Warren’s Medicare for All Plan Jumpstarts a Stalled Debate, Finds a Way to Circumvent the Power of Employers

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There’s been a wave of education and political mobilization around Medicare for All (M4A) since Bernie Sanders centered the demand in the 2016 primary. It’s also been a dominant question in the primary, with each candidate positioning themselves in or around the idea. Yet for all the ways it saturates the public discussion, there’s wide avenues of debate over the policy that has been stalled during this time, and little progress has been made towards understanding the political tactics and strategies that will be necessary. With the release of Elizabeth Warren’s Medicare for All financing plan last week there’s now a framework to start the debate around those questions. Warren, in particular, gives us a starting point on how to structure the initial taxes to make them market power and monopsony-proof, so bosses and owners don’t steal a windfall.

I don’t mean debate in the pedantic “can we afford it?” way. M4A is fundamentally a financing question, and financing is the foundation of all the major political questions. Financing determines how we distinguish enemies from allies, the element of who gets what, who benefits, and who bears what pain. These are fundamental political questions, especially when it comes to taking on a powerful status quo.

I don’t work on health care directly, but working on the economy broadly means you interact with health care since health care permeates everything. And much of the work that has been developed around inequality in recent years interacts awkwardly with M4A. That’s fine, politics is about understanding and working through the ways movements don’t line up. But watching these interactions closely, they haven’t had frameworks or institutions to move them towards answers. Let me first give three examples of what I mean by this, before discussing some new things that Warren has put onto the table.

Three Open Questions

First, I and others spend a lot of time arguing that there’s significant revenues that can be raised through taxes on the rich and wealthy. These high-end taxes not only raise revenue, but also restructure the economy towards less extraction and a better overall distribution of income. I’m around efforts to emphasize that the current deficit is nothing to worry about and can even expand, given secular stagnation and that growth is higher than prevailing interest rates. This is especially true when it comes to the Green New Deal. In practice this means we do a lot of research and education around the deficit and increasing high-end taxation, and little on middle-class taxation. You can do a lot, from saving the climate to creating free college, daycare, paid family leave, and more simply through debt and soaking the rich.

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these were current as of a year ago

Except for M4A. There you need a whole other universe of offsets, spending redirects, and revenue raising to carry it out. That makes sense and is fine, as it’s largely a puzzle around moving already existing spending to public balance sheets. Yet it causes two pieces of confusion. You get endless arguments that conflate the two sets of policies, that drive up a massive headline number for the overall progressive agenda, a number that is driven by M4A. This is often done to argue against taxation on the rich or make the possibility of reform seem more limited, even though there’s a pretty clear way to distinguish between tackling M4A, other social programs, and climate initiatives like the Green New Deal.

A more practical problem is that you have an entire tax policy infrastructure on standby, not knowing where to start digging, researching and developing arguments about broad taxation. For example, I have no idea if, in the back of my head, I should be preparing arguments for a value-added tax (VAT). Scandinavian countries use VATs for their health care. Will we? I don’t care about the exact number; I do care about the balance and scope, because preparing the broader movement and public around these arguments and doing the work of developing them is part of the politics. I was no closer to understanding before this last week than I was years ago.

Second, left-liberals spend a lot of time arguing that our economy is structured to send too much income to those at the very top. Inequality isn’t natural, but instead the result of how the economy is structured, and we have terrible institutions in place to check the incomes and rents of bosses, shareholders, the financial sector, and others who profit off the basic life necessities. Doctors too. I wrote a piece for The Nation about how one of the most important challenges for M4A is taking on the medical establishment and paying doctors less. This is true because that’s where the money is, doctors have historically been the ones mobilizing social and economic capital to kill single payer, and they have fought claims that we can spend less overall on health care driven by the rate it would pay doctors.

