Warren's "Medicare for All" Math: A Lot of Wishful Thinking Plus Avoiding Her Tax on the Middle Class

There has been a major push for single-payer healthcare vis-à-vis Medicare for All (M4A), one that was most prominently started by Senator Bernie Sanders (I-VT). Other Democrats have followed suit, especially Senator Elizabeth Warren (D-MA). Much like so many proponents of single-payer healthcare in the United States, Warren has not able to answer the ever-elusive question of "How to pay for it?" Warren has been so evasive of the question that Saturday Night Live made fun of it this past weekend.

This past week, Warren finally released a response as to how she would pay for M4A. As the memorandum points out, Warren anticipates six forms of funding for M4A:

1. Employer Medicare Contribution. Instead of making employer-sponsored healthcare contributions, Warren would have employers make the contributions to the government for M4A. Total amount: $8.9 trillion
2. Additional Take-Home Pay. Employees would no longer pay their part of salary to their health care premiums or health savings accounts (HSAs), hence the additional take-home pay. Total amount: $1.4 trillion
3. Taxing the 1%. Combine taxes on financial firms, on corporations, and 1% of individuals. Total amount: $6.8 trillion
4. Improved Tax Enforcement. Attempts to fight tax evasion and improve tax compliance. Total amount: $2.3 trillion
5. Immigration reform. Under a Warren presidency, she would allow for greater immigration, which would mean more taxpayers. Total amount: $400 billion
6. Eliminate the Overseas Contingency Operation Fund. Total amount: $800 billion

In total, Warren expects these six policy prescriptions to generate $20.5 trillion over the next decade to fund M4A. Much like I have criticized Sanders' math when he made his proposal in 2016, I am now going to do the same for Warren.

• Warren underestimates the costs of M4A. Warren estimates that M4A is going to cost an additional $20.5 trillion over the next decade. According to the bipartisan Committee for a Responsible Fiscal Budget (CRFB), ten-year estimates of M4A range from $13.5 trillion to $36 trillion. The tricky part of the range is that the rosy $13.5 trillion estimate was conducted for the Sanders campaign. Independent estimates put the amount ranging from $25 trillion to $36 trillion, with the most recent estimate (coming from the Left-leaning Urban Institute) at $34 trillion. What this means is that even if her calculations are correct (which they are not...see below), Warren's estimation is still about $10 trillion short of being able to pay for M4A.
• Warren's plan includes a middle-class tax. What Warren calls an "employer Medicare contribution" is in fact a tax. What else would you call a payment to the government to finance government programs? That's what a tax definitionally is. More to the point, this "contribution" would be a payroll tax. Much to Warren's dismay, general economic consensus is that incidence of the current payroll tax for Medicare is largely borne by the employee, which means that the "employer Medicare contribution" is de facto a multi-trillion-dollar tax on the middle class. The Biden campaign is taking a shot at Warren for this exact reason.
• Warren has rosy projections for improved tax enforcement. Through increased tax enforcement, Warren calculates she could acquire an additional $2.3 trillion over the next decade. This is in considerable distinction to previous estimates. The Congressional Budget Office (CBO) calculated what would happen if the IRS increased appropriations for enforcement initiatives by 35 percent. The CBO calculated that this policy alternative would generate $55 billion over the next decade. Warren's calculations are whimsical enough where she thinks she could get 40 times CBO estimates.  
• Savings from "comprehensive payment reform." Warren credits itself for $2.9 trillion in savings from comprehensive payment reform relative to the Urban Institute study. As former public trustee for Social Security and Medicare Charles Blahous points out in his analysis on Warren's Medicare for All calculations, has already taken credit for these credits, which makes it tantamount to double-counting the savings. 
• Warren's wealth tax is impractical. Warren would like to impose a 6 percent wealth tax on billionaires, and estimates that it would generate $3 trillion in revenue over 10 years. Forgetting the constitutional barriers, a wealth tax would be impractical (see my past analysis on the wealth tax here). No country has ever imposed a wealth tax that high. Countries that had lower wealth taxes repealed them because, as the OECD states, "[the repeals were] justified by efficiency and administrative concerns and by the observation that next wealth taxes have frequently failed to meet their redistributive goals (OECD, 2018, Executive Summary)."
• Warren has already stated that she plans on using wealth tax revenue for other initiatives.
• Warren's previous wealth tax estimate had overstated what it would acquire in revenue. Per OECD data, the average European wealth tax raised 0.27 percent of GDP, with Switzerland raising 0.98 percent. Warren thinks she can pull off 1.4 percent of GDP. How is Warren going to succeed where so many other countries have failed? 
• Skepticism on Warren's payment cuts to providers. One of the ways that Warren attempts to keep costs low is to pay physicians at Medicare rates and hospitals at 110 percent of Medicare rates. Per Warren's calculations, it would save $4.2 trillion over ten years. The closest system that the U.S. has is Maryland's all-payer system, which means that every price is the same, whether private or public. While private systems are 13 percent lower, the public-sector hospitals are 40 percent higher for inpatient services and 60 percent higher for outpatient services. The rates under this system are much higher than average Medicare costs (Pope, 2019). Additionally, the state of Washington could not handle smaller provider payment cuts with its public option. The federal government also could not overrode Medicare physician payment cuts, and eventually did away with the Sustainable Growth Formula (SGF) [see Congressional Research Service report here]. Combined with other countries' inability to keep costs down once single-payer was implemented, it provides enough reason to pause and wonder if Warren could actually implement such payment cuts.
• Warren is going to need to impose additional taxes, including taxes on the middle class. Shortly before Warren released her calculations, CRFB released their findings on whether funding M4A would require a tax on the middle class. Even with high taxes on the 1 percent, financial institutions, corporations, and other policies not included in Warren's calculations (e.g., closing corporate tax loopholes), CRFB calculated that the government could raise $11 trillion over a decade. The CRFB makes caveats with this $11 trillion estimate, the foremost being these are aggressive policy prescriptions that might not be technically or politically feasible. A wealth tax would have constitutional challenges. Additionally, these aggressive policies would likely reduce incentive to work and save, thereby stifling economic growth, which would also have indirect effects on tax revenue. CRFB's conclusion was that we would need to increase taxes on the middle class. 

Postscript: Not only is Warren making unreasonable assumptions about her cost savings, but she is also imposing a tax on the middle class without being honest about the nature of her "employer Medicare contribution." Additionally, she is using an unrealistically low cost estimate to avoid the criticism that single-payer critics are all too right about: single-payer health care is an insolvent payment mechanism and something the people of the United States can ill afford.


11-7-2019 Addendum: If you want another good read on Warren's budgetary manipulation, read this piece from the Federalist.