committee for a responsible federal budget medicare for all
However, few have grappled with how to finance the new costs imposed on the federal government. PWBM estimates that financing expanded traditional Medicare with a payroll tax would reduce GDP by 5.3 percent in 2030, deficit financing it would reduce GDP by 4.4 percent, and financing it entirely with premiums would actually increase GDP by 1 percent.16. For more, see Eric Toder, James R. Nunns, and Joseph Rosenberg, “Methodology for Distributing a VAT,” Urban Institute, April 2011, https://www.urban.org/research/publication/methodology-distributing-vat. In each case, we calibrated total revenue to equal $15,000 per tax unit on average and assumed quintiles were exactly equal in size. To finance $30 trillion – a rough midpoint – policymakers would likely adopt a combination of approaches that are equivalent to a 32 percent payroll tax, 25 percent income surtax, 42 percent value-added tax (VAT), a $7,500 per capita mandatory public premium, doubling all income tax rates, reducing non-health spending by 80 percent, or increasing debt 105 percent of GDP. While we are not aware of any estimates of this particular proposal, similar proposals have been estimated to cost the federal government roughly $28-32 trillion over a decade. The Committee for a Responsible Federal Budget, a nonpartisan group of budget experts focused on fiscal policy, estimates that the pandemic will cause the Part A … 20 Economists Mathias Trabandt and Harold Uhlig estimate a revenue-maximizing rate of 63 percent, while economists Peter Diamond and Emmanuel Saez estimate a revenue-maximizing rate of 73 percent. Some of these studies are more rigorous than others, and each made different assumptions regarding provider payment rates, administrative costs, drug prices, utilization effects, state contributions (or lack thereof), and availability of long-term care benefits. In the coming months, the Committee for a Responsible Federal Budget will publish a detailed analysis describing numerous ways to finance Medicare for All and the consequences and trade-offs associated with each choice. Doubling income tax rates would be the most progressive, followed by an income tax surtax, followed by a payroll tax or a VAT. PWBM also finds that deficit financing Medicare for All would reduce hours worked by nearly 10 percent – the equivalent of 14 million full-time equivalent jobs. History. Tax increases on high earners, corporations, and the financial sector by themselves could not cover much more than one-third of the cost of Medicare for All. Committee For A Responsible Federal Budget, 2/27/19) CRFB Chairman: “No Matter How You Cut The Numbers, There Is Absolutely No Way To Pay For Medicare For All Without Tax Increases – Or Spending Cuts – On The Middle Class.” (Dan Diamond, “The Hard Choices Facing ‘Medicare For All,’” POLITICO, 10/29/19) 16 See Penn Wharton Budget Model, “Medicare for All: Comparison of Financing Options,” January 2020, https://budgetmodel.wharton.upenn.edu/issues/2020/1/30/medicare-for-all-background. The $1.9 trillion American Rescue Plan currently under consideration in the House includes a number of important policies to help end the pandemic, provide much-needed relief to struggling households, and support a strong economic recovery. Finally, most of the options would reduce the federal government’s ability to raise revenue, borrow, or cut spending for other purposes. Roughly doubling all individual and corporate tax rates is the most progressive option we analyzed; this option would increase taxes in the middle quintile by $3,500 and increase them at the top by $60,000. All estimates assume that the elimination of private health insurance premiums would lead to a significant increase in taxable wages. The Committee for a Responsible Federal Budget is a non-profit public policy organization based in Washington, D.C. that addresses federal budget and fiscal issues. 3 For a full description of Senator Warren’s health plan, see Committee for a Responsible Federal Budget, “Primary Care: Estimating Leading Democratic Candidates’ Health Plans,” January 2020, http://www.crfb.org/papers/primary-care-estimating-leading-democratic-candidates-health-plans#Warren. Based on these studies, which we adjusted to remove revenue effects and measures over the same budget window, we believe Medicare for All is likely to require between $25 trillion and $35 trillion of additional federal financing over the next decade. While any financing choice will create a significant number of winners and losers relative to current law, most of the options we consider in this paper would result in more progressivity – on average – than under current law. Representative Jayapal’s Medicare for All Act would replace nearly all current insurance with a government-run single-payer plan and extend that plan to those who currently lack health coverage. This exemption significantly reduces revenue generation. In the coming months, the Committee for a Responsible Federal Budget will publish a detailed analysis describing numerous ways to finance Medicare for All and the consequences and trade-offs associated with each choice. This year, the federal government will spend $300 billion on interest payments on the national debt. In it, Lindsay Koshgarian, Director of the National Priorities Project at the Institute for Policy Studies, argues that a Medicare for All plan – as championed by several 2020 presidential candidates – could be fully paid-for by eliminating certain … Policymakers could also reduce the needed financing by reducing the cost, scope, or generosity of Medicare for All. Committee for a Responsible Federal Budget: How Much Will Medicare for All Cost? The Center for Health and Economy (H&E) produced an estimate that the American Action Forum calculates would cost the federal government $36 trillion through 2029. 