The Nation quickly got a letter from three doctors stating that this was wrong, I was “sounding a false alarm that doctors’ opposition will torpedo single-payer health-care reform” and that M4A administrative savings “means doctors’ take-home pay could be stable.” If I wrote about squeezing hedge fund rents and then three people from hedge funds responded saying there’s a lot we can do to reform the financial sector while keeping hedge fund salaries stable, I’d know what was going on. But these three doctors were from Physicians for a National Health Program, arguably the leading public advocacy group for M4A. This was part of a broader messaging they were doing, arguing that total health care expenditures by providers should only be brought down by administrative savings, and “the line here can’t be and shouldn’t be soak the hospitals.”

I’ve been around movement politics enough to know when the advocacy groups are trying to set limits on what people should be saying, but when I tried to find who was managing this question of doctors and providers within M4A I found basically nothing. (Even now M4A advocates phrase the political challenge as “the battle we’ll need to wage against insurance companies, drug companies, and the political establishment” with no mention of doctors, hospitals and providers.) Some advocates of M4A were assuming pretty heroic savings from providers, yet the leading advocacy group was against this line of public argument. That M4A decommodifies health care for individuals is enough of a moral case for it. But many, including myself, like the idea of M4A because it allows you to squeeze the massive rents and profits out of an inefficient system. Until last week, I didn’t understand what people were actually prioritizing here when it came to how to position vis-a-vie providers.

Third, I’m around a lot of people arguing that wages aren’t determined by marginal productivity, or human capital, or the economy-wide bidding of skills by employers. They are determined by power. Supply and demand form a range of potential outcomes, a field between which a massive battle takes place over who will benefit from the surplus that our economy creates. If you suddenly become $5,000 more profitable to your employer, who benefits from that $5,000 is a political question.

Unless if that $5,000 comes when the spending your employer does on health insurance disappears after M4A. Then it goes to you instantaneously, as if by an invisible hand moving through spontaneous order. Your boss actually walks up to you the moment M4A passes, and drops a sack of money with a dollar sign on it on your desk. (This abstract boss is happy, because normally he has the distressing job of telling everyone they are fired if they make between the old and new minimum wage every time the minimum wage increases.) The employer-side incidence argument has gotten to the point where people are referring to it as a tax, not in a philosophical sense but in a ‘this will show up one-for-one in your paycheck’ sense. There’s a very strong presumption in the M4A debates that since employers probably deduct the spending they do on health care for their employees from their salaries, removing that spending will cause salaries to increase.

Labor and left-liberals have been skeptical of this argument when it was deployed as an argument for the ACA’s “Cadillac Tax.” There are many studies of tax incidence that find in the United States that employers push the costs of benefits onto workers, though that literature is more ambiguous than you would think. But there’s no reason to believe that it can work in the opposite direction. The whole point of monopsony theory is to explain why employers can push costs onto employees while keeping profits for themselves. Perhaps, after 5–15 years and a business cycle or two, this would balance out on its own. But maybe we can design policy to accelerate this? M4A would represent a once-in-a-lifetime moment where who benefits within a firm would change, and we should move to prevent bosses and owners from taking it and instead make sure it benefits the public and workers. But to do so, we need a baseline of what the tax structure looks like.

Baselines to Argue From

So where does Warren’s financing plan leave us? First, it gives us a baseline on the doctor question. I’m pretty sure this is the first time in the M4A debate I’ve seen the promise that M4A “lowers reimbursements for overpaid specialties.” She would “set reimbursement for physicians and non-hospital providers at 100% of current Medicare rates” and “pay hospitals at an average of 110% of current Medicare rates under Medicare for All.” There’s then also crackdowns on mergers.

This probably isn’t the all-out war the Neo-Brandeisian at The American Prospect want, but it’s a marker. I can now gauge a more aggressive and less aggressive stance in relationship to it. In turn, doctors and provider groups now have a pain point, and can figure out their stance, while analysts can try and make objective calls on the effects. It’s a start to now evolve the politics.

Distribution of the Employer Question

Warren also raises revenue from employers already paying for health care, instead of through income or payroll taxes. She does this by assessing the total amount all employers are spending on health care at time of enactment, raising $8.8 trillion dollars over 10 years. In the long run, through the churn of the market, this evolves into a per-capita employer tax.

