The deeply detailed proposal includes no new taxes on the middle class. It cuts health care costs and finds other revenues, saving ordinary Americans $11 trillion in premiums and deductibles
, Cheryl Senter/AP Photo
Presidential hopeful Elizabeth Warren today released a much-anticipated plan to finance Medicare for All, which she says would require no new taxes on middle-class families. New revenues to fund the single-payer system come mostly from an employer head tax; additional taxes on large corporations, banks, investors, and the wealthy; and military budget cuts. Significant savings to the cost of providing health care, roughly $7 trillion over ten years, also help to reduce the price tag.
The financing does not include Warren's signature wealth tax, though she does add a 3 percent surtax on wealth over $1 billion.
In shifting this financing mix, $11 trillion currently paid by individuals in insurance premiums and deductibles would go back into Americans' pockets. Individuals would still pay the current taxes on Medicare, and whatever taxes fund the state share of health programs, but nothing more. Premium payments and co-pays would be wiped away.
The result is "substantially larger than the largest tax cut in American history," Warren writes in a Medium post on the proposal, framing it as something that significantly lowers overall costs to everyday families. "We can meet these commitments without a tax increase on the middle class—and, in fact, without any increase in income taxes at all."
The detailed plan will test the limits of voter endurance: The Medium post clocks in at over 9,300 words. But the concept is quite simple: Figure out what it costs to pay for health care for the entire country, figure out how much you can reduce that spending, add in health funding that the government already pays for, and then make up the difference.
The whole thing is kind of a ridiculous political exercise, a burden placed upon single-payer advocates that other health care reform plans never have to shoulder. Warren perhaps hopes that she can drill down to such detail to take the issue off the table politically, and challenge other campaigns to step up with similar substance.
But in doing so, Warren's team incorporates a number of other policy preferences outside of health care, including comprehensive immigration reform, banking regulation, initiatives to fight inequality, antitrust enforcement, boosts to unionization, tax compliance, anti-corruption measures, military spending, and more. It really reflects an entire agenda and value set that values working families over the oligarchs currently running roughshod over America.
While there would be enormous challenges to advancing such a complete economic and social transformation, the plan does a meticulous job of answering the nagging "how will you pay for that" question, while attempting to shift the debate by foregrounding the significant benefits of universal coverage, and the personal freedoms it would usher in.
"It gives her a chance to put her stamp on it," Representative Pramila Jayapal (D-WA), author of the Medicare for All bill in the House, told me earlier this week, before the Warren plan came out. And if nothing else, this plan does that.
Here's how it breaks down.
Driving Down Costs
Warren's plan is modeled after the Medicare for All Act, introduced by fellow presidential candidate Bernie Sanders. But that plan doesn't outline exactly how to handle reimbursement of doctors and hospitals, prices for prescription drugs, cuts to administrative costs, and handling of existing state funding of Medicaid. Warren's team tries to fill in these gaps and explicitly identify the savings, relative to an estimated $59 trillion in national health spending under Medicare for All over ten years, contained in an analysis from the Urban Institute.
The campaign leaned heavily on Don Berwick, President Obama's head of the Centers for Medicare and Medicaid Services, the governing body for those federal programs. Berwick has been a single-payer advocate for years since exiting the Obama administration, most recently in a USA Today op-ed. He is as knowledgeable as anyone on how the health care system works, and therefore perfect for analyzing how to realize savings.
If anything, the steps on costs are conservative, considering the U.S. pays nearly twice as much as most industrialized countries on national health expenditures.
The plan envisions dropping administrative spending—the cost of billing and accounting and haggling with different providers—from 12 percent of premiums collected, as with private insurance, to 2.3 percent, which is Medicare's approximate expense. That alone knocks $1.8 trillion off the total cost.
Then, Warren's team goes after high provider prices, easily the biggest driver of health cost inflation. The plan calls for reimbursing physicians and outpatient providers at current Medicare rates, while reimbursing hospitals at 110 percent of Medicare rates. There would be adjustments to that mix, like more reimbursement for primary and preventive care (which could generate its own cost savings), and less for specialty care. Rural and teaching hospitals would get higher reimbursements. And all providers would benefit from simpler administrative processes, lower drug prices, more patients with insurance, and the lifting of uncompensated care.