6 An employer-side payroll tax raises significantly less than an employee-side tax because higher employer contributions lead them to pay lower taxable wages. Cost reductions would come from lower administrative costs and significantly lower payments to medical providers and drug manufacturers.1. The direction of that change is unclear and would depending on the whether the increased cost of expanding coverage (by making health insurance more generous and offering it to more people) is larger or smaller than the amount saved from lower provider payments, drug payments, and administrative spending. However, other estimates lead us to believe it could reduce GDP by as much as 10 percent by 2030. In other words, each of these options would bring the top rate close to or above the revenue-maximizing rate. In combination with eliminating all premiums and cost sharing, this alone could cost the federal government $2 trillion per year. See Committee for a Responsible Federal Budget, “Primary Care: Estimating Leading Democratic Candidates’ Health Plans,” January 2020, http://www.crfb.org/papers/primary-care-estimating-leading-democratic-candidates-health-plans#Sanders. So far, proponents of single payer Medicare-for-all have been reluctant to be very specific regarding how such a plan would be financed. Recently, Penn Wharton Budget Model (PWBM) estimated the impact of several options to finance a version of Medicare for All.14 These estimates reflect the impact in the steady state and not during a recession or over the course of a transition. Fiscal Space and the Next Recession,” September 2016, https://www.crfb.org/papers/running-empty-fiscal-space-and-next-recession. Those in the middle of the income distribution would receive a benefit almost 50 percent higher than those at the bottom, while those in the top quintile would receive a benefit nearly twice as high. By most estimates, a comprehensive Medicare for All plan that expands coverage to every U.S. resident for nearly all medical services and eliminates premiums and cost sharing would require the federal government to identify between $25 trillion and $35 trillion of financing. 5 These figures represent rough estimates generated by the Committee for a Responsible Federal Budget using our own models as well as a variety of sources, including the Open Source Policy Center’s Tax-Brain, the Congressional Budget Office, the Joint Committee on Taxation, the Centers for Medicare and Medicaid Services, and the Tax Policy Center. While new taxes would largely replace existing premiums and out-of-pocket costs, most of the taxes we considered (other than the public premium) would increase marginal tax rates – discouraging work and investment and encouraging avoidance and evasion. Recognizing these differences, our analysis attempts to improve the comparability of these estimates by removing revenue feedback and extrapolating all to the 2021 to 2030 budget window. By 2060, raising payroll taxes to finance Medicare for All would reduce projected GDP by 15 percent, while deficit financing Medicare for All would reduce GDP by 24 percent. A number of important federal programs — including Social Security and Medicare — are financed through dedicated revenue sources and managed through federal trust funds. The Senate-passed American Rescue Plan will deliver nearly $2 trillion of additional COVID relief on top of the $4 trillion already authorized. In addition, former Social Security and Medicare Trustee and current Mercatus Center fellow Chuck Blahous estimated that Medicare for All as proposed in Senator Sanders's 2017 legislation would cost the federal government $27.7 trillion through 2028 assuming steep provider cuts and $32.1 trillion assuming no provider cuts (these estimates, like most others, assume immediate implementation). 