Let’s chart out what that looks like compared to what Bernie Sanders is likely to propose. Sanders released a variety of options that could be included for financing, but doesn’t commit to any. I’m going to make two reasonable assumptions. First is that he would include both an income tax and an employer payroll tax, his first two options. He’s talked about the first and is implying the second in his criticism of Warren. Sanders raises $3.9 trillion from the employer payroll tax and $3.5 trillion from the income tax. My second assumption is that we should understand these as equivalent approaches. They each tackle the question of employer-provided spending. They each raise about the same order of magnitude — $8.8 trillion versus $7.4 trillion. Sanders’s numbers are a few years old, and the two plans probably converge on the same high taxes for the rich. Here’s where they get their funding from:

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With this, we can now start to ask the question in a political manner, not just an accountancy one. A few thoughts:

With one move, Warren shoves the “will I be better off?” questions off a cliff in the short-run. Small businesses that don’t provide any health care aren’t taxed under Warren. A family of four on Medicaid making $40K in a blue state doesn’t pay any new income taxes. A married nurse and a cop making $120K don’t have to worry about whether they show up as relative winners or losses on the income tax side. The New York Times spent a bunch of time trying to figure out the income threshold where people go from winners to losers, and here the question is moot. Warren does this while raising the same (or more) revenue than Sanders does on the overall employer-provided question.

I know this proposal has already moved the debate forward, because I see a lot of concerns that converging to a per-capita employer payment is too regressive. You have to consider this as a whole, given the trillion in taxes the rich would pay. It certainly wouldn’t be net regressive once you count the savings that happens for people. I like seeing the debate but personally worry less about this because (a) you can always converge to another distribution, say a payroll tax or something else, while keeping the initial distribution of revenue and (b) where things go in the long-run always changes. Social Security funding certainly did, as did the ACA’s individual mandate and Cadillac taxes.

This framing has already introduced more debate, for me at least. There’s concerns that exempting firms under 50 employees would be manipulated around, though Sanders introduces an exemption for the first $2 million in payroll. I’m not sure which is easier to game, though I’d guess it is easier to move money than bodies on the corporate side, but it’s all at risk until workplace classification is fixed. I’m curious to see if people defend an income tax under the assumption it makes M4A salient, like Social Security taxes have defended that program.

Monopsony Protection

But the thing I find most interesting is that the Warren’s Employer Medicare Contribution is, in my reading, a proactive move to check the power of employers. It is generally accepted that the amount employers pay for health care ends up being paid by their employees through lower salaries. But given the monopsony power of employers it’s not clear that employers will simply hand off that money to workers when M4A passes. They will very likely keep it for themselves.

Let’s make this more concrete. In his financing option, Sanders argues correctly that his payroll tax means “employers would pay a 7.5 percent payroll tax to help finance Medicare for All — just $3,750 — a savings of more than $9,000 a year for that employee.” That’s true, but I just don’t believe the employee will see that money. I think that $9,000 would go straight to bosses and owners. Through what mechanism would it get to workers? The threat of transitioning to another job, something that has been plummeting for years? Competitive markets, even as industries become more and more concentrated? Demands from workers, even though this is one of the least salient and known costs workers will ever encounter? On what time-frame are we thinking, and will it be before the next election?

Warren’s plan shortcuts this by just using that money entirely for M4A, avoiding the political question of whether it will end up with workers or shareholders. All that money goes to health care, rather than half to health care and half to be fought over. In turn, workers pay less on their income taxes. In this sense it forces the money to actually be workers’ salaries, now just moved over towards the public. It’s an elegant solution for one of the more vexing problems here.

It also leaves the far more salient and clear payments workers make out of their own paychecks for health care free to be claimed by them directly. That itself would also be a challenge, but a much better one, and we’d prefer to move the battle over workers’ claiming these deferred wages to the more favorable ground. Setting up the political stage is what analysis is important for, and with this we can start having better discussions.

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