Financing in Senator Warren’s Medicare for All Plan
The US is projected to spend about $52 trillion on health costs over the next 10 years. About half of that is public spending from the states and federal government on programs like Medicare, Medicaid, Veteran’s Affairs, Indian Health Services, the uninsured, etc. About half is from the private sector from employers and employees for their employment-based coverage, from patients for their copays and deductibles, and from individuals for their individual health insurance. The public and private sectors are entwined in various ways we do not all fully understand or appreciate. For example, federal and state tax advantages subsidize about 1/3rd of the cost of employment-based coverage. Federal ACA premium assistance helps about ½ of those with individual private insurance to pay their premiums, and state and federal tax advantages are also available for the self-employed buying individual coverage. Federal, state and local government employees have private, employment-based insurance coverage for themselves and their families paid through government, leading some to classify this as private (the type of coverage) and others to classify it as public (the source of the financing).
The Urban Institute study found that the Medicare for All plan advanced by Senators Warren and Sanders would cost the federal government in excess of $30 trillion over the next ten years in new financing. Senator Warren was challenged to specify how she would pay for it. And she was also challenged to specify how she would pay for it without taxing the middle class. She responded to the challenge by reducing the new costs of her plan to $20.5 trillion and specified how she would pay for it without taxing the middle class.
Senator Warren’s financing of the $20.5 trillion in new federal costs is as follows:
1. Employer payroll tax of $8.8 trillion. Employers would pay 98% of what they currently spend on their employees’ health coverage. Small businesses that offer coverage would pay under the same formula, while those small businesses, which do not offer coverage, would pay nothing. New businesses (above 50) would be phased in and pay the national average premium. Businesses with collective bargaining agreements can get a discount on their required contributions by agreeing to increase employee wages with the savings to their employer from the adoption of Medicare for All. The health component of Worker’s Compensation would be included in the coverage and in the employer financing.
It would be far simpler to set a payroll tax at a percentage of wages as Senator Sanders suggests in his financing package. This would put every business on a level playing field in terms of contributing towards their employees’ health coverage.
Another attractive alternative would be to reduce the impacts on employers and employees and pay for health coverage entirely or partially through a Value Added Tax or some other financing mechanism that encourages job creation and enhances American business competitiveness in foreign markets. The American business community has not as yet engaged in any serious discussions on financing universal health coverage,
2. Individual and employee contributions in the form of copays, deductibles and a share of premiums would be eliminated entirely under Warren’s Medicare for All financing. Seniors’ payments for their Medigap or Medicare Supplement policies would be eliminated and conceivably their contributions for Medicare Part B, although that is not clear to me.
Employees’ take home pay is increased because they no longer pay for their share of health premiums, which averages about 30% of the premium. The increased federal tax revenues (at existing tax rates) on this increase in employee’s gross pay equals $1.4 trillion.
Personally, I think individuals should pay for some of the costs of their own health coverage on a sliding fee scale basis. On this issue, I prefer the Sanders approach that suggests a graduated contribution up to 4% of income. Likewise, I think some modest sliding fee scale copays at the point of service for elective health care makes patients more cost conscious about the use of costly elective health care. I prefer the ACA model of graduated cost sharing based on an individual’s income, but only as applied to elective health services. What’s an elective service? For example you may want the brand name as opposed to the generic drug.
3. Taxes on transactions in the financial sector, on wealthy individuals (the Warren wealth tax) and on large corporations (repeal of the Trump reductions in corporate tax rates and other measures) would generate $6.8 trillion.
In lieu of taxing all Americans in some measure for a program that benefits all Americans, Senator Warren suggests the following specific taxes.
Senator Warren would tax sales of stocks (and derivatives) at 0.1% of the transaction price. She would also tax large banks at 0.15% of their uncovered liabilities (i.e. liabilities minus FDIC insured liabilities).
She would eliminate the tax break for accelerated cost recovery (i.e. if you bought new equipment, you can depreciate more quickly than it actually depreciates). She would impose the US top corporate tax rate on offshoring (i.e. if you are hiding your corporate profits in the Cayman Islands to avoid taxation, you would be taxed at 3% on those off-shored profits).
She would increase her proposed wealth tax on the assets of billionaires from 3% to 6%. For the top 1% of income earners, she would tax capital gains as they are annually accrued rather than at time of sale – i.e. if your stocks went up in value from $1 billion to $1.2 billion last year, you would pay regular income taxes on that increase in value, even if you held onto the stock and did not sell it. One might ask what happens if the stock’s values go down as they typically do in recessions, do you get a refundable tax credit on your unrealized stock losses.
4. Better enforcement of existing tax laws (i.e. tax compliance) would generate $2.3 trillion.
There is a federal tax gap of 15% -- i.e. some people are cheating on their income taxes; much of this occurs with high income, high net worth individuals with illegal Tax avoidance schemes, as opposed to employee wages which are quite concrete and readily monitored and taxed. Senator Warren has a ten-point plan to reduce tax cheating from 15% to 10%.
5. Immigration reform would increase federal revenues by $400 billion. Senator Warren supports immigration reforms that give 10 million US resident individuals a path to legal residency status and eventually citizenship. This would allow undocumented workers to emerge from the shadow economy and report their earnings. This proposal has passed the Senate in the past but encountered implacable opposition in the then GOP controlled House.
6. Elimination of the overseas contingency operations fund produces savings of $800 billion.
These are contingency funds for military overseas operations. It is highly doubtful that Congress would reduce them to this magnitude, no matter which political party is in control.
7. State and local spending on health care such as the Medicaid and CHIP matches would be captured and used to finance the expanded Medicare program. In addition state and local government workers now covered with private employment-based coverage and the health components of their pension and retirement plans would be shifted into Medicare for All with the accompanying state and local government funding transferred as well. Revenues of $6.1 trillion over ten years would be “achieved”.
Under the Medicaid for All plans, state Medicaid and CHIP programs for the low and moderate income uninsured would be subsumed within Medicare for All. A residual state Medicaid program for long term residential care (nursing homes) would remain at the state level with a federal/state match. Since states are in some respects semi-sovereign entities with the option to decide how much if at all, they wish to participate in Medicaid and CHIP, this is going to be difficult to easily achieve. The precedent is the “claw back” of state matching funds when Medicare was expanded to cover prescription drugs. This is of an entirely different scale of magnitude, and such a financing shift will doubtless be tested up to the Supreme Court, which rather recently emphasized the optional nature of Medicaid for those state governments like Florida, Texas and Mississippi opposed to the ACA (Affordable Care Act).
This is not going to be an easy issue to resolve either; for example 1/4th of state and local employees are still not covered by Social Security (passed in 1935) due to the long standing disputes about the extent of state and local sovereignty, and its interface with the federal government. Likewise 14 states have still not accepted the 90/10 federal Medicaid match to extend health coverage to their poorest citizens.
In summary, Senator Warren has met the challenge posed by her Democratic debate opponents to specify how she would pay for Medicare for All without new taxes on the middle class. However her proposed financing highlights the very serious obstacles in Congress and the federal courts to actually finance Medicare for All. We need to find the right financing package(s) that can be supported by American voters, and can pass Congress and identify a package of accompanying health reforms in coverage and cost controls to set us on the right track.
Prepared by: Lucien Wulsin
Dated: 11/7/19