In addition, Warren proposes ending large geographic cost variances (where hospitals charge wildly different rates for the same treatment), slashing overpayments for rehabilitation and palliative care, and expanding bundled payments that cut down on fee-for-service medicine. All the provider-related savings trim another $2.9 trillion.
On prescription drugs, Warren explicitly promises to reduce brand-name drug prices by 70 percent, and generic prices by 30 percent. She gets there by negotiating all purchases of pharmaceuticals (unlike the 25 high-cost drugs envisioned in House Democrats' H.R. 3) and setting a ceiling of 110 percent of an international index as the highest possible price. If negotiations fail, the plan calls for seizing pharmaceutical patents and licensing them to competitors, or manufacturing them directly, as Warren called for in a bill released late last year. That saves $1.7 trillion, all told, and considering the limited negotiation in H.R. 3 brings an estimated $345 billion in savings, that's a reasonable number.
All told, Warren seeks to slow growth of health care costs over time in line with future expected GDP growth (roughly 3.9 percent). And if the aforementioned options don't get there, Warren suggests using automatic reimbursement reductions or global budgeting, where hospitals get a set amount of money annually as payment. Hitting the growth target, according to the estimates Warren's team provided, would save another $1.1 trillion.
One policy Warren identifies but sets no cost savings for is antitrust enforcement of the health sector. Virtually every part of the health system is incredibly concentrated; research from Cal-Berkeley's Brent Fulton shows that 90 percent of all metropolitan areas have highly concentrated hospital markets, buoyed by 1,667 hospital mergers in the past 20 years. The concentration goes across the chain, from outpatient clinics to group purchasing organizations that raise the cost of medical supplies to pharmacy benefit managers that increase drug costs, and on and on.
Warren has vowed to block all health sector mergers unless they prove that they will maintain or improve care, and rein in anti-competitive behavior sector-wide. But the bean-counters put no savings toward this, despite documentedevidence that market power explains much of the rise in health care prices. In fact, a lot of the potential cost savings aren't really accounted for in the Warren plan, like the benefits of widespread preventive care in eliminating the need for more expensive treatments down the road.
That's part of why this whole exercise is somewhat foolish, governed by a Congressional Budget Office whose assumptions are often mercurial and frequently mistaken. Nevertheless, adding up all the savings knocks around $7 trillion off the Urban Institute's $59 trillion, ten-year figure for total health expenditures. In essence, this means that you can cover 24 million more Americans, and ensure that another 63 million aren't underinsured, with the expansion paying for itself through bringing U.S. health care more in line with international norms.
Using the Dollars Already in the System
From that $52 trillion figure, Warren's team then fills in all the existing payments and taxes that the government already puts toward health care. Federal spending through Medicare taxes, as well as Medicare and Medicaid health spending financed by general taxes, comes to a little over $25 trillion over the ten-year period.
Then there's another $6 trillion that reflects the state and local government share of spending for health programs like Medicaid, the Children's Health Insurance Program (CHIP), and coverage for government employees. By using a "maintenance of effort" function that keeps those states paying the same amount for Medicare for All, that lowers the new revenues needed even further. Because overall health spending growth will reduce over time, states will end up spending less through this maintenance of effort provision than they would under current law.
After doing the math, Warren's team projects that new government revenues necessary to finance Medicare for All would come to $20.5 trillion.
Paying the Difference
Warren's biggest mechanism to fill this gap amounts to an employer head tax. The plan estimates that all businesses with over 50 employees—who must provide health care to workers or pay a fee under the Affordable Care Act's employer mandate—will pay around $9 trillion over the next ten years on coverage. Through a complicated formula, the plan creates an employer Medicare contribution that's around 98 percent of the average cost per employee. This means that businesses would save $200 billion in health care costs over ten years.
Part-time employees would count toward that per capita total, along with those workers seen as independent contractors today, who would fall under Warren's expanded definition of an employee. Small businesses under 50 employees would be exempt from the head tax unless they're providing employee health care today. Pass-through businesses like law firms and private equity firms would have to pay the head tax.
In an ingenious twist, employers operating under a collective-bargaining agreement would have their head tax reduced, if they pass any savings under that to workers in wages or benefits. In other words, the plan would incentivize collective bargaining, not just for workers, but for employers as well.
In all, this estimates revenues of $8.8 trillion, over 40 percent of the way to the total. If it doesn't get there, Warren would trigger a supplemental tax on companies with high executive salaries and large amounts of stock buybacks. Repeatedly in this plan, she discourages behavior she wants to get rid of, and vice versa.