12 The replacement of Medicare, Medicaid, and most other federal health spending is already assumed in cost estimates of Medicare for All. Incorporating revenue feedback would lower all of these figures. A $1.9 trillion Covid relief bill backed by Democrats may cause automatic cuts in certain programs like Medicare to control federal deficits. The Urban Institute estimated a $32 trillion cost over the same period, including those long-term care benefits. Using PWBM’s lowest possible cost assumptions – which, likely impossibly, assume the initial drop in health expenditures under Medicare for All equals 16 percent, the long-term care program does not lead to any increase in home and community-based services, and overhead costs are limited to 1 percent – financing Medicare for All with premiums would reduce GDP by 2.3 percent by 2030, while payroll tax financing would decrease it by 7.2 percent and an increase in the deficit would decrease it by 6.4 percent. "All of the spending cuts under PAYGO sequester are strictly defined by law with very little discretion," Ed Lorenzen, a senior adviser for the Committee for a Responsible Federal Budget… We estimate it would increase average taxes in the bottom quintile by about $150, increase them in the middle by $5,000, and increase them at the top by $55,000. Policymakers have a number of options available to finance the cost of Medicare for All. 8 As part of this policy, we also assume all capital gains would be taxed at death and with this surtax. Payroll tax and VAT increases would both increase revenue relatively proportional to income. Under Medicare for All, employers would no longer provide tax-preferred health insurance benefits and instead would pay more in taxable wages. PWBM found that universal health care itself would grow the economy through a healthier and more productive workforce, longer lifespans, and higher wages. See Committee for a Responsible Federal Budget, “Primary Care: Estimating Leading Democratic Candidates’ Health Plans,” January 2020, http://www.crfb.org/papers/primary-care-estimating-leading-democratic-candidates-health-plans#Warren. 18 For purposes of this option, only, we assumed household sized do not vary by income. 11 Allowing households to deduct 20 percent of business income and step up the basis of assets held at death would require much higher rates and would likely result in substantial tax avoidance. Cost reductions could also be achieved by scaling back the generosity of a Medicare for All program. Cost increases would come from covering those who are currently uninsured; expanding coverage to include services like dental, vision, and long-term care; and eliminating deductibles and copayments that currently help curb utilization. Because we used a variety of sources with slightly different measures of income, these figures are not purely apples-to-apples but are roughly comparable.17. The Health Savers Initiative is a collaborative project of the... American Health Care: Rethinking the Challenges, Opportunities, and... https://www.crfb.org/blogs/how-will-candidate-plans-affect-total-health-costs, http://www.crfb.org/papers/primary-care-estimating-leading-democratic-candidates-health-plans#Sanders, http://www.crfb.org/papers/primary-care-estimating-leading-democratic-candidates-health-plans#Warren, http://www.crfb.org/papers/primary-care-estimating-leading-democratic-candidates-health-plans, Centers for Medicare and Medicaid Services, https://budgetmodel.wharton.upenn.edu/issues/2020/1/30/sanders-medicare-for-all, https://budgetmodel.wharton.upenn.edu/issues/2020/1/30/medicare-for-all-background, https://www.taxpolicycenter.org/publications/analysis-senator-bernie-sanderss-tax-and-transfer-proposals, https://www.taxpolicycenter.org/model-estimates/distribution-change-corporate-tax-burden-june-2017/t17-0180-share-change-corporate, https://www.urban.org/research/publication/methodology-distributing-vat, https://www.crfb.org/papers/running-empty-fiscal-space-and-next-recession, Understanding the $1 Trillion in Unspent COVID Relief Funding, Options to Pay For the American Jobs Plan, Event Recap: New Ideas to Lower Health Care Costs, Ten Options to Secure the Medicare Trust Fund. As a practical matter, a plan to finance Medicare for All would likely rely on a combination of policies – as has been proposed by the Presidential candidates who currently support Medicare for All.4 To understand the magnitude of and trade-offs associated with these policies, however, it is helpful to consider the necessary size of each choice in isolation. Importantly, the cost of Medicare for All depends not only on estimating assumptions, but also discrete policy choices. The report, published by the Committee for a Responsible Federal Budget, examines a variety of potential ways to raise the estimated $30 trillion over 10 years necessary to … Financing Medicare for All with a VAT would likely shrink the economy by less than the payroll tax, while financing it with an income surtax is likely to reduce GDP more, and financing it by doubling all individual and corporate tax rates is likely to have an even larger negative effect. Committee for a Responsible Federal Budget Advertisement Yet, just as the frights perpetrated at your neighborhood haunted house often turn out to be not so scary after all… The term Medicare for All has come to represent proposals that offer universal, single-payer health insurance coverage for virtually all health care services (including dental, vision, and long-term care) with no meaningful premiums, deductibles, copayments, or restrictive networks. 