“I’m proud that it’s the first health-care plan by anyone in this presidential primary that lays out the full cost and how to pay for it.”
Sen. Elizabeth Warren (D-Mass.), in a campaign video, Nov. 1, 2019
When The Fact Checker evaluates campaign-policy proposals, we’re often reminded of the story of the man who claimed he sold a dog for $50,000.
How did he do that? “It was easy,” he replied. “I traded him for two $25,000 cats.”
Campaign proposals are not easy to fact-check unless you figure out that the numbers don’t add up. But if they do add up, then you are left with experts picking holes in the assumptions that are behind those numbers, which the campaign will vigorously dispute.
Warren, who is running for the Democratic presidential nomination, on Nov. 1 issued a detailed explanation about how she would fund the transition to a single-payer health-care system — without, she said, raising taxes on the middle class. Upping the nerd meter, she issued two lengthy letters from two groups of well-respected experts, which explained (with lots of footnotes) exactly how much her plan would cost — and how she would pay for it.
To Warren’s credit, these letters are more detailed than one usually sees from a presidential campaign. (See, for instance, a letter from the 2008 Barack Obama campaign explaining why he was justified in claiming his health plan would save the typical family $2,500 a year — a claim that caused him no end of grief once he became president.)
Warren’s biggest challenge was figuring out how to pay for Medicare-for-all, which generally has been estimated to mean $32 trillion to $34 trillion in additional federal spending over 10 years. Even Sen. Bernie Sanders, I-Vt., the main sponsor in the Senate for such a system, has shied away from explaining how he would make up the difference during this campaign, instead issuing a list of illustrative examples.
To manage the financing burden, Warren reduced the size of the bucket that she needed to fill — to $20.5 trillion. But that required making policy choices and budgetary assumptions that are open to question.
As a reader service, The Fact Checker will detail the various assumptions — and some of the concerns that have been raised. We consulted with the Warren campaign and various health-care experts who have previously studied the costs of Medicare-for-all to produce this analysis.
Warren starts with a $34 trillion estimate produced by the Urban Institute. Then she cuts that down with these elements.
— $6.1 trillion: Grabbing current state and local funding on health care. Warren would redirect existing state and local government spending on health care to federal coffers for use in Medicare-for-all. States might object, but the Warren team believes this passes constitutional muster because states would only be required to maintain what they have already been doing. In other words, new costs would not be imposed.
— $2.9 trillion: Comprehensive payment overhaul. Warren would pay physicians at Medicare rates, while hospitals would be paid at 110% of Medicare rates, in effect reductions from what they receive from private insurance. She would also impose a series of other payment changes that the campaign says would mitigate the blow. Still, the payment reductions may be controversial, especially because Congress has a long record of balking at imposing cuts in provider payments in the past.
— $1.8 trillion: Reductions in administrative spending. The Urban Institute assumes administrative spending as 6% of total program costs, but Warren controversially argues it would just be 2.3%. That gives her big savings, and her experts argue it is feasible, especially when looking at the experience of other countries with single-payer systems. But many experts are doubtful.
— $1.7 trillion: Prescription drug changes. Warren says she will achieve a net savings target of 70% below Medicare prices for brand-name prescription drugs and a net 30% reduction in Medicare prices for generics. The 70% goal is much more aggressive than Urban’s estimate, and it rests on negotiating prices with manufacturers — and the government seizing the patent license if the negotiation fails.
— $1.1 trillion: Slowing growth in medical costs. Warren argues that a new health-care system would mean that health-care costs would grow at the projected rate of U.S. gross domestic product, or about 3.9%. That would be in sharp contrast to the huge increases in the past, as health spending has grown from 6.9% of GDP in 1970 to 17.9% of GDP in 2017. The expert letter points to international examples to say this is possible, but other experts may not find it credible. Simon Johnson, an MIT professor who signed both expert letters, says such savings are only possible with a single-payer system.
Total new federal costs for Medicare-for-all: $20.5 trillion.
