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Why Warren’s Medicare For All will be a costly disaster for Americans

Written By | Nov 2, 2019
Elizabeth Warren, Medicare for All

Screen Shot Elizabeth Warren in Seattle (Via Yahoo finance)

WASHINGTON: Candidate for president Elizabeth Warren (D-MA) releases the estimate of the cost for her Medicare For All plan. She says it will cost an average of $5.2 trillion per year for the next ten years. What Warren does not share is that Warren’s Medicare For All program will result in lower-quality care, a reduction in healthcare innovation, increase the overall cost. Quite simply Warren’s Medicare For All will be a disaster for the majority of Americans.

Warren says that her plan will cover all medical costs.

If that is the case then her plan will increase spending on healthcare from the current level of $3.5 trillion per year. That means spending will increase by $1.7 trillion annually.

Then she releases another figure saying that Warren’s Medicare For All plan will add $20.5 trillion in new spending over the next decade, which is an average annual increase of more than $2 trillion per year. She says there will be cost savings, mostly because about 2 million private-sector jobs will be eliminated.

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This year the federal government, in total, will spend $4.5 trillion in total. That means Warren’s plan will increase government spending to nearly $10 trillion annually. That’s almost half of the annual GDP.




The federal government will raise about $3.5 trillion in tax revenue this year

Yet, the U.S. will have a $1 trillion budget deficit, meaning we are already spending more than we bring in.

If spending increases to $10 trillion per year, an additional $6.5 trillion in new taxes will be necessary – every year  – if the budget is to be balanced.  Bankrupting the country.

Warren’s first action taken would be to raise taxes on all Americans by the amount they are currently spending on health care. Warren says to look at the total cost and not just at the taxes.  In other words, Americans currently pay $3.5 trillion for health care.

So instead of paying that to the health insurance company, the money would be paid to the government under Warren’s Medicare For All. As though the government has any idea of how to spend money in a responsible way.

This adds $3.5 trillion to government revenue and doesn’t cost the middle class a penny.

Not really. The requirement of $6.5 trillion in new tax revenue will reduce. American taxpayers will need to pony up $3 trillion in additional tax revenue annually. Warren says she can raise that amount by raising taxes on employers, raising taxes on financial transactions and raising taxes on the very wealthy.

She would also cut $800 billion annually in military spending.

Currently, the US collects $2 trillion in personal and corporate income taxes annually.

That means to raise $3 trillion more in revenue, the middle class will have to pay more too.

Warren’s Medicare For All is a disaster for the American economy.

This plan will stagnate the economy. The reason is that her plan drastically reduces new capital going into the economy.  The economy has basically two inputs: labor and capital. We are currently at a full-employment level so more input from labor will be small. The economy will rely on new capital for growth, which makes sense in a capital intensive economy.

The new capital comes mostly from higher-income earners and from corporations.




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By raising tax rates on corporations and raising tax rates on the wealthy new capital will be reduced and growth will stagnate. And raising tax rates does not always mean more tax revenue. For instance, in 1997 Congress reduced the capital gains tax rate from 28% to 20%. For each of the next four years, capital gains tax revenue increased significantly.

The economy grew at a 4 ½% annual rate during that period. Warren wants to raise the capital gains tax rate which could result in less, not more, tax revenue.

Warren also says that her plan will reduce overall costs.

That’s because she will eliminate the $23 billion that health care corporations earn in profit each year. Her plan also eliminates the high priced executives that run these corporations.

Actually the opposite will occur and costs will rise under Warren’s Medicare For All

By eliminating competition and having the government control 100% of the market, costs will rise dramatically. The reason is simple. Since the government is not motivated by profit, there is no incentive to reduce costs. For a corporation, costs are constantly being reduced, simply because lower costs will increase profits or will allow the corporation to reduce prices while maintaining profit margins.

Lower prices also enable a corporation to increase market share. Since the government is not concerned with profit and already has 100% of the market, there is no incentive to reduce cost. We can safely predict that consumer costs will never reduce, but will steadily increase under government administration.

The lack of competition will also reduce innovation.

Currently, profit-motivated companies are constantly trying to develop new medications, new equipment, and new techniques. This allows them to reduce costs and/or expand their sales.  With no competition, there is not much innovation. The quality of health care will suffer.

The only positive in Warren’s plan is that 30 million Americans, about 9% of the population, who are currently uninsured will have access to healthcare. Meanwhile, the other 300 million Americans will suffer from higher costs, poorer quality, reduction in access and a reduction in choices.

Warren’s Warren’s Medicare For All is a disaster for the vast majority of Americans.

— Headline image: Screen Shot, Elizabeth Warren in Seattle. (Via Yahoo finance.)

 

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.