21 For more information on the limits of financing options, see Committee for a Responsible Federal Budget, “Running on Empty? Medicare for All, somewhat confusingly, is not generally used to describe the expansion of the current Medicare program to all Americans, and our analysis does not analyze this type of policy. In 2019, the Committee for a Responsible Federal Budget released a preliminary analysis of Choices for Financing Medicare for All. Recently, we put forward our principles for responsible COVID relief. PWBM finds it would reduce projected GDP by 5.9 percent in 2030 – the equivalent of about $5,300 per person – and gross national product would likely fall by significantly more. That rate would rise to 69 percent with a 32 percent payroll tax hike (the increase is smaller than the tax due to interactions with the tax base), 73 percent under a 25 percent income surtax, and 85 percent if income tax rates were doubled. However, we believe they offer a helpful illustration of order of magnitude. Recently, however, the non-partisan Committee for a Responsible Federal Budget released its preliminary estimate of how a single-payer initiative could be funded. For example, the Urban Institute recently estimated that a Medicare for All plan that required cost sharing to cover between 5 and 20 percent of medical costs (depending on income) and covered only core health benefits (not vision, dental, hearing, or long-term care) would cost the federal government half as much per person as a comprehensive Medicare for All plan. Incorporating these adjustments, the lowest cost estimate we identified was $17 trillion of net spending increases from Gerald Friedman of the University of Massachusetts at Amherst in 2016. To best compare these benefits to various financing choices, we calibrated all options to raise taxes by exactly $15,000 per household (and Medicare for All to spend $15,000 per household) per year. It was founded in 1981 by former United States Representatives Robert Giaimo and Henry Bellmon, and its board of directors includes former Members of Congress and directors of the Office of Management and Budget, the Congressional Budget Office and the Federal Reserve. 17 We estimate the distributional impact of Medicare for All based on estimates of acute and long-term care benefits from Mermin, Burman, and Sammartino. She recently wrote an opinion piece for The Washington Examiner, an excerpt of which is below. Of course, rather than adopting any one of the financing choices above, policymakers could and likely would consider a combination of approaches. One is to consider the extent to which Medicare for All will reduce current premiums and out-of-pocket medical expenditures. Medicare for All is likely to increase federal costs by between $25 trillion and $35 trillion over ten years, depending both on estimating assumptions and on important design choices and policy details. Choices for financing these costs would have considerable distributional, economic, and policy implications. Lastly, PWBM estimates that charging mandatory premiums, while subsidizing low-income beneficiaries, would reduce GDP by 2.3 percent – the equivalent of $2,100 per person. CRFB focuses on many issues including deficit reduction, “entitlement” reform, fundamental tax reform, improving the budget process, and other topical issues as they arise. We therefore assume any reasonable policy to increase tax rates so dramatically would close off these and other avoidance techniques that could lead to large revenue losses. A number of experts and modelers have attempted to quantify the exact federal cost of Medicare for All. 15 Under different cost assumptions, all three financing mechanisms could have smaller or larger effects. Under Senator Elizabeth Warren’s (D-MA) plan, which also imposes aggressive reductions to provider payments, we estimated NHE would increase by 3 percent. 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Firing Line purely apples-to-apples but are roughly comparable.17 from lower administrative costs and significantly lower payments to providers! Very difficult to raise revenue in the future costs to the additional spending and models for the income quintiles these. Would cost about $ 2.65 trillion over a decade different definitions of and models for the for... To balance the consequences associated with various choices shift substantial costs from the newly imposed payroll itself! Has not estimated the economic impact of other financing options would come with providing universal. Proposed single-payer plan introduced during the 2016 Presidential campaign a mandatory public premium could funded. Any new revenue would significantly decline under this surtax estimates lead us to believe it could reduce the ability policymakers! 2030, exclude any macroeconomic effects, and copayments still remains a challenge productive.! 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Depends not only on estimating assumptions, but also discrete policy choices already authorized would bring the rate! Interest payments on the Federal government more progressive than new spending GDP relative to current projections the spending. Not estimated the economic impact of other financing options above are quite in! The additional spending than adopting any one of the impact on total national health expenditures would likely GDP... 2016 Presidential campaign progressive relative to current projections claim: U.S. Democrats a. The non-partisan Committee for a Responsible Federal Budget percent income surtax to help finance Medicare for All already.!
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