Yes, Warren’s Medicare-for-all Pay-for Plan Really Is Nuts

Yes, Warren’s Medicare-for-all Pay-for Plan Really Is Nuts November 3, 2019

As a bit of preface, I write on three different platforms these days (four if you count my periodic Federalist submissions):  this site, Forbes, and my personal JaneTheActuary website. And I’m writing this blogpost here because I’m not in the mood for crafting it super-carefully to be polished and insightful.

But Elizabeth Warren released here proposal of how she’d pay for her “Medicare for All” proposal on Friday, after sidestepping the issue in the latest debate, and it’s, well, nuts.

Megan McArdle had a good summary of the proposal at the Washington Post, where she wrote, among other things:

To wit: Warren says she can deliver a generous Medicare-for-all plan with only $20.5 trillion in additional federal spending. That’s a quarter to a third less than any serious estimate of the plan from outside her campaign.

And Warren begins her proposal by reminding readers just how expansive her proposal is:

Full health coverage for every person residing in America, including long-term care, with no waits or limitations (“Everybody gets the doctors and the treatments they need, when they need them”) and no out of pocket expenses for anyone.

As a reminder: that doesn’t exist anywhere else.  Every other country requires and copayments and has limitations on care they provide (either direct or indirect via wait times), and (I’m still digging into this more fully at Forbes as comparative data is lacking) countries likewise do not provide unlimited long-term care upon request.  A 2012 OECD analysis showed even the most generous of countries topping out at 85% of healthcare costs paid by the government.

But in Warren’s world, the United States will accomplish what no one else does.

How will she fund even her low-ball estimate of this cost?

First, she plans to reduce administrative costs.

Yes, this should be easy.  It shouldn’t even require Medicare-for-All; permitting insurance companies to work together to come up with a common system for billing and claims filing and “smart” insurance cards with a chip rather than having to fill out the same paperwork over and over again would be a start.

But here’s her plan:

First, reduce administrative expenses.

As the experts I asked to evaluate my plan noted, private insurers had administrative costs of 12% of premiums collected in 2017, while Medicare kept its administrative costs down to 2.3%. My plan will ensure that Medicare for All functions just as efficiently as traditional Medicare by setting net administrative spending at 2.3%.

No, no, and no.  She’s claiming that administrative spending will be 2.3% because she says so.  Part of the reason why Medicare has low administrative spending is that it doesn’t investigate fraud as heavily as it should.  Part is that other agencies do some of the administrative work and their costs are excluded from this 2.3%, and that, on the other side of the coin, “administrative costs” for private insurers include such things as taxes, nurse hotlines, and case management.  Administrate costs are also lower, in general, for the elderly as a percent of their total costs because their total claims costs are higher.  (See this 2017 Washington Post fact-check.)  Now, I’m willing to believe that a single administrative system will reduce costs, but not to this wishful-thinking 2.3% level, much less that Warren can simply decree how much administrative spending will cost.

Second, cut provider reimbursement rates.

Warren announces that physicians and other nonhospital providers will be paid at Medicare rates.  Among these providers, she’ll also boost payments to primary care providers and cut them for “overpaid specialties.”  She claims that this will be a win because it’ll increase payments for doctors who were seeing too-low rates for Medicaid reimbursement, and because they won’t have to spend as much time on billing.

She’ll also pay hospitals at 110% of current Medicare rates, with extra amounts for rural hospitals, teaching hospitals, and “other care providers with challenging cost structures.”

Now, lots of people have ripped her for the Medicare or Medicare + 10% rates.  In her defense, she is claiming that their costs will drop.  Will this really happen?  They won’t have to bill dozens of providers, but they will have to file for reimbursement for each procedure, and are at risk of the government demanding more paperwork, especially if they start to scrutinize whether a given treatment was “needed” or not.

Here’s another element of her cost-cutting:

We can also make adjustments to things that we know Medicare currently pays too much for — like post-acute care — by adjusting those payments down slightly while accounting for the patient’s health status, bringing health care costs down even more.

We will also shift payment rates so that we are paying for better outcomes, instead of simply reimbursing for more services. We build on the success of value-based reforms enabled by the Affordable Care Act, including by instituting bundled payments for inpatient care and for 90 days of post-acute care. Instead of paying providers for each individual service, bundled payments reimburse providers for an entire “episode” of care and have been shown to both improve outcomes and control costs. These bundles help ensure that a patient’s different providers all communicate because they are all tied to the same payment.

Is this good?  Yes and no.  Recent reports (and my recent experience with a parent) are that hospitals are keeping patients in emergency rooms, for several days, to avoid them being deemed “admitted” to keep their metrics on-track.  Creating complex reimbursement structures can backfire if providers look for work-arounds rather than (in the case of my dream healthcare model, the Staff Model HMO) being onboard with the system.

Third, “restore health care competition.”

Yes, this one is in quotes because I’m enormously skeptical.  She would use antitrust enforcement to ban hospital mergers and she wants “hospitals to voluntarily divest holdings” (though I don’t know whether there’s meant to be a carrot or stick there because I don’t see why they would, otherwise), in the dream of a system in which “providers will have to compete on better care and reduced wait times in order to attract more patients.” But this seems a bit of a fantasy.

Fourth, fix prescription drug costs.

Yes, it bothers me, too, that various wealthy Western European countries pay a lot less for their prescription drugs.  But partly that’s because they are willing to walk away, and refuse to cover a drug if they can’t come to an agreement with the provider.  To what extent they also simply refuse to accept patent rights, I’m not sure.

