5 ways Warren’s Medicare for All math could fall short

Democratic presidential candidate Sen. Elizabeth Warren, D-Mass., speaks during a town hall meeting at Grinnell College in Grinnell, Iowa. (AP Photo/Charlie Neibergall)
Democratic presidential candidate Sen. Elizabeth Warren, D-Mass., speaks during a town hall meeting at Grinnell College in Grinnell, Iowa. (AP Photo/Charlie Neibergall)

Elizabeth Warren faced increasing heat for not saying how she’d fund the health care care overhaul that Medicare for All would bring. Then, she unveiled a funding plan, and the flames got even hotter.

Set aside the dismissals from Republicans. Her Democratic presidential primary foes offered plenty of their own.

Bernie Sanders, the original author of the legislation, said her plan would "have a very negative impact on creating jobs." 

Joe Biden said "she’s making it up." Pete Buttigieg talked about Warren’s "aggressive math," and that "we don't need to spend tens of trillions of dollars in order to address this problem."

Warren laid down a challenge to others to be as forthcoming as she has been.

"We are the only Democratic primary campaign that has laid out the true, full costs of any health care plan, Medicare for All or otherwise," she said Nov.1. "I look forward to others doing the same."

Warren said she would provide comprehensive health coverage to everyone in the United States, with essentially zero premiums, deductibles or other personal costs, and the additional price tag for the federal government would be $20.5 trillion over 10 years. That’s about $14 trillion less than the most recent estimate by analysts at the Urban Institute, a left-of-center policy center in Washington

She gets there through a mix of spending cuts and taxes.

Everything in Warren’s plan is a prediction, and neither she nor her critics nor fact-checkers can say with certainty what the future holds. So we looked at five of the big dollar assumptions in her plan, and what might cause them to fall short.

Assumption No. 1: She will save $2.3 trillion by changing how doctors and hospitals are paid

The concern: One of her key methods might not pan out.

A central belief in Warren’s plan is that Medicare for All will drive down what we pay for health care, including providers. One of the mechanisms to do that is through paying them differently than today.

Warren counts on cutting costs by $2.3 trillion over 10 years.

The key benchmark for Warren is the Urban Institute cost estimate study. The institute’s computer model painted a tougher fiscal nut for Medicare for All to crack than Warren lays out. 

The single biggest chunk of those payment reform savings comes through something called "bundled payments." That’s when hospitals are guaranteed a set amount for the full course of treating a patient, rather than getting paid for each separate service they provide.

Warren’s panel of experts cite studies that support their forecast that this would cut $1.2 trillion.

But it could turn out that bundled payments don’t work as well as hoped. Medicare has tested the approach.

The Commonwealth Fund, a New York-based health policy group, reported in 2018 that "no significant difference was found between the hospitals participating in Medicare’s bundled payment program and the control hospitals."

Assumption No. 2: She will save $1.8 trillion in administrative costs

The concern: Spending less on oversight can cost, not save.

The rule of thumb in private insurance is administrative overhead eats up about 12% of the premiums they are paid.

Traditional Medicare’s administrative costs — direct payments to hospitals and doctors — are about 2.3%. Warren uses that percentage for her Medicare for All program.

In contrast, the Urban Institute set overhead at 6%, still half of what happens in the private sector but it makes for a $1.8 trillion difference between its estimate and Warren’s.

The Urban Institute said 6% would be essential to reduce fraud and abuse, and to make sure that everyone was getting quality care.

Waste in health care is a huge problem. In 2010, the National Academy of Medicine estimated that nearly 19% of health spending is wasted, mainly through providing care that wasn’t medically needed, but also through inefficiency and fraud.

The concern is that the less spent on oversight, the more waste that gets through.

A study that argues in favor of Medicare for All, and one that Warren’s experts cite, casts a dark picture of the challenge of rooting this out.

A 2018 study from the Political Economy Research Institute at the University of Massachusetts - Amherst, first the first five years, even with all the changes in Medicare for All, it probably would be "difficult to achieve significant savings through waste reduction."

So, it’s possible that Medicare for All could spend less on administration, but that could make it harder to achieve savings in overall health care spending.

Assumption No. 3: She can save $1.7 trillion in prescription drug costs

The concern: This hinges on making drugs cheaper than in any of our peer nations.

Warren has ambitious goals for cutting the nation’s prescription drug bill. She aims to pay 70% less than current Medicare rates on brand name drugs and 30% less for generic drugs. She’d do that "principally through price negotiation," backed up by a couple of other measures to get less expensive generic drugs to market.

To get an idea of how ambitious that is, the Political Economy Research Institute, looking only at the power of negotiating with drug makers, said "Medicare for All program will be able to reduce pharmaceutical prices in the United States by an average of 40%." (That figure reflects that brand name sales dominate the drug market.)

The study called that a lower end estimate, but it suggests the challenge of reaching Warren’s target.

Another analysis found that if Americans paid what Canadians do for drugs, they’d save about 30%. If they paid what the Danes pay, they’d save 65%.

Assumption No. 4: She will gain $2.3 trillion from stronger IRS enforcement

The concern: A lot of pieces would need to fall in place.

The IRS knows it doesn’t get all the money the law requires. People have all sorts of ways to shave down what they report. The IRS estimates that it collects about 15-18% less than what its owed.

Warren says that beefing up IRS enforcement could knock the uncollected fraction down to 10%. That would add up to $2.3 trillion over 10 years.

The job could be a heavy lift. 

The Tax Policy Center notes that "almost 60% of the underreported individual income tax is owed on business and self-employment income, which the IRS has no easy way to verify independently."

Assumption No. 5: Medicare for All rolls out fully on Day One

The concern: No one buys this premise.

What we’re talking about here isn’t so much an assumption as it is a convenient way for talking about the numbers. But if nothing else illustrates why all these estimates should be taken with a grain of salt, this is it.

All of the savings, and all of the revenues, are calculated as if every policy were in force Jan. 1, 2020. 

Warren’s experts are blunt with this major caveat: "While it is of course the case that any shift to Medicare for All would require a significant transition period, because Urban estimates the costs of a single-payer proposal as if it were fully implemented and at steady-state starting in 2020, we use the same approach in our analysis for ease of comparison." 

The Medicare for All bill itself has a four-year transition period. But given that no other current study can match the computer modeling behind the Urban Institute estimate, Warren’s team followed suit.

John Holahan, a key architect of the Urban Institute’s study, said their goal was to compare a variety of health care reform plans, not give a road map of how they would unfold.

As a result, the timing of the all the dollars is off. Some costs tied to enrollment would be lower than expected at the start.

"You could enroll the people on Medicare and Medicaid right away," Holahan said. "That would save you money, because you’re not covering everybody. But your costs increase over time as you cover more people."

Some costs would be higher.

"A lot of this works because you have lower provider payment rates," he continued. "You can’t do that on Day One — you have to cut gradually, so you are spending more money in the early years."

Warren may have said she had provided the "true, full" cost of her plan. What she provided, for all its details, was a hypothetical sketch.