Elizabeth Warren claims she can pay for her 10-year, $52 trillion health care plan without increasing taxes on the middle class. But both she and her critics are approaching the question incorrectly. What really matters is the opportunity cost of policy choices, in terms of foregone goods and services — not whether the money can be raised to pay for a chosen policy.
Consider this point in the context of Warren's plan, which includes a complex series of health care savings and higher taxes on the wealthy.
One way of financing the plan is to pay doctors in hospitals lower fees (part of "saving" $2.3 trillion). There will then be fewer profitable hospitals, and fewer doctors working fewer hours, because some of them might retire earlier than they otherwise would. Fewer hospitals means they will likely increase their monopolistic tendencies, to the detriment of patients. A related plan to pay hospitals less is supposed to save another $600 billion.
The practical impact of these changes will be to deprive health care consumers, including middle-class consumers, of goods and services. The larger point is that real cost of any economic arrangement is not its nominal sticker price, but rather the consequences of who ends up not getting what.
Another part of the plan is to pay lower prices — 70% lower — for branded prescription drugs. That is supposed to save about $1.7 trillion, but again focus on which opportunities are lost. Lower drug prices will mean fewer new drugs are developed. There is good evidence that pharmaceuticals are among the most cost-effective ways of saving human lives, so the resulting higher mortality and illness might be especially severe.
Of course, many critics of the pharmaceutical industry downplay its role in the drug-discovery process. Regardless of the merits of those arguments, they do not show that a 70% cut in prices will leave supplies, or research and development, unchanged.
Another unstated cost of the Warren plan concerns current health insurance customers: Many of them prefer their current private coverage to "Medicare for All." Switching them into Medicare for All is an opportunity cost not covered by Warren's $52 trillion estimate. Even if you believe that Medicare for All will be cheaper in monetary terms, tens of millions of Americans seem to prefer their current arrangements.
Warren also proposes higher taxes on corporations, capital gains, stock trades and the wealthy, as well as stronger tax enforcement — all of which is supposed to raise more than $10 trillion. Again, regardless of your position on those policies, they will diminish investment and (to some extent) consumption among the wealthy. You might not worry much about the consumption of the wealthy. But the decline in investment will lead to lower wages, less job creation, and fewer goods and services. These are all opportunity costs, for both the middle class and just about everyone else.