How Warren could pay for 'Medicare for All'

Sen. Elizabeth Warren’s pledge to reveal how she'd pay for her "Medicare for All" plan carries big risks, no matter which path she takes.

Taxing the wealthy won’t cover the trillions in cost. Raising taxes on the middle class is a political third rail. Other options, like reducing health care benefits or raising payroll taxes are also politically dicey.

Small wonder then that the top-tier Democrat — whose motto is that she has a plan for everything — doesn’t have one yet for how to pay for universal health care. She and other Medicare for All supporters have argued that it doesn't make sense to fixate on costs with basic questions, like how much doctors would earn, still unknown.

“You could say ... that we’re spending about $3.5 trillion on health care now and we’re going to move that all onto the federal tab, but I think that’s a little too simplistic,” House Budget Chairman John Yarmuth (D-Ky.), a longtime supporter of single-payer health care, said earlier this year.

But with Warren’s primary rivals pressuring her for details, lawmakers, health policy experts and academics say she has several credible options for paying to extend government health insurance to all Americans. Here are some of the taxes, spending cuts and budget shuffling ideas under consideration by experts, and the pros and cons.

Tax the rich

Warren has already made it clear that wealthy individuals and corporations will be expected to pay up for Medicare for All, but that squeeze could take a number of forms.

Raising income taxes on top earners, who are currently taxed at 37 percent, would deliver some revenue. Warren could also introduce a new tax on the richest 0.1 percent of Americans, eliminate itemized deductions for the wealthy or limit other tax breaks — such as scrapping a provision that allows rich investors to pass unrealized gains to heirs tax-free when they die. Warren has already suggested using her proposed wealth tax to fund universal childcare and tuition-free college.

Pros: Some of these proposals, or a combination of several of them, could go a long way toward paying for a single-payer system. Whacking the rich also is an appealing populist stance for a progressive candidate.

Cons: Taxing the wealthy alone wouldn’t raise the trillions of dollars in added revenue needed to completely overhaul the health system, and experts say spreading the pain to a bigger segment of the population would stoke more voter anxiety.

“You need to consider some substantial broad-based tax increases on a large number of Americans, but that’s not the kind of thing campaigns like to talk about,” said American Enterprise Institute researcher Ben Ippolito.

Just raise payroll taxes

Warren and other supporters of Medicare for All are expected to turn to employer payroll taxes to help cover the bill, because that tax already funds government health care and likely would cause the least disruption. Sen. Bernie Sanders has proposed a 7.5 percent payroll tax on employers to fund his Medicare for All plan, which he estimates would raise close to $4 trillion over a decade.

Pros: Employers would save a ton of money under Medicare for All since they wouldn’t have to pay for workers' private coverage in a single-payer system, so it might make sense to ask them to chip in in a different way. The payroll tax could also be designed to exempt small business and low-income workers while leaning more heavily on the high end of the pay scale by lifting the cap currently in place for programs like Social Security.

“A payroll tax on the Lakers including all of Lebron James’ salary, for example, would raise a lot,” said Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation.

Cons: Economists say the vast majority of higher payroll taxes would be passed on to workers in the form of lower wages. Additionally, groups like the Organization for Economic Cooperation and Development have warned against relying on payroll taxes to fortify the social safety net because the nation’s aging population and low birth rate mean fewer workers paying those taxes in the future.

Slash military spending

Fans of Medicare for All have proposed chipping away at the nation’s military budget to fund a single-payer health system. The Institute for Policy Studies, a liberal think tank, calls for diverting $300 billion a year for universal health care.

Pros: Lawmakers of all political stripes are concerned about waste, fraud and abuse at the Pentagon and have called for more oversight and stricter auditing.

Cons: Pentagon spending still is one of the most popular ways to politicians to deliver the goods to their states and districts, and few want to risk angering local contractors or suppliers. This summer's budget deal saw congressional leaders and the White House agree to raise defense funding caps by $22 billion for the current fiscal year.

Water down the benefits

The benefits currently outlined in Sanders’ Medicare for All bill that Warren has embraced are more generous than any other government health care in the developed world, offering full coverage for nearly every procedure, drug and service free of charge to all residents, potentially including undocumented immigrants. There are ways to pare down the cost and bring the plan more in line with government-administered systems in other countries — from restricting what services are covered to charging a small yearly premium or deductible based on a person’s income.

Pros: Any reduction in benefits or a restriction on who qualifies for coverage would lower the price tag of Medicare for All considerably, meaning lawmakers would not have to raise nearly as much in taxes or cut as much in other federal spending.

Cons: Warren campaigned on free coverage for all and would quickly face accusations of flip-flopping.

Pay for the plan with future savings

Administrative costs are projected to drop substantially when the federal government handles health care coverage. Sanders estimates the federal government could save up to $500 billion a year on administrative costs alone by moving to a single-payer system.

Pros: Economists across the political spectrum agree that a public health care system with lower overhead that removes the profit motive is certain save the country a lot of money. Administrative overhead totals less than 2 percent of Medicare spending, compared to well over 10 percent for the private insurance market, according to the Institute of Medicine of the National Academies and the Congressional Budget Office.

Cons: Experts disagree on whether overall health care spending would fall under Medicare for All. With no out of pocket costs for care, some argue, millions of people would use more health services than they currently do, canceling out any savings from lower overhead. Even some of those in favor of Medicare for All also question whether the government is up to the task.

“My thought has always been that it would be much too difficult for the federal government to set up a bureaucracy to administer an insurance program for 330 million people,” Yarmuth told POLITICO earlier this year. “I’m not saying it’s impossible to have a fully government-run system, I just have a hard time envisioning how it would work.”

Squeeze doctors and drug companies

A key feature of Medicare for All is having the federal government bargain with medical providers and pharmaceutical companies for cheaper rates.

A House Democratic drug price plan is projected to save at least $345 billion over seven years through direct negotiations. If Medicare coverage were expanded to all Americans, that change could result in trillion-dollar savings each decade.

Pros: Leveraging the government’s bargaining power could result in massive savings. Just look at other developed countries where people pay far less on average for medication and health care procedures.

Cons: This is easier said than done. The hospital and pharmaceutical industry has already mobilized not only in opposition to Medicare for All but also against much more incremental plans to rein in health care costs, including plans under consideration in Congress to protect patients with insurance from massive out-of-network bills.

"If you’re telling me you’re going to slash the rates you provide doctors then I'd like to direct you to the current debate over surprise medical bills,” Ippolito said. “Doctors aren’t even willing to commit to normal market rates let alone much lower Medicare rates.”

Aaron Lorenzo, Bernie Becker, Jennifer Scholtes and Alex Thompson contributed to this report.