On Nov. 1, presidential candidate and Sen. Elizabeth Warren (D-Mass.) announced a proposal billed as a financing plan for “Medicare for All.” Unfortunately, it does not even acknowledge, let alone finance, the costs of Medicare for All.
There is an analytical consensus on the approximate costs of Medicare for All, to which my 2018 study for the Mercatus Center has contributed — as have studies from the Urban Institute, the Rand Corporation, the Center for Health and Economy, and Emory University professor Ken Thorpe. $37.6 trillion is a reasonable estimate of how much Sen. Warren’s Medicare for All plan would add to federal costs over 10 years, before considering the effects of proposed reductions in payment rates to health providers.
The centerpiece of the Warren financing proposal is to simply assume away $12.9 trillion, or more than one-third (34.2 percent) of Medicare for All’s costs. This is not merely a matter of a campaign employing optimistic-but-still-defensible assumptions. Instead, many of the claims of savings are clearly wrong.
For example, Medicare for All would require the federal government to shoulder costs currently borne not only by the private sector, but also by state and local governments. Relieving states of these health care costs in no way ensures that they will respond by sending over $6 trillion to Washington to help foot the bill as the Warren plan assumes — something the federal government also lacks the power to require.
I and other analysts have scored Medicare for All generously by assuming it would significantly reduce administrative costs and drug prices to a degree that is far from certain. But the Warren proposal adopts assumptions for such savings that are double or even triple what the analytical consensus finds plausible.
Warren’s proposed cuts to health providers warrant special attention. Her proposal would set all hospital payment rates at roughly 35% lower than current private insurance rates, and physicians more than 25% lower, starting in 2020. The physician rate cuts would grow to more than 40% below private insurance rates within the first decade. These rate cuts would by themselves provide roughly 11.2% of the plan’s financing.
The plan also takes credit for a further $2.3 trillion in savings assumed from various payment reforms. To give a sense of the extravagance of these various savings estimates, consider that cutting all provider payments down to Medicare rates (which average more than 40% less than private insurance rates for hospitals) would reduce national health spending by a massive $4.6 trillion from 2020-29. Then, to top it off, the plan takes things even further by unrealistically assuming that with its other payment reforms, it could reduce total provider payments by an astounding $6.5 trillion — all without catastrophic effects on patients’ access to care.
Another 20% of the financing, or $7.5 trillion, is attributed to tax revenues that almost certainly wouldn’t materialize.
$1.4 trillion is credited to the fact that workers who would no longer receive tax-free health insurance benefits from their employers would receive the difference as additional, taxable wages. However, the federal revenues deriving from this additional taxation have already been counted in the $37.6 trillion cost estimate, and so cannot be credited a second time.
Warren has also proposed additional taxes on the so-called “top 1 percent,” but has already committed all these revenues — and more — to previous campaign promises, according to independent analysts like former Treasury Secretary Larry Summers.
Warren does propose some real taxes to fund Medicare for All — enough to finance 34.6% of its costs if her revenue estimates are accurate. $8.8 trillion over the first 10 years would come from taxes on the earnings of people now carrying employer-provided health insurance. Though labeled an “Employer Medicare Contribution,” this burden would in reality be borne by workers, just as economists agree is the case with current Social Security and Medicare payroll taxes. Warren cannot fairly claim that the proposal benefits middle-class households by relieving them of premium payments without also acknowledging the new taxes she would impose on them.
In sum, the Warren Medicare for All plan is not really a financing plan: It relies on financing sources that don’t exist and denies the costs that do. When her Democratic opponents have pointed this out, she has objected that they are repeating “Republican talking points.” But the problem her plan faces is not with Republicans nor with Democrats; it’s with the forbidding math of Medicare for All itself.