a government transitioned from such a large and mature healthcare sector — representing more than one-sixth of the U.S. economy — let alone as rapidly as is being proposed. Other countries instituting single-payer systems didn’t have to worry about kicking 156 million people off of employer-based care that they generally liked. Americans are culturally different — less willing to put up with cost-saving rationing and much more likely to sue doctors and hospitals for medical mistakes. Furthermore, overhauling the system would result in millions of job losses. Warren’s current proposal does not seriously grapple with this reality, and her subsequent comments have been absurd.

When asked about what would happen to insurance industry employees laid off by her plan, Warren insisted that nobody would be left behind: “Some of the people currently working in health insurance will work in other parts of insurance. In life insurance, in auto insurance, in car insurance.” As if a mature industry such as auto insurance has enough vacancies to absorb those employed by health insurers.

In another incredible whopper, Warren claimed her financing plan “doesn’t raise taxes on anybody but billionaires.” This is demonstrably false — even if one accepts all of the premises in her plan.

Despite Warren’s wild claims, liberal policy writers, reluctant to criticize a candidate who is among the most likely to challenge Trump, have largely given her a pass. The New York Times’s Paul Krugman, who surely knows better, opined, “Experts will argue for months whether she’s being too optimistic — whether her cost estimates are too low and her revenue estimates too high, whether we can really do this without middle-class tax hikes.” However, he wrote, she “passed the test” by presenting a “serious” plan that showed “she was working the problem.”

Others withheld their fire by perpetuating the myth that Warren is being held to a higher standard than Trump. As if Trump received no scrutiny for his bombastic claims, such as his insistence that Mexico was going to pay for the border wall.

The coming months will be a test of whether the media, which in the Trump era has rediscovered its interest in holding politicians accountable, will apply the same level of scrutiny toward a candidate inching her way toward the Democratic nomination. If Warren gets away with this $34 trillion healthcare con, there’s no telling what she’ll attempt next.

Philip Klein is executive editor of the Washington Examiner.