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False Promises: Why Warren’s Healthcare Plan Would Create More Problems Than Solutions

The Democratic Party’s cry to battle these days seems to be Medicare for All. What was once deemed an extreme and far-left-of-mainstream idea from Bernie Sanders during the 2016 primary has turned into the centerpiece of many Democrats’ campaigns. Even the “moderates” of the race such as Biden and Buttigeig are promising plans such as “Medicare for All Who Want It”, illustrating just how mainstream the expansion of Medicare to all Americans has become. Critics of such plans have long blasted such proposals for their failure to detail how exactly they would fund this multi-trillion dollar a year program. However, on November 1st, Senator and 2020 presidential candidate Elizabeth Warren released a comprehensive outline of her proposal to fund Medicare-for-All. While Warren at least has a plan for funding such a program, the new taxes would cripple American economic growth and would be difficult to enforce, while various policies would lead to mass closures of rural hospitals and job loss for millions of Americans.

Warren’s plan consists of three main tenets: tax the rich, tax businesses and cut military spending. While other sources of spending are sprinkled throughout — such as “immigration reform” — these are the three main sources of funding singled out. Warren’s team projects that her plan would raise roughly $20.5 trillion in new revenue over the next decade, enough to bring government healthcare spending up to $52 trillion. This is roughly in line with the $52 trillion that the U.S. is projected to spend on healthcare over the next decade, meaning according to Warren’s projections, her plan would not cost more overall. What her plan seeks to do is to shift the burden of healthcare costs away from the middle class and onto major corporations and wealthy individuals. If this sounds too good to be true, that’s because it is.

While Warren’s plan is detailed, many of the claims and assumptions made in its crafting are deeply flawed and misleading. Many studies have pegged the costs of single-payer healthcare in the U.S. (the technical name for Medicare-for-All) at much more than the $52 trillion that Warren claims. The Urban Institute, a center-left thinktank, estimates that such a program would cost $59 trillion over the next decade, $7 trillion more than current spending and what Warren claims would be the cost of her program. The reason for this is simple: when you propose to eliminate premiums, copays and deductibles, healthcare gets more expensive. Premiums are the monthly price that someone pays for health insurance. Deductibles are the amount an individual needs to pay for healthcare in a year before insurance starts covering it; and copays are the amount an individual needs to pay every time they use healthcare. While the elimination of premiums is reasonable for a government-led program, the purpose of deductibles and copays is to discourage individuals from using healthcare unnecessarily. With these eliminated, healthcare services would be used substantially more, thus driving up the cost of healthcare overall. While there are cost efficiencies in single-payer systems, such as reducing the administrative costs in insurance companies and doctors’ offices, an increase in healthcare use would be far greater than these savings, thus driving up the overall cost. 

Another flaw to Warren’s proposal is that many of the projections her team made are optimistic. Take the wealth tax, for instance. Warren’s team projects that it will raise $2.75 trillion over the next ten years. However, many Brookings economists believe that this figure is overly optimistic. The fact is that the wealthy find ways to avoid taxes, and the wealth tax is inherently the most difficult and expensive to enforce. How do you calculate the worth of billions of dollars worth of paintings, sculptures, cars and other such assets difficult to appraise? How do you track down every dime of overseas assets in potentially numerous countries? The closest thing to a wealth tax in the U.S. — the estate tax — is plagued by similar issues, and using the results of it as a basis, some economists project that her wealth tax will only being in one-to-three-eights of the revenue she projects. Whether or not such a tax would help combat inequality is a different question altogether and outside the scope of this article. But looking at it from a fiscal sense in the context of this $20.5 trillion program, it is clear the wealth tax would not raise the revenue Warren claims. 

