Elizabeth Warren’s Medicare-for-All plan: The devil in the details

On Nov. 1, 2019, Sen. Elizabeth Warren (D-Mass.) released a long-awaited plan for how she would attempt to fund “Medicare for All” — universal, government-funded healthcare for the entire U.S. population — without increasing taxes on the middle class “by one penny.”

Media coverage and, therefore, the public’s general understanding of the Warren plan, thus far,  have focused on the plan’s societal cost (i.e., what the nation as a whole will spend on healthcare over 10 years from 2020 through 2029) and the plan’s federal cost (i.e., the increase to the federal government’s spending over the same period, and how it will be funded). Closely following these are the impacts of the plan on the health insurance industry and hospitals, respectively. 

The societal cost: $52 trillion

The Warren plan’s societal cost can be measured in terms of national healthcare expenditures (NHE). As a point of reference, CMS projected NHE of $3.6 trillion in 2018.^a According to one expert assessment, over the period of 2020-29, the Warren plan is projected to yield NHE of about $52 trillion, in line with an extrapolation of CMS’s most recent NHE projection, which forecasted average annual NHE growth of 5.2% from 2018 to 2027.^b Thus, the Warren plan does not promise a material reduction in NHE relative to the federal government’s projections. 

However, it is projected to be $7 trillion, or 12% cheaper, than the most recent $59 trillion NHE projection by the Urban Institute, a left-leaning Washington D.C.-based economic and social policy think tank.^c

Relative to the Urban Institute projection, which is 30% higher than the average of six other analyses of single-payer proposals, the Warren plan assumes the following:

• Sharply lower administrative spending
• Steeper reductions in Medicare payments for prescription drugs as a result of price negotiations by Medicare
• Less-generous hospital payments
• Expansion of value-based payment models (e.g., bundled-payment programs and ACOs), which the Urban Institute did not assume
• Slower growth of medical costs over time, based on the experiences of other single-payer systems, such as Taiwan

The federal cost: $20.5 trillion

As outlined in the previously cited assessment,  the Warren plan proposes a $20.5 trillion increase in federal spending from 2020 to 2029 relative to current projections. (It also assumes that state and local governments will transfer to the federal government $6 trillion, which is what they currently are projected to spend on healthcare over the same period.) 

The $20.5 trillion amounts to a whopping 40% increase in federal spending, which is defined as total mandatory and discretionary outlays, net of offsetting receipts, based on the Congressional Budget Office’s January 2019 baseline projection for the 10-year period. To put the 40% increase in federal spending in perspective, federal expenditures for Medicare and Medicaid in 1973 — when those two programs were fully implemented — accounted for just 8% of the federal budget.^d To put the 40% increase in federal spending in perspective, federal expenditures for Medicare and Medicaid in 1973 — when those two programs were fully implemented — accounted for just 8% of the federal budget.^e Thus, the Warren plan would entail an unprecedented increase in federal government spending.

How does the Warren plan aim to fund this significant growth in federal spending? At a high level, about three-fourths of the cost would be funded by increased taxes on employers, ultra- wealthy individuals, large corporations and financial institutions. 

The impact on the health insurance industry

In explicitly abolishing private health insurance, the Warren plan has been described as an “existential threat” to the health insurance industry. America’s Health Insurance Plans (AHIP), the insurers’ trade association, estimates that the jobs of 1.5 million workers in the industry would be jeopardized.^f

On Nov. 1, 2019, Warren was asked in Iowa, “Where do those who work in health insurance go when private insurance is eliminated?” Remarkably, she replied, “Some of the people currently working in health insurance will work in other parts of insurance — in life insurance, in auto insurance, in car insurance.”^g To be fair, her plan includes five years of “transition support” for those displaced by Medicare for All. However, as the travails of the Rust Belt over the past few decades have clearly demonstrated, people are not just chess pieces that can be easily moved from industry to industry or region to region. 

The impact on hospitals

While hospitals would obviously benefit from a reduction in bad debt expense, many organizations would lose money under the Warren plan, which would reimburse hospitals at 110% of current Medicare rates. That figure corresponds to the Medicare Payment Advisory Commission’s March 2019 Report to the Congress, which presented a –9.9% average Medicare margin for all hospitals, based on 2017 data.^h

But Medicare margins vary considerably by type of hospital. In that same year, average Medicare margins were – 11.0% for not-for-profit hospitals, -12.2% for nonteaching hospitals and – 16.4% for hospitals without disproportionate share adjustments. Medicare margins also change over time. According to an American Hospital Association survey, the average not-for-profit hospital experienced a – 13.0% Medicare margin in 2016.ⁱ Thus, payment at 110% of current Medicare rates would be insufficient for many hospitals, which could lead to unintended consequences, such as hospital closures. 

The need for a full accounting

Warren’s Medicare-for-All plan is big and bold, and to its credit, it does not understate its  price tag. The ample details provided by the  Massachusetts senator have been educational for the public, and a possible transition plan  of several years could help soften its impact on the private sector. However, in addition to its benefits, Medicare for All’s enormous societal and federal costs, as well as its impacts on  the health insurance industry and hospitals,  respectively, need to be part of the political — and public — calculus.  

Footnotes

a. CMS, “National Health Expenditures and Selected Economic Indicators, Level and Annual Percent Change: Calendar Years: 2011-2027,” accessed Nov. 27, 2019.
b. Berwick, D.M., and Johnson, S., Expert letter to Sen. Elizabeth Warren, Oct. 31, 2019, p. 1. 
c. Blumberg, L.J., Holahan, J., and Simpson, M., “Don’t Confuse Changes in Federal Health Spending with National Health Spending,” Urban Wire: Health and Health Policy, The blog of the Urban Institute, Oct. 16, 2019. 
d. Congressional Budget Office, “The Budget and Economic Outlook: 2019 to 2029,” January 2019. 
e. Catlin, A.C., and Cowan, C.A., “History of Health Spending in the United States, 1960-2013,” Nov. 19, 2015; and United States Bureau of the Budget and Untied States Office of Management and Budget, “Budget of the United States Government: Fiscal Year 1973,” Jan. 24, 1972, p. 15.
f. Cunningham, P.W., “The Health 202: Medicare-for-all would virtually erase the massive health insurance industry,” The Washington Post, Nov. 5, 2019.
g. Baumann, B., “Warren acknowledges Medicare for All will displace health insurance workers. Her ‘solution’ is ridiculous.” Townhall, Nov. 2, 2019.
h. Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, March 2019,.
i. American Hospital Association, “Underpayment by Medicare and Medicaid Fact Sheet,” December 2017.