Elizabeth Warren
Credit: Gage Skidmore/Flickr

On Friday, Elizabeth Warren released her plan to pay for Medicare for All. If the prospect of reading her 9,000 word description is a bit daunting, I have a plan for that. Previously, I identified the two questions her proposal needed to address and promised that, when released, I would evaluate whether she had been successful. I can report that, unlike Bernie Sanders, Warren has addressed the difficult questions related to financing Medicare for All. Let’s take a look at how she did so.

How much will providers be paid?

The reason this question is important is because the current Medicare system pays providers significantly less than private insurers. A recent study by Rand tells us the magnitude of the difference.

The researchers found the average prices private insurers paid for hospital outpatient services were 293% of Medicare rates, while inpatient services were reimbursed at 204% of Medicare rates.

In order to get an accurate assessment of how much Medicare for All will cost, this payment discrepancy needs to be addressed. Here is Warren’s plan.

Under my approach, Medicare for All will sharply reduce administrative spending and reimburse hospitals at an average of 110% of current Medicare rates, with appropriate adjustments for rural hospitals, teaching hospitals, and other care providers with challenging cost structures.

Paying 110% of current Medicare rates means that most providers would be paid significantly less than the current status quo. Warren counters that by saying that they will spend less on the administration costs associated with billing private insurance.

The nonpartisan Institute of Medicine estimates that these wasted expenses account for 13% of the revenue for physician practices, 8.5% for hospitals, and 10% for other providers. Together, the improved efficiency will save doctors time and money – helping significantly offset  the revenue they will lose from getting rid of higher private insurance rates.

How much those savings offset the reduction in payments will vary greatly between providers, but it is unlikely that any of them will escape a loss of revenue.

How will it be paid for?

When it comes to addressing this question, Warren nailed it by saying that the central question in this debate is about “who should pay.”

The first step Warren proposes is to use all of the money currently being spent by the government on health care—including what state and local governments spend on programs like Medicaid. Much like Warren’s plan for free college, this takes the disparities in the existing system and “bakes them in place.” States who have more generous Medicaid programs will permanently pay more into the system than those who don’t.

In order to capture the money employers are currently paying into the health care system, Warren has proposed a new Employer Medicare Contribution. She outlines a formula for how the amount will be determined based on how much they’ve paid for employee health insurance in the past and the number of employees. Given that companies who have more than 50 employees are required to either offer affordable coverage or pay a penalty, that isn’t likely to have much impact on their current costs. It does, however, give an advantage to companies that have offered cheaper plans with less comprehensive coverage. Their reduced costs get baked into the system.

But here is what Warren says about those with fewer than 50 employees (emphasis mine).

Small businesses – companies with under 50 employees – would be exempt from this requirement too if they aren’t paying for employee health care today.

About half of these small businesses currently provide health insurance to their employees and would be required to pay the Employer Medicare Contribution. Meanwhile, their competitors—who didn’t provide insurance—get the benefit of their employees being covered, but will not have to pay anything.

The rest of the revenue identified by Warren comes from things like a financial transaction tax, raising capital gains taxes for the top 1 percent, and an increase in her proposed wealth tax to 6 percent. Here is the most creative addition to her list of ways to pay for Medicare for All.

I support immigration reform that’s consistent with our values, including a pathway to citizenship for undocumented immigrants and expanded legal immigration consistent with my principles. That’s not only the right thing to do – it also increases federal revenue we can dedicate to Medicare for All as new people come into the system and pay taxes. Based on CBO’s analysis of the 2013 comprehensive immigration reform bill, experts project that immigration reform would generate an additional $400 billion in direct federal revenue.  

I’ll leave it to the wonks to work all of the numbers and determine if they are valid. But the big winners in Warren’s plan are middle class Americans, who not only won’t have their taxes raised, but would no longer have to pay anything for health care.

The major losers in any single payer plan are private health insurance companies. This week Warren acknowledged that would mean the loss of two million jobs. The losers in this plan for how to pay for it aren’t just those who will pay more in taxes, but include providers and small businesses who offered health insurance to their employees.

There are arguments to be made about the politics of Warren’s plan. Personally, I think an incremental approach is not only more likely to be successful, but is inevitably the path that Democrats will take. But after years of evasion from Sanders, Warren deserves a lot of credit for tackling some of the tough questions.

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Nancy LeTourneau

Follow Nancy on Twitter @Smartypants60.