+ $8.8 trillion: Employer Medicare contribution. Employers currently are projected to spend nearly $9 trillion paying for their employee health care between 2020 and 2029. Instead of employers continuing to give that money to insurance companies, Warren proposes that businesses direct 98% to the federal government and keep 2% for themselves, for a minor tax cut. Basic economic theory holds that such payments are essentially a tax on employees because it comes out of compensation. (“Warren’s indirect levy is effectively a flat tax on all workers at the same firm,” wrote Howard Gleckman of the Tax Policy Center. “By contrast, a straightforward income tax or well-designed payroll tax would be much more progressive.”) But Warren argues it’s an existing tax, not a new tax.
+ 3 trillion: Taxes on the top 1%. Warren would make the very wealthy finance health insurance for the rest of the country. She had previously proposed a 1% surtax on net worth above $1 billion to fund other proposals, but she generates $1 trillion by adding an additional three percentage points to the billionaire surtax. Then she collects $2 trillion by eliminating preferential tax rates on capital gains and dividends — which affects anyone owning stocks or bonds — and making the top 1% pay tax on capital gains on an annual basis, not simply when an asset is sold. This kind of proposal excites tax wonks, but Wall Street would scream. (The Warren campaign notes that compared with other industrialized countries the United States is an outlier in terms of tax revenue as a percentage of GDP.)
+ $2.9 trillion: Taxes on large corporations. Warren would repeal Trump’s tax law, change depreciation schedules to make it harder to quickly deduct the costs of investments, and institute a country-by-country minimum tax on foreign earnings of 35%. This would be another big tax fight.
+ $2.3 trillion: Improvements in tax enforcement. This is a large number for an iffy prospect. Lawmakers have talked endlessly about improving tax enforcement, and this number is larger than many estimates of the potential gain. Warren cites a 15% “tax gap” — the gap between what is owed and what is collected — and says it could be reduced to 10%. The experts’ letter notes the United Kingdom has a gap of only 5.6%, but this revenue number could be challenged as unrealistic.
+ $1.4 trillion: Revenue from additional take-home pay. While employers would still keep paying for health insurance, workers would no longer have to contribute to premiums. Since that’s now collected pretax, workers would have additional income subject to taxation, amounting to $1.15 trillion in new revenue. The Warren plan would also eliminate the need for health savings accounts, medical savings accounts and deductions for medical expenses, yielding another $250 billion in previously lost revenue. (Johnson says there was some debate as to whether the $1.4 trillion should have been included as a cost reduction, but ultimately the experts determined it was best listed as a revenue raiser. It could go in either category.)
+ $0.9 trillion: Taxes on financial firms. Warren proposes a tax on purchases of stocks, bonds, derivatives and the like, as well as a new fee on the 40 largest banks.
+ $0.8 trillion: Defense budget cut. This is not a revenue raiser but an elimination of current government spending. Warren would ditch a fund now used to help pay for deployments overseas. Oddly this spending is from the discretionary side of the budget, funded annually, and Medicare-for-all spending is mandatory, meaning it happens automatically, year after year. So this doesn’t quite pass the budgetary smell test.
+$0.4 trillion: Immigration overhaul. Warren claims revenue from a comprehensive immigration bill even though such legislation has been stymied for years.
Total revenue raised to pay for the Warren plan: $20.5 trillion.
The bottom line
The numbers add up! As campaign documents go, Warren can certainly say she has delivered enough data and detail to argue her case.
But the whole thing starts to fall apart if these numbers do not survive extensive scrutiny. If one believes the provider cuts are too steep or the administrative savings are unrealistic, then the cost side of the equation is higher than estimated. And if the revenue raisers are suspect, such as the money obtained from better tax enforcement, then the expected revenue falls short.
And if both things happen at once, the gap gets even wider.
In other words, you may need three cats to pay for a dog.
Video: The numbers add up on paper. But whether they are realistic is open to question. (The Washington Post)