Via Naked Capitalism

By Lambert Strether of Corrente
This morning, Elizabeth Warren, after pressure from the press and some candidates in the last Presidential debate, released her “plan” to pay for #MedicareForAll. KHN’s Morning Briefing (“Warren’s $52T Plan To Pay For ‘Medicare For All’ Leans Heavily On Employer Taxes, Avoids Increase For Middle Class“) covers the explosion of coverage, and summarizes Warren’s “plan”:

Sen. Elizabeth Warren (D-Mass.) released her plan for “Medicare for All” Friday, after facing criticism for not detailing how she would pay for the overhaul to the health system. It would require the federal government to absorb $20.5 trillion in new spending, but . She plans to carry over almost all existing health funding from employers and state governments while also levying a variety of new taxes on the rich, corporations and high-earning investors — including doubling her signature wealth tax on billionaires.

(Note that the “employer taxes” in the headline doesn’t convey Warren’s concept of “carry over almost all existing health funding from employers,” in the body, at all fairly. Moreover, the body omits much funding detail. Shame, KHN!) Of course, if we as a society have the resources to mobilize for any given project, we can “pay for” it — see World War II, etc. — and nobody ever asks how to pay for wars or expensive fighter jets that catch on fire. Nor does anybody, including Warren, asking how we “pay for” any of Warren’s other plans. A suspicious mind might even conclude that “how you gonna pay for it?” is a question asked in bad faith, with a view toward ensuring that we can’t have nice things. Be that as it may, the way out of the sterile “pay for” debate is the door: MMT. Sanders has not walked through the door, but Warren, by legitimating the debate, has slammed it.

That said, some celebrity endorsements! Paul Krugman:

And CAP. Note the “universal health care” framing, which is most definitely not the same as single payer #MedicareForAll:

(One might wonder if CAP had a hand in writing it.)

Finally, Ady Barkan: From The Intercept:

But then Warren did what she does best: her fucking homework. She consulted the experts, she double-checked the numbers, and she dropped a codex of wisdom right in the middle of the teacher’s desk. And the political reverberations may be felt for decades.

Just imagine what will happen when the debate moderators ask her next time how she’ll pay for her plan. She can answer honestly and with authority that Medicare for All will mean zero health care costs and no increases in taxes for all but the wealthiest Americans.

So how does she pay for it? Here is where the brilliance of this plan’s political economy really shines brightest. Warren pays for her plan by targeting the bad actors who are making our health care system so expensive and wasteful and our economy so rigged and unequal.

Krugman and CAP are, of course, fair game. But criticizing Ady Barkan — has Joe Biden met with him yet? — is a bit like kicking a puppy. So let me say gently that Warren’s “plan” — how I hate that “plan” has become politically charged — is hardly a “codex of wisdom,” and that Sanders’ approach to the “pay for” issue lacks disadvantages that Warren’s plan has, and has advantages that Warren’s plan lacks. So I’ll skip the hot takes (Ezra Klein, Politico, Yglesias) and jump right to Warren: “Ending the Stranglehold of Health Care Costs on American Families“.

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Warren’s Plan Goes to Happyville

I’ll start by pointing out what makes me happy. First, Warren really does seem to support Sanders plan explicitly. In other words, she seems to have answered the question that I suggested debate moderators ask her in the affirmative: “Q: Senator Warren, given your unequivocal support just last week for Massachusetts bill H.1194, “An Act establishing Medicare for All in Massachusetts,” is passing Senator Sanders’ bill S.1129, the “Medicare for All Act of 2019,” which you co-sponsored, your objective for the American health care system?”

Start with the Medicare for All Act – which I have cosponsored[1]… Under my plan, Medicare for All will cover the full list of benefits outlined in the Medicare for All Act, including long-term care, audio, vision, and dental benefits. My plan will cover every single person in the U.S.

(I assume that Warren’s horrid, crawfishing campaign page on health care will shortly be cleaned up.)

Second, it makes me happy that Warren supports the principle that health care should be free at the point of delivery:

[I]ndividual spending on premiums, deductibles, copays, and out-of-pocket costs will basically disappear

OK, “basically.” But Warren does count on the administrative cost savings that single payer brings, so I’m willing to believe she’s going to dynamite the gatekeeping system for “access” to care. I was worried that she wouldn’t — liberal Democrats love them their gatekeepers — but she seems to have done so.

