Health care will cost the average American person about $11,000 this year. We pay some of those costs directly, through premiums, deductibles and out-of-pocket expenses. Other costs are shrouded, paid through taxes and employer contributions. Either way, the combined total is staggering, easily the world’s highest and more than twice as much per person as in Australia, Britain, Canada, France or Japan.
Our uniquely expensive medical system, which delivers decidedly mixed results, holds down middle-class incomes and pads the bottom line of the medical industry. No wonder that Americans tell pollsters that health care is among their biggest concerns. Reducing costs presents a huge political opportunity.
I don’t think Elizabeth Warren is seizing that opportunity in the right way, as I’ve written before. Rather than a simple promise to reduce costs immediately — by cracking down on drug prices, say — she supports a sweeping overhaul of the system that makes most voters uncomfortable. Getting it through Congress would be such a lift that other vital issues, like climate change and voting rights, would get overlooked, as happened during Barack Obama’s comparatively modest health care push.
But I will say this about the more detailed Medicare plan that Warren announced Friday: It does a nice job of focusing attention on the problems with the status quo, starting with the sky-high costs.
By doing so, Warren has addressed one of the two big political problems with her plan — namely, how she’ll pay for it. The other problem — people’s anxiety about being forced into a new insurance plan — is still the larger one, in my view, and she needs to come up with a reassuring transition plan soon. With that major caveat, the newly detailed plan was a positive step.
In recent weeks, Warren and her team have watched their campaign message get overshadowed by a single question from journalists and rival candidates: Won’t your Medicare plan require raising taxes on the middle class? It’s particularly damaging for her, because her campaign is premised on making the U.S. economy work again for ordinary people. She can’t easily promise to do that while also raising their taxes.
And the tax question is a fair one. Creating a federal health care program that covers everyone — and includes vision, dental and other care — would be expensive. Many other single-payer advocates, like Bernie Sanders, have acknowledged that they would raise taxes but argued that people would still be better off, because the tax increase would be smaller than the ultimate savings.
Warren has taken a different tack. She has pointed out that the health care system already has billions of dollars sloshing around in it and that this money can help pay for “Medicare for All.”
The details are complicated, but the overall framework is fairly straightforward.
In rough terms, the U.S. spends about $4 trillion a year on health care, split almost evenly between government programs like Medicare and the private sector. The $2 trillion in private-sector costs, in turn, are also split roughly in half, with about $1 trillion each spent by households (premiums, out-of-pocket money and so on) and employers (mostly their share of premiums).
To pay for her plan, Warren needs to raise $2 trillion in government revenue — to replace the spending that the private sector now does. She starts with the $1 trillion that employers are spending and requires them to redirect this money to Medicare. That’s the best part of her plan.
Finding the other $1 trillion is trickier, because she doesn’t want to tell middle-class families that they will also replace their private spending today with a tax increase tomorrow. So she lets them keep their money — a big pay increase, in effect — and instead raises taxes on corporations and the wealthy, whose taxes have plummeted in recent decades. Even after all of the increases she has proposed, tax rates on the rich would still be lower than in the mid-20th century.
Do her numbers add up? It depends on whether you’re grading on a curve. I think she’s being too optimistic about a few things, like how much wasteful care her plan would eliminate. I assume that any Medicare for All system would eventually need to raise middle-class taxes, even if the increases were smaller than the overall savings.
On the other hand, she has provided more detail on Medicare financing than Sanders has. She has also provided more overall policy detail, including on the taxes she would raise, than Joe Biden or Pete Buttigieg. And her Medicare plan comes much, much closer to paying for itself than various Republican tax cuts. I wish the conservatives complaining about her plan applied the same rigor to their own ideas.
In absolute terms, I’d give Warren’s plan a B- for fiscal probity. On a curve, I’d give it an A-.
Again, though, cost is not the plan’s biggest vulnerability. Most Americans don’t have the same bias toward deficit hawkishness that journalists and think-tank experts do. Most Americans, understandably, are more worried about their slow-growing incomes.
The biggest weakness of Warren’s approach is that it tries to bulldoze through the sizable public anxiety about radical changes to the health care system. Warren would not let people opt into Medicare, a wildly popular idea. She would force them to join.
Her financing plan shows a nice combination of policy seriousness and political ruthlessness. She now needs to bring that same approach to designing a transition from the status quo to Medicare for All. In essence, it would create a Medicare program more attractive than almost any private insurance plan, as her plan already does, and then give people a choice between the two systems for a few years.
It’s important to remember that Medicare for All almost certainly is not happening in 2021 even under a President Warren. It faces too much opposition from congressional Democrats — unlike many of her other ambitious plans, on climate, taxes, education and more.
She has made clear the health care system that she wants to move toward. Now she needs to minimize the chances that the pure version of it prevents her from becoming president.