Further hampering potential revalue streams is the severe economic drag that would emerge from new taxation. An increase in the corporate tax rate from 21 percent to 35 percent would once again make the United States the country with the highest corporate tax rate in the western world and would be 12 percent higher than the worldwide average of 23 percent. This would work to significantly stifle the increased business investment in the U.S. after the passage of the corporate tax cut and thus be a drag on an already-slowing economy. Furthermore, instituting a so called mark-to-market taxation scheme on investments would also reduce investment in the U.S. How this works is that instead of taxing gains after an asset, such as a stock, is sold, it would tax the gains in an asset every year. This would dampen investment because it would decrease after-investment returns (as taxing gains would reduce the cumulative result of compound interest), as well as force investors to sell assets to pay said taxes, thus increasing supply and hurting the price of these stocks. The combination of these two factors would likely create significant concern among investors in corporate profit margins and continuing investment in the U.S., hurting stock prices and the economy

It is these types of aspects of Warren’s plan that would indirectly tax the middle class despite her insistence to the contrary. According to economist Nicole Kaeding, “Investment increases productivity, it creates jobs, it raises living standards and wages. Slowing or handicapping investment would negatively affect everyone in the United States.” Therefore, Warren’s plan would indirectly tax the middle class through slower wage growth and job creation. Another way she would be indirectly taxing the middle class is through her “Medicare contribution” tax on employers. While this tax is roughly in line with what employers already spend on employee healthcare, companies consider this part of employee compensation. Therefore, by taxing this compensation that would be passed onto employees in cash if companies no longer had to pay for healthcare, Warren is taxing the middle class in a roundabout fashion. Whether it is a direct income tax after they receive this money or just seizing the money before they get it, the result is the same. Senator Sanders, another candidate for the democratic nomination and fellow supporter for Medicare For All, recognizes this point, stating that Warren’s plan would be “quite a hit” for workers and employers alike. 

 Warren’s plan also fails in adequately funding hospitals and stemming the widespread job losses that would be wrought. One of the key tenets of a fiscally plausible Medicare-for-All system would be viable is by paying hospitals less. Currently, Medicare is subsidized by private healthcare, which often pays twice the Medicare rate, as most health providers work at a net loss for each Medicare patient. This is why optimistic Medicare-for-All projections suggest that the government would need to pay 115 percent of current Medicare rates to avoid widespread closures of hospitals. However, Warren’s plan undercuts even this optimistic figure by suggesting that hospitals get paid only 110 percent of current Medicare rates, a proposal which would doubtlessly lead to mass closures of hospitals across mostly rural parts of America, choking off many America’s access to emergency and complex healthcare. Furthermore, such closures would inevitably result in up to 1.5 million job losses, which would impact the livelihoods of many Americans while dragging down the economy as a whole. Furthering the job losses are up to two million Americans who work for the private insurance industry or as administrators in hospitals, clinics and doctor’s offices across the country who would be out of work after a transition to single payer healthcare. This brings the potential job losses wrought by Warren’s proposal up to 3.5 million — a staggering number which would bear significant ripple effects across the economy.  

That being said, it’s important to give credit where credit is due, and Warren certainly deserves significant credit for the sheer detail of her plan. Few, if any, other presidential campaigns in recent years have released a healthcare plan that comes even close to the amount of detail (especially around funding) that Warren’s does. Her plan outlines 11 different sources of funding for her program, and the rational and projections for each one are outlined in her Medium outline. Furthermore, there is also no denying that she is cleverly avoiding one of the main rallying cries against Medicare for All by refraining from directly raising taxes on the middle class. However, the single greatest asset of her plan remains the fact that she has a plan for her proposal, a plan that can be analyzed and debated. And that is exactly how a presidential campaign should be run: proposing and defending concrete policy proposals. 

It is very refreshing for the healthcare debate in this country to be concentrated around concrete policy proposals backed up by plans to pay for them for a change. Warren deserves a lot of credit for the detailed ideas that she has put forward, and they should be thoroughly debated in congress. With the cost of healthcare rising significantly faster than wages, it is crucial that something be done to tackle this affordability crisis. To this end, moderate Democrats and Republicans should take inspiration from Warren and put forward detailed proposals of their own on how to address this crucial issue. 

Featured Image Source: Vox News

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