But Warren declares that she will reduce brand name drug prices by 70%, and generics by 30%, and will demand that manufactures provide their drugs to the federal government for all Americans at rates of no more than 110% the “average international market price.”  If they don’t comply, she’ll tax them to death, seize their patents, or, for generic drugs, directly contract out the manufacture of these drugs.

The demand of a 70% cut in prices is nuts.  The notion that Americans should pay no more than 110% of the average international price is loony, considering that “international” means not just the Europeans and Canadians getting their good deals because they’ll walk away otherwise, but also India, Brazil, Mexico, and countless other countries with health systems which can afford medication but must necessarily obtain it at reduced rates.

But don’t worry, this won’t impact innovation.

Medicare for All will also incentivize pharmaceutical companies to develop the drugs we need — like antibiotics, cancer cures, and vaccines.

How on earth she’ll provide incentives she doesn’t say.  And that’s an awfully short list, considering that the most expensive medications are for the rarest of diseases.  Would the miracle cystic fibrosis drug that’ll cost $311,000 (list price) have been developed in her system?  (See, for instance, a BBC article about Welsh families fighting for access to the current treatment norm in the US through their national health system.)

Fifth, “stem the growth of medical costs.”

Yup.  If these proposals aren’t enough to keep medical spending in line with GDP growth,

I will use available policy tools, which include global budgets, population-based budgets, and automatic rate reductions, to bring it back into line.

Yes, this is where she just decrees that things will go her way.

It’s astonishing, really, to just slip this in unnoticed.  What happens if her rate reductions reduce the availability of providers, if they cannot make budget?  Will she claim she’s making good on her promise of “all the care you need” by determining that certain patients don’t really need certain treatments?

Sixth, “redirect” taxpayer-funded health spending.

States will be required to “redirect” their existing Medicaid spending to the federal government.  McArdle says “you can’t do this” but I assume that she’d make it work by removing the equivalent amount of federal grants to states for other items instead.

And after all this, here are the ways she’d get more money from taxpayers:

First, an Employer Medicare Contribution.

This is goofy.

It’s a tax.

But she doesn’t want to call it that.

And it’s designed in a way that made no sense.

As summarized elsewhere, I had initially thought it was a payroll tax that was intended to approximate employer spending.  But it’s not.

Employers would be taxed an amount equivalent to “what they spent on health care over the last few years” and increase it by headcount growth and national healthcare spending growth, and pay 98% in tax.

Small businesses (<50 employees) that had never paid for healthcare would be exempt.  New companies or growing companies would pay an amount equivalent to the “national average cost of health care per employee.”


Over time, an employer’s health care cost-per-employee would be gradually shifted to converge at the average health care cost-per-employee nationally.

Now, this is nutty in a number of ways, but also very unclear.  She doesn’t explain whether she has in mind a cost for the individual worker, or an average cost on a “family” basis, taking into account the average number of dependents per worker.  She also doesn’t take into account the difference between what employers had been paying (say, 80% of their employees’ premiums and 50% of the premiums for dependents) and what the full cost of the “average healthcare” is taking into account no employer/employee cost share, no copays, all medical/dental/vision covered, etc.

But to top this off:

Employers currently offering health benefits under a collective bargaining agreement will be able to reduce their Employer Medicare Contribution if they pass along those savings to workers in the form of increased wages, pensions, or other collectively-bargained benefits. New companies or existing companies who enter into a collective bargaining agreement with their employees after the enactment of Medicare for All will be able to reduce their Employer Medicare Contributions in the same way.

So an employer which had been particularly generous just pays more in tax — unless they had unionized employees, in which case, they can keep the money and use it to increase pay.

But there’s more:

If we’re falling short of the $8.8 trillion revenue target for the next ten years, we will make up lost revenue with a Supplemental Employer Medicare Contribution requirement for big companies with extremely high executive compensation and stock buyback rates.

Her next revenue source is “cracking down on tax evasion and fraud.”

Various other writers have already explained that the amount of money she thinks she can collect in this fashion is foolish.

Third, a financial transaction tax of 0.1% of each transaction.

Fourth, extra “fees” on “big banks.”

Fifth, higher taxes on corporations, including a 35% rate on overseas earnings (that is, without waiting for them to repatriate the money to the U.S.), and an extra tax on companies that do business in the U.S., but whose home countries’ tax rates are lower than the American rate.

Sixth, a 6% wealth tax for net worth over $1 billion.  That’s on top of the 2% tax she’s already proposed, and moves this from a squint-and-it’s-a-tax-on-imputed-earnings to the government flat out helping itself to wealthy peoples’ assets.  (She justifies this by saying that billionaires reliably earn over 10% per year on their earnings.)

Seventh, taxing unrealized capital gains for the “top 1%” and doing so at the rates applicable to regular income.

Eighth, she’ll have a mass immigration amnesty program and credits towards her costs revenue from the newly-amnestied paying taxes.  (I thought they were paying taxes all along under falsified SSN?  I don’t buy this.)

And finally, she’ll cut military spending.

The bottom line

Look, this is a joke.

I am fine with some sort of hybrid system that ensures everyone gets basic care without stifling innovation.  But Warren and Sanders’ promises that everyone gets everything, at a cost of only punishing the ultrawealthy?  No.

And I suppose the larger question is:  are people going to find this believable?  Are they going to lap this up and say, “We’re saved!  Warren has a plan!”

Or is this all a bit of theater?

And finally, if Amy Klobuchar’s worst offense was eating salad with a comb, how bad was that, really, compared to this?


Image:; By Unknown photographer [Public domain], via Wikimedia Commons


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