The next bucket of money may be a little tricky. Because workers will not contribute to health insurance through their paycheck, Warren's team presumes they will take home that pay. That additional $3.7 trillion in workers' pockets would constitute newly taxable income, and therefore another $1.15 trillion in tax revenue.
This assumes that employers won't assess a "fair share fee" to have workers pay for health care, which you could envision happening. A senior Warren aide doubted this would take place, because employers make out better under the plan than what they contribute today. But that's not true for large corporations and multinationals, as we'll see. The question of whether workers will realize higher take-home pay after Medicare for All is a critical one, and not a complete slam dunk in my view.
It is true that workers won't have to bother with health savings accounts to shelter money for medical costs, or tax deductions for medical expenses. That saves another $250 billion.
The plan gets another $2.3 trillion by collecting what is already owed to the government. Warren goes about reducing the gap between the taxes people are supposed to pay and what they actually do by adding significant enforcement funding, expanding tax compliance measures, and redirecting audits to high-income earners.
Then there are targeted taxes on the financial sector: a 0.1 percent financial transaction tax on stocks, bonds, and derivatives, and a "systemic risk" fee on banks with more than $50 billion in assets. Ironically, the latter fee was part of Dodd-Frank until Scott Brown, whom Warren replaced in the Senate, forced the fee out as a condition for his vote. These two taxes reap another $900 billion.
Warren would close the expensing loophole, which allows businesses to realize the full cost of equipment investments up front. She would increase the minimum tax on multinationals that park earnings abroad to 35 percent, while prohibiting deferring those tax payments. She would put a tax on the domestic sales of foreign firms as well. That adds $2.9 trillion.
There's an expansion of the "two cent" wealth tax through a surcharge of an additional three cents on wealth over $1 billion. Warren would also include a "mark-to-market" system of annually collecting capital gains taxes based on gains from that year, rather than only collecting capital gains on a sale. Senator Ron Wyden (D-OR) has proposed this change. A total of $3 trillion comes from these two changes.
Another $800 billion comes from eliminating an egregious slush fund for military spending called Overseas Contingency Operations, or OCO. This was supposed to be a short-term fund to finance war fighting, but has become a way to increase military budgets magically without counting the spending.
Finally, Warren applies the increased revenues from comprehensive immigration reform, around $400 billion according to an earlier estimate of an immigration bill from 2013. That revenue comes from taking the undocumented out of the shadows and giving them a path to citizenship, whereupon they pay federal taxes. To actually use such a pay-for, you would have to put the immigration bill into the Medicare for All bill; either one of them alone would be a heavy lift to pass, let alone both together.
All told, this $11 trillion in new revenue would still put America in the middle of the pack among developed nations in terms of taxation.
In theory, that all costs out, according to top economists like MIT's Simon Johnson, former Obama Council of Economic Advisers member Betsey Stevenson, and Moody's Mark Zandi. The financing pays for a universal single-payer system without new taxes on the middle class. Individuals would pay for health care, of course, just as they do now: through dedicated Medicare taxes, and state and federal taxes that get put toward health care programs. But that would be it.
More than anything, this comprehensive assessment allows Warren to pivot. Other candidates can quibble with her numbers, but she starts from the base of giving Americans back $11 trillion in individual premium and deductible payments. She can now assert the principles she leads her Medium post with, that nobody should go bankrupt in America from high-cost health care, that nobody should endure the hassle of determining in-network doctors and what treatments insurers will cover, that nobody should die from lack of access. She can lead on values instead of costs and financing.
"Every candidate who opposes my long-term goal of Medicare for All should put forward their own plan to cover everyone, without costing the country anything more in health care spending, and while putting $11 trillion back in the pockets of the American people," Warren writes, turning the tables on her opponents. "If they are unwilling to do that, they should concede that they think it's more important to protect the eye-popping profits of private insurers and drug companies and the immense fortunes of the top 1% and giant corporations."
I could see hardcore Sanders supporters cherry-picking the words "long-term goal" and claiming that Warren is not committed to getting Medicare for All done. But this plan is so wrapped up with her other concerns, and so in line with her populist message, that I think it will pass the test for most single-payer fans. And it allows her to go on offense against Joe Biden, Pete Buttigieg, and others, asking them why they don't cover everyone, why they don't cut costs, why they don't want to end the horror of medical bankruptcies and unnecessary deaths.