November 4, 2019

How Warren would pay for 'Medicare for All'

Daily Briefing

    Sen. Elizabeth Warren (D-Mass.), who is seeking the 2020 Democratic nomination for president, on Friday unveiled how she would pay for a so-called "Medicare-for-All" plan without raising taxes on middle-income U.S. residents.

    Where the other 2020 Democratic candidates stand on health care

    Warren's plan is modeled on her Democratic presidential candidate rival Sen. Bernie Sanders' (I-Vt.) "Medicare-for-All" bill, which calls for eliminating most existing health insurance forms and enrolling nearly all U.S. residents in a new government-run program that would cover a wide range of medical services. Under Sanders' Medicare-for-All proposal, consumers would no longer pay premiums or other out-of-pocket health care costs, and employers would no longer have to provide their workers with health insurance benefits. Essentially, nearly all health care costs would be covered by the government.

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    However, until now, no one, including Sanders, has offered a detailed plan for how the government would foot the bill.

    How much new funding would the government need under Warren's plan?

    As the HuffPost reports, estimates as to how much a Medicare-for-All plan would cost have varied. Warren chose to base her plan's estimate on the Urban Institute's widely cited projection that the federal government would need $34 trillion in new spending over a decade to pay for Medicare for All.  

    However, the HuffPost reports that Warren's plan assumes she would be able to create a plan that would require just $20.5 trillion in new funding over a decade.

    How Warren's plan would use existing funding, new savings to offset costs

    There are a few key differences between Warren's plan and the Urban Institute's projection that account for the $14 trillion difference in needed funding.

    For instance, Warren's plan estimates about $6 trillion could come from money states already spend on Medicaid and state workers. The remaining roughly $8 trillion would come from more aggressive price controls for hospitals, doctors, and pharmaceutical companies than the Urban Institute researchers relied on, and lower projected spending on prescription drugs.

    For instance, Warren's plan proposes paying hospitals at 110% of Medicare rates, instead of the 115% of Medicare rates the Urban Institute projected. Warren's plan anticipates hospitals would experience administrative cost declines that would offset any funding reductions, but also states that rural hospitals, teaching hospitals, and other providers "with challenging cost structures" would receive appropriate payment adjustments.

    Similarly, Warren's plan anticipates doctors having lower administrative costs under Medicare for All, and offsetting those reductions by tying doctor and non-physician payment rates to current Medicare rates. Warren's plan would implement those changes in a budget neutral way, with specialists seeing larger reductions than primary care providers.

    Warren's plan also anticipates the government having better prescription drug negotiating power than the Urban Institute envisioned. With that system in mind, her plan anticipates generic drug spending to fall by 30% under Medicare for All when compared with current Medicare generic drug spending, and prescription drug spending to fall by 70%.

    How Warren's plan would use existing, new revenue streams to pay for the $20.5T plan

    Warren proposed a mix of solutions to cover the projected $20.5 trillion in new spending over a decade.

    One proposal is to create a new "employer Medicare contribution" that essentially would redirect funding employers currently spend on their workers' health benefits to the federal government. Small businesses that do not currently offer their workers health benefits would be exempt. Warren's proposal estimates the new contribution would bring in $8.8 trillion over a decade.

    Warren also proposed cutting $800 billion in military spending.

    In addition, Warren proposed new revenue streams that would replace what consumers today currently spend on health insurance premiums and deductibles, and health care services not typically covered by insurance.

    For instance, Warren's proposal would create a tax on financial transactions, like bond sales or stock trades, that would be collected from financial firms and could create about $800 billion in revenue over 10 years.  She also proposed imposing a fee on big banks that she estimated would generate about $100 billion in revenue over 10 years, as well as changes to the corporate tax structure that she estimates would bring in an additional $2.9 trillion over 10 years.

    In addition, Warren's plan would raise an estimated $3 trillion from two proposals to tax the top 1% of U.S. households based on annual income. The first proposal would beef up Warren's wealth tax proposal from a 3% annual tax on net worth for those with annual incomes over $1 billion to a 6% annual tax. The second proposal would change how investment income is taxed for those individuals to treat investments similar to labor income. As Warren has vowed in presidential debates, her plan would not raise taxes on middle-class U.S. residents.

    Warren's proposal also envisions passing immigration reforms that would create a new pathway to citizenship, and generating an additional $400 billion in federal revenue from taxes paid by those newly legal residents. However, the HuffPost reports that would be a big political feat for Congress, particularly if Republicans retain control of the Senate.

    Reaction

    As the New York Times reports, the plan is expected to receive pushback from industry stakeholders, particularly from health care providers who would face payment cuts under the plans.

    Larry Levitt, EVP for health policy at the Kaiser Family Foundation, said, "A big part of the financing for Warren's plan comes from more aggressively containing health care costs." He added, "On the one hand, it would be quite disruptive to the health care system to constrain prices this much. On the other hand, every other developed country in the world provides universal coverage at a much lower cost than we spend now, which makes Warren's plan look pretty reasonable and achievable. We would still be by far the most expensive health care system in the world, but somewhat less expensive than we are now."

    Warren's Democratic presidential rivals also panned her proposal.

    Former Vice President Joe Biden told PBS News on Friday that Warren was "making it up" when she claimed her plan would not increase taxes for the middle class.

    South Bend, Indiana, Mayor Pete Buttigieg, meanwhile, continued to push back on the concept of a single-payer system. "I think the biggest issue I'm hearing from voters though, even above and beyond how you're going to pay for this, is: 'Am I going to lose my private plan?' So even as the economists argue over the numbers—the math—I think that other core concern has not been answered," Buttigieg said.

    Sanders also took aim at Warren's funding plan, telling ABC News that the proposal would "have a very negative impact on creating jobs" because it would leave employers on the hook for $9 trillion in new taxes, the Wall Street Journal reports (Kaplan et al., New York Times, 11/1; Robillard/Cohn, HuffPost, 11/1; Jamerson/Armour, Wall Street Journal, 11/1; Warren, Medium, 11/1; Jamerson, Wall Street Journal, 11/4).

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