Third, it makes me happy that Warren’s campaign staff can only have made the calculation that they need the left’s votes on this issue (“The people who can destroy a thing, they control it.” –Frank Herbert, Dune). In short, Warren’s “plan” is a win for #MedicareForAll, and advocates should take that win.

Warren’s Plan Goes to Pain City

Now to my concerns. There are three: Weasel wording, revenue “sources”, and the “transition period.” Let us take them each in turn.

First, the weasel wording. Here:

We must fix this system. And over the long-term, the best way to achieve that goal is to move from the system we have now to a system of Medicare for All.

And here:

I’m filling in the details and releasing a plan that describes how I would implement the of the Medicare for All Act and how to pay for it.

And here. As anaphora (!):

Every candidate who opposes should explain why the “choice” of private insurance plans is more important than being able to choose the doctor that’s best for you without worrying about whether they are in-network or not…. Every candidate who opposes should put forward their own plan to cover everyone… And every candidate who opposes should put forward their own plan to make sure every single person in America can get high-quality health care and won’t go broke… And make no mistake – any candidate who opposes and refuses to answer these questions directly should concede that they have no real strategy

Can’t pay the goddamn bills with a “long-term goal,” Liz. In any case, we understand. “Long-term” means not next year — original Medicare was implemented in a year, back in the days of steam-powered punch-card readers — or the year after. I’d say it means two Presidential election cycles; that’s the time it took for the political class to figure out ObamaCare was a turkey, after all. That’s plenty of time for liberal Democrats to scam in a few “transition plans” to stave off the evil day when health insurance companies aren’t big donors any more.

Second, the revenue “sources” (in quotes because from MMT we know that Federal taxes don’t “pay for” Federal spending.) I’m only going to consider tax side, not the cost side (although there are issues there, notably for hospital costs, and Warren’s quasi-religious belief in markets). Here is Warren’s methodology, from her Medium post:

I’ve asked top experts to consider the long-term cost of my plan to implement Medicare for All over ten years – Dr. Donald Berwick, one of the nation’s top experts in health system improvement and who ran the Medicare and Medicaid programs under President Obama; and Simon Johnson, the former Chief Economist at the International Monetary Fund and a professor at MIT. Their analysis begins with the assumptions of a recent study by the Urban Institute and then examines how that cost estimate would change as certain new key policy choices are applied. These experts conclude that my plan would slightly reduce the projected amount of money that the United States would otherwise spend on health care over the next 10 years, while covering everyone and giving them vastly better coverage.

Both Berwick and Johnson are credible; their response to Warren (PDF here) summarizes her “plans” revenue “sources’ in the form of the following table, which I have helpfully annotated:

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(I”m just going to use the original material from Berwick and Johnson, rather than digging it out of Warren’s white paper.)

There are two big problems with Warren’s “plan” (A) the “head tax,” and (B) dependencies.

(A) The head tax. Matt Bruenig writes that “Warren’s Perpetual Medicare Head Tax Is Unworkable and Bad.” Bruenig summarizes the proposal:

1. Employers will be required to pay an “Employer Medicare Contribution” equal to 98 percent of their per-employee health care costs in the year prior to Medicare for All’s implementation. This will mean that initially some employers pay more than others since that is already the case in the status quo. But over time, each employer’s contribution will be gradually converged to the average

2. Employer Medicare Contribution until every qualifying employer is paying the same amount per employee.

3. Employers with less than 50 employees would be exempt from the Employer Medicare contribution both initially and forever.

4. Independent contractors (and the companies who hire them) will also be exempt from the Employer Medicare contribution both initially and forever.

The head tax is regressive:

What Warren is proposing here, in ordinary fiscal language, is a Medicare Head Tax. This is a departure from the normal Medicare Payroll Tax proposals. The distributive difference between them is that the Medicare Payroll Tax charges a specific percentage of each worker’s earnings, while the Medicare Head Tax charges a specific dollar amount per worker. [For example,] the $9,500 head tax is equal to 63 percent of the earnings of the worker making $15,000 per year, but only equal to 5 percent of the earnings of the worker making $200,000 per year. For the employer-side payroll tax, it is 8 percent for everyone. Needless to say, . Specifically, the Medicare Head Tax charges middle and low earners massively more than the Medicare Payroll Tax does.

