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Warren Tries to Make Medicare for All as Painless as Possible

Noah Smith

(Bloomberg Opinion) -- At last month's Democratic presidential primary debate, Massachusetts Senator Elizabeth Warren took some heat for refusing to say whether taxes on the middle class would go up under her Medicare for All single-payer health-insurance plan. Instead, she simply repeated the promise that total health-care costs for the middle class would go down. The answer seemed squishy, especially because Vermont Senator Bernie Sanders — who wrote the original “M4A” plan — seemed to provide the true answer, stating explicitly that middle-class taxes would go up but premiums and deductibles would be eliminated.

Sanders’ answer was a good one. The whole idea of a national health-insurance system is to take a service that used to be provided by the private sector and have the government provide it instead. Advocates of a national health-insurance system argue — with considerable justification — that the government would be able to do the job more cheaply, without sacrificing quality. After all, Medicare already does a better job of restraining costs than the private sector:

Economic theory explains why government might get things done more cheaply in this case. Hospitals tend to have a lot of monopoly power; when you’re sick, you often don’t often have the option of shopping around. This allows them to jack up prices, which often aren’t even revealed to consumers.

So it’s reasonable to think that adopting a single-payer system would save the nation money on health-care spending. Saving money also means saving resources — with cheaper health care, people would be able to use more of it. Jobs might be lost in the insurance sector, but there might well be more hiring by hospitals and other health-care providers, even as efficiency increased.  

If the middle class would save money on health care under a national insurance system, why do people care about whether middle class taxes go up? Because health-care reform is also widely seen as an opportunity for wealth redistribution. If the cost of national health insurance falls mainly on the wealthy, it will make the entire U.S. fiscal system more progressive.

But there’s a limit to how much of the country’s health-care system can be funded on the backs of high earners. Warren’s team estimates that a national health-insurance system would cost about $2.05 trillion per year, which would increase the federal budget by roughly 50%. Less optimistic estimates put the cost at $3.4 trillion a year, which would almost double the budget.

New taxes on high earners would fund for a significant amount of that government spending, but it’s very doubtful that they could pay for all of it. It’s also a fantasy to think that M4A could be paid for with unlimited deficit spending. In other words, even though national health insurance would probably reduce total medical costs, and even though it would make the fiscal system more progressive, the middle class will have to pay for some of the program. If that’s done via higher taxes, as Sanders promises, it could generate some rumblings of discontent: Even if middle-class Americans would see their health-care costs decline, the sight of their tax bill going up could rankle.

But Warren may have come up with an interesting way around this problem. In response to critics of her debate performance — and to uphold her reputation as the candidate with the most detailed plans — today she released a detailed breakdown of how her M4A plan would be funded. And the financing mechanisms deftly avoid the appearance of middle-class tax increases.

First, Warren would redirect the money employers pay for workers' health insurance to the government (while also adjusting the contributions to be more equal across workers and companies). For most workers, this wouldn’t seem like much of a change. Second, it would eliminate the additional side payments most employees make for company-sponsored health insurance. This might also allow workers to bargain for higher take-home pay, which in turn would generate more income-tax revenue assuming tax rates stay the same. Third, Warren would raise taxes on corporations and the wealthy through a variety of mechanisms. Some modest piece of the new corporate taxes would be paid by middle-class workers and consumers rather than by top earners and company owners, but it wouldn’t be a very visible tax hike.

So Warren’s plan aims to accomplish three goals at once. It replaces private insurance with national insurance, which stands a decent chance of reducing total health-care costs. It increases the progressivity of the nation's financial system, so that national health insurance becomes a mechanism for redistribution. And although it does require the middle class to pay for part of their health care -- as any realistic system would — it frames that part so that it doesn’t look like a middle-class tax increase. It remains to be seen if that will be enough to get the American people to take the bold step of switching to single-payer health insurance. But it’s probably the most politically and economically savvy single-payer plan that the electorate is likely to get.

To contact the author of this story: Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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