Elizabeth Warren’s Plan to Pay for “Medicare for All” Is Not Entirely Realistic

FLORENCE, SC - OCTOBER 26: Democratic presidential candidate, Sen. Elizabeth Warren (D-MA) addresses a crowd outside of the Francis Marion Performing Arts Center October 26, 2019 in Florence, South Carolina. Many presidential hopefuls campaigned in the early primary state over the weekend, scheduling stops around a criminal justice forum in the state capital. (Photo by Sean Rayford/Getty Images)
Elizabeth Warren’s plan to pay for Medicare for All will probably win her some cheers. Sean Rayford/Getty Images

Elizabeth Warren’s plan to finance Medicare is going to play well on the campaign trail, even if (or perhaps because) it’s not entirely realistic.

The candidate released her highly anticipated proposal on Friday along with a pair of detailed cost and revenue estimates from some nicely credentialed policy experts. Previously, Warren had vowed that she wouldn’t sign any heath care bill unless it lowered overall health costs for middle-class families. The new blueprint goes even further. It promises that workers would immediately see their take-home pay rise thanks to single payer, since they would no longer have to contribute to their private insurance premiums and would not be directly subjected to any new taxes.

This, it seems, is going to be the campaign’s new talking point: “Medicare for All” won’t increase your taxes, but it will give you a raise! And that’s a great pitch. But to arrive there, Warren relies on some ambitious assumptions about the government’s ability to control health care costs and raise tax revenue that, while hard to disprove, might not be entirely plausible.

As Warren notes, the cost estimates for single payer have been all over the map. At the low end, researchers at the University of Massachusetts–Amherst claim that it would require $14 trillion in additional federal spending over a decade. Others, like Rand, the Urban Institute, and the conservative Mercatus Center have found that it could take $31 to $34 trillion. Warren’s projection falls toward the bottom end of the range: She believes Washington will need another $20.5 trillion over 10 years to fund “Medicare for All.” That number comes from an analysis by Donald Berwick, a former head of the Centers for Medicare and Medicaid Services under President Barack Obama who currently lectures at Harvard, and Simon Johnson, a well-known MIT professor and and former chief economist of the International Monetary Fund. They arrive at it in a straightforward way, by starting at the Urban Institute’s estimate of $32 trillion, and then subtracting the different cost-saving measures one at a time.


• They think that Warren can save an extra $1.7 trillion by more aggressively negotiating down prescription drug prices.
• Compared with the Urban Institute, they believe that moving to single payer will save an extra $1.8 trillion in administrative costs.
• They suggest that the government could milk another $2.9 trillion by reforming the way Medicare pays doctors and hospitals.
• Redirecting the money state and local governments currently spend on health care to the feds gets you another $6.1 trillion.
• Finally, slowing the growth of health costs gives you $1.1 trillion.

Some of those cost savings would be hard to achieve politically. To get those prescription drug savings, for instance, the government would have to knock the average price of branded medications below what Medicaid currently pays. Others might not be possible to achieve at all: There’s a raging debate about how much money a single-payer model would actually save on administrative expenses compared with our current system of private insurance, and Warren’s assumptions are on the optimistic side.

But if it strains credulity at points, Warren’s cost estimate is probably transparent and realistic enough to deflect unpleasant questions from debate moderators and journalists, which, ultimately, is the main point of this exercise. Warren’s floating a low number for how much her plan will cost, but it’s not the lowest one out there. And the substantive reasons to doubt it might not play well on a debate stage. I mean, what’s Pete Buttigieg going to say? Elizabeth Warren wants to cut America’s insane prescription drug prices too deeply? That Democrats shouldn’t trust numbers produced by the guy who ran Medicare for Obama?

So that’s the cost. Now let’s get to the “how she’s going to pay for it” part. Even though Warren lowers the price tag on single payer quite a bit compared with what some other experts have projected, funding it without any new taxes on workers requires a stretch here and there. But she does it: There are, strictly speaking, no direct middle-class tax hikes in the plan. Instead, it includes the following:

• First, businesses would have to pay an “employer Medicare contribution,” calculated based on what they already pay toward private insurance premiums today. Warren thinks this would be a saving of about $200 billion for employers, and that it would raise about $8.8 trillion.
• Second, she would hit Wall Street firms and large businesses, imposing a financial transaction tax (haul: $900 billion) and a series of major corporate income tax reforms, which would start by raising the rate back to 35 percent (haul: $2.9 trillion).
• Third, she’d further soak the rich (combined haul $3 trillion). Billionaires would face a 6 percent wealth tax instead of the 3 percent tax she previously proposed. And richer households would have to pay their capital gains taxes on a “mark-to-market” basis—meaning that if their stock portfolios went up in value during the year, they would owe taxes on the increase, even if they didn’t actually sell any shares.

These are all ideas that have been floating around various parts of the left for a while, and there will be plenty of time to argue about whether they are practical or wise. (The wealth tax is hotly debated, and in the end nobody knows if it will raise as much money as Warren’s team thinks because, like, you can only guess what the avoidance rate will end up being. And to be honest, I have never before seen a cost estimate of how mark-to-market capital gains and a wealth tax would work together.) What’s interesting is that after using up all of those revenue raisers, Warren still needs a magic money machine. And she finds one, by suggesting that she can raise $2.3 trillion just by improving IRS enforcement.

This is both kind of brilliant, and kind of a reach. Warren’s experts note that the IRS only collects about 85 percent of the taxes Americans actually owe—which is fairly bad by international standards. Some basic improvements could, in theory, raise a lot money. And Warren suggests a whole host of ways to do it, from spending “substantially” more on enforcement, to improving reporting by employers, to strengthening the Foreign Account Tax Compliance Act to make sure rich folks aren’t hiding their money piles in tropical tax havens. This is a good and noble policy program that would be worth pursuing in any context. But can those sorts of moves actually raise $2.3 trillion? Nobody really knows. It’s not clearly falsifiable. But Wall Street Journal tax reporter Richard Rubin put it in some useful context: Right now, the Congressional Budget Office believes that increasing the IRS enforcement budget by a third would only yield about $35 billion in additional revenue over a decade, which makes the scale of what Warren is proposing seem a bit far-fetched.

The last part of Warren’s revenue plan feels feels a bit like a generic liberal gift list. It would raise $400 billion in additional dollars from passing comprehensive immigration reform and save $800 billion by slashing military spending (specifically, the Overseas Operation Contingency fund, which has sometimes been referred to as a giant slush fund). Some people might roll their eyes at this. But I actually think it makes a lot of internal sense: Any world in which single payer stood a chance of passing would be one in which the left had finally won domination over Congress. In that scenario, why wouldn’t they try to pay for it by doing stuff progressives like, such as legalizing the undocumented and slashing the Pentagon budget?

All of this brings us to a bottom line where health care is free at the point of service, middle-class families are spared from any new direct taxes, and workers get to take home more of their paychecks because they no longer have to worry about insurance premiums. (I say direct because, technically, the budget scorekeepers on Capitol Hill still believe that workers bear part of the burden of the corporate income tax, so increasing it will count as a hike on them.) This sets up a useful contrast with Bernie Sanders. When the senator from Vermont produced a list of ways to pay for “Medicare for All,” he included a 4 percent “premium” for workers. Warren might not have led the way on single payer. But she can now tout herself as the candidate who was creative enough to concoct a plan that avoided those sorts of politically unpleasant taxes on employees.

The question now is whether voters will think Warren’s pitch is just too good to be true.