Second, a head tax is easily evaded:

Separate from the distributive problems of Warren’s head tax, the two exclusions also make the proposal clearly unworkable and easily gamed.

Once some employers start doing this, the average Medicare Employer Contribution will have to go up to keep revenue stable, which will push even more employers to restructure their labor into independent contracting or outsourcing to small firms. And, at that point, the death spiral is off to the races.

The genius of the payroll tax, of course, is that it is unable to be evaded like this. Every dollar of labor income — even independent contractor income — is charged the same. No restructuring can save you from it.

Maybe Uber could set up a separate business unit to help companies handle the demand for turning employees into contractors that Warren’s plan will create. Or some Silicon Valley venture capitalist is licking their chops as we speak.

(B) Dependencies. Warren, to “pay for” #MedicareForAll, is going to have to ramp up IRS enforcement (remember how popular the mandate was?), pass immigration reform, and take away a slush fund from the Pentagon. In politics, as in programming, “The cheapest, fastest, and most reliable components are those that aren’t there.” If you really want #MedicareForAll to pass, why create a combinatorial explosion, a veritable hairball of political problems that will get in the way of its passing?

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Third, the transition period. From Warren’s white paper:

Of course, moving to this kind of system will not be easy and will not happen overnight. This is why every serious proposal for Medicare for All contemplates a significant transition period.

In the weeks ahead, I will propose a transition plan that will specifically address how I would use this time to begin providing immediate financial relief to struggling families, rein in out-of-control health care costs, increase coverage, and save lives. My transition plan will take seriously and address substantively the concerns of unions, individuals with private insurance, hospitals, people who work for private health insurers, and medical professionals who worry about what a new system will mean for them. It will also grapple directly with the entrenched political and economic interests that would spend freely, as they have throughout modern American history, to influence politicians and try to frighten the American people into rejecting a plan that would save them thousands of dollars a year on premiums and deductibles while making sure they can always see the health care providers they need with false claims and scare tactics.

Which is all fine — accepting the premise that “the concerns of unions, individuals with private insurance, hospitals, people who work for private health insurers, and medical professionals” have never been taken seriously before — but we’ll need to see how long that transition period is, won’t we? Given that #MedicareForAll is a “long-term” goal?


In concluding, here are Sanders’ views on the “pay for” debate:

“You’re asking me to come up with an exact detailed plan of how every American — how much you’re going to pay more in taxes, how much I’m going to pay,” [Sanders] said. “I don’t think I have to do that right now.”

The Vermont senator explained that before getting to his detailed financing plan, he wants Americans to understand that they currently pay more for health care than people in other countries.

“The fight right now is to get the American people to understand that we’re spending twice as much per capita — that of course, we can pay for it,” he said. “We’re paying it now in a very reactionary, regressive way. I want to pay for it in a progressive way.”

(Note that Warren’s head tax is not progressive.) FWIW, I think that Sanders’ view of where voters are is correct, though they can be brought to a different place by, well, politics. And here is a link to Sanders’ “pay for” options from his Senate site (and again, it’s not as if Warren was the very first person to conisider the issue. Here are the subject headings:

  1. 7.5 percent income-based premium paid by employers
  2. 4 percent income-based premium paid by households
  3. Savings from Health Tax Expenditures
  4. Make the Personal Income Tax More Progressive
  5. Make the Estate Tax More Progressive
  6. Establish a Wealth Tax on the Top 0.1 percent
  7. Close the Gingrich-Edwards Loophole and Create Parity for Wealthy Business Owners

Note that all Sanders’ options are for progressive taxes (unlike Warren) and none of Sanders’ proposals involve dependencies on other program areas (unlike Warren). His approach both better and more likely to pass.


[1] But there’s this: “The bill provides a detailed proposal for how to achieve our end goal. But as economists and advocates have noted, the legislation leaves open a number of key design decisions that will affect its overall cost, and the bill does not directly incorporate specific revenue measures.” Does Warren not know that revenue bills originate in the House?

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