To understand how Elizabeth Warren wants to pretend to pay for Medicare for All, consider one small aspect of her recently released plan: her assumption that in moving to a fully government-run health care system, America can reduce future health care spending by about $2 trillion by expanding on some experimental payment programs launched as part of the Affordable Care Act.
I say this is a "small" component of her plan because it accounts for a relatively modest amount of the total. If the reforms failed to produce any savings, and everything else went as expected, her plan for the government to spend just shy of $52 trillion on American health care over the next decade would become a plan for the government to spend something more like $54 trillion. There was a time when a single solitary trillion dollars was an awful lot of money, even by the expansive, expensive standards of Washington D.C.'s spending class. But today, who would even notice the difference?
Yet Warren's plan counts on these savings and many others. Her financing math would not fully add up without them. If the savings did not appear, that would thus mean she has raised too little revenue to pay for her plan. The assumption that Obamacare's various bureaucratic payment tricks can be expanded to provide massive nationwide savings is thus revealing about the broader nature of her plan.
The bulk of Warren's presumed savings in this area—about $1.2 trillion—come from increasing the use of "bundled payments." Bundled payments, in which health care providers are paid as a sort of package deal rather than on a fee-for-service basis, were once a source of great hope for America's health care wonks, the class of people who believe that the best way to reduce health care spending is through technocratic fixes that are often lumped together as delivery system reforms. Some early studies found spending reductions for hospitals that chose to participate, and initial projections by the Congressional Budget Office projected bigger savings down the road.
Yet as it turned out, there was a problem with those initial studies: They looked at hospitals that had chosen to participate, skewing the sample toward institutions where bundled payments were more likely to be effective. When a team of researchers from Harvard, Cambridge, Dartmouth, the University of Chicago, and the Massachusetts Institute of Technology—the sort of all-star academic lineup that a committed wonk like Warren ought to trust—were able to study data from a randomized sample, they found no significant overall savings, especially after program bonuses were factored in. Similarly, a study published by the fiscally conservative Commonwealth Foundation last year reported that "hospitals participating in Medicare's most recent bundled payment initiative did not have lower costs or other better outcomes compared with hospitals not participating." (Wonks need not fear: Delivery service reforms have not failed, they have just never been truly tried.)
It is one thing to attempt to spend projected savings, those mythical future funds that could possibly present themselves should everything go exactly according to plan. Warren, however, has gone the extra mile and predicated her plan on savings that the best evidence suggests will never occur at all. She is not counting on spending reductions that might take place given optimistic assumptions. She's counting on savings that simply won't happen, and then raising only enough money to finance the impossibly low cost that remains.
Now, as I said, this is, relatively speaking, a minor element of her plan—just a trillion dollars or so. Yet this one aspect is illustrative of her entire approach. It's fake savings and fake revenue all the way down.
She assumes, for example, that health spending will grow at just 3.9 percent over the decade, far slower than the projections from either Medicare's actuaries or the Urban Institute, a left of center think tank. With slower spending growth comes more than $1 trillion in savings she doesn't have to pay for either.
There are more problems like these on both the savings and the revenue sides of the ledger: Warren's upgraded wealth tax, like the initial version, would almost certainly raise far less than she estimates due to avoidance and capital flight; what's more, her higher rate would exacerbate both phenomena. She also prices administrative costs for the program at just 2.3 percent—less than half of the 6 percent Medicare spends now, and less than a quarter of what private insurance spends. She calls for paying hospitals 110 percent of today's Medicare rates, reducing the cost of her plan by a little more than $4.2 trillion relative to other projections. Yet state-based programs in blue states like Washington and Maryland have ended up paying far higher rates. As Charles Blahaus, a former Medicare trustee, wrote in his analysis of Warren's plan: "Most analysts regard such cuts as unrealistic," which is perhaps the polite way of saying that it is complete balderdash.
For Warren, however, realism is clearly not the point. She released the plan after months of pressure to explain precisely how she would finance the tens of trillions in new government spending that even the cheapest, most efficient version of a full-fledged single-payer system would require. Like a general insisting on the size of his army by lining up row after row of mannequins and scarecrows, Warren has enlisted a legion of implausible savings mechanisms and unworkable tax hikes in hopes of cobbling together something that looks convincing from afar.
Her goal was not to figure out how to pay for single-payer, or outline the political challenges and economic tradeoffs that it might entail, but to produce a document sufficiently festooned with technocratic jargon and data points drawn from savings projections that did not pan out all so that she could say she had a plan to finance the program, dismiss her critics, and then change the subject.
Warren has not come up with a plan to pay for Medicare for All. Instead, she has concocted a $52 trillion package of fanciful assumptions, unworkable reforms, and psuedo-wonky gobbledygook, and figured out how to pay for that.