A day after we at TPV took apart Bernie Sanders' 2013 bill to tear up all existing public financing of health care to gamble it on a Medicaid-exemption style court decision allowing states to skirt the program and a day before the Democratic debate this weekend, Bernie Sanders released a brand new health care plan, with the catchy title 'Medicare for All.'
In reality, not much has changed in Bernie's new plan, except that to avoid the court challenge I wrote about, he devises his campaign plan to be "federally administered". This would certainly preclude states from challenging the law on the grounds of having to run and fund a program they don't like. The other change in his plan is that he now allows for deductions before applying a flat tax on employees.
But if the federal government alone administers a single-payer system, it needs to finance it all on its own, and this is where Bernie's gamble is both a regressive flat tax disaster and woefully inadequate. Let's dive in.
The Regressive Flat Tax
According to the Sanders campaign, the plan will cost an additional $1.38 trillion a year for the government in exchange for removing all the private costs of health care, and it would be financed by a 6.2% additional - and flat - payroll tax/income-based premium on the employer (or the self-employed), a 2.2% additional income tax after deductions, slightly increasing marginal rates on the wealthy, and taxing capital gains at the same rate as earned income.
The vast majority of the revenue, even by Sanders' own estimation comes from a combined 8.4% flat tax on most income. 60%, or $830 billion of the $1.38 trillion he says he'd need is raised that way. Don't believe me, read it yourself.
In actuality, the rate is a slightly higher. Consider that Bernie's plan would abolish, necessarily, the tax-exempt status of both employer and employee premiums, effectively raising taxable income and therefore the amount of Bernie's health care premium tax slightly more.
That's right. Bernie Sanders wants an additional 8.5% flat tax on income on the vast majority of income earners. When did liberals become advocates for flat taxes? If this is how we are going to finance our progressive "revolution", please, Bernie, keep your change.
Not only is Bernie Sanders, the white pearl of revolutionaries everywhere, openly peddling a flat tax and punishing the poor, small business and self-employed, his numbers, unsurprisingly, don't add up.
Do Families Save Money Under a Sanders Plan? Not Necessarily.
Sanders claims that under his plan, a family of four making $50,000 would pay only $466 in additional taxes, in exchange for saving a combined $6,273 ($4,955 in premiums and $1,318 in deductibles - the average family plan premium and deductible. Pretty good deal, right?
Not so fast. Bernie's math is a tortured pretzel. First of all, the "average" American family of four does not make $50,000. That is roughly the median (not average) for all households (actually, around $53K), but families with children on average make more. According to Census data, the average household income for families with children was roughly $90,000 in 2014. We will use average (mean) here rather than median, because Sanders' carefully worded campaign document is working with the average premium and deductibles paid by families (not median).
So for that average family with a small business, Bernie's plan would cost $1,364 in additional taxes (adjusting for the standard deduction), and it would cost their employer(s) an additional $5,580. What if the income comes from self-employment, like a small family business? That now costs the family a combined $6,944 - notably more than they pay right now.
And don't let anyone fool you that the employer portion of the premiums in the form of an added 6.2% payroll tax isn't really coming out of an employee's pocket. Employers are unlikely to simply replace the health insurance premiums they pay now with the payroll tax, since under Bernie's plan, they would lose the tax deductions for providing health care. Because this "premium" tax would be linked to income, it'd give employers a reason to simply suppress wages rather than reduce health care costs (as is currently incentivized under the Affordable Care Act). It would keep young, healthy workers from starting at higher wages (as their health care costs would be low), and it would keep older, experienced workers from climbing up the wage ladder since paying a lower wage means a lower health premium tax.
Let me repeat that: if you factor in Bernie's new flat taxes, the average family with children would pay more under Bernie's plan than they do right now.
But but but! What about that family of 4 making $50K? Even if they are not the average, they still count, and Bernie does reduce their cost, right? Not universally, and especially not if we account for the fact that the "premium" tax on income levied on the employer is in fact a tax on the income earner. Take Bernie's estimate of $422 for just the employee income tax side (again, adjusting for the standard deductible), and add the extra payroll premium of $3100 a year, or a total of $3,522 in costs for that family.
This is especially bad news if you live in a state like California, which Bernie would punish for doing the right thing and accepting Obamacare's Medicaid expansion. A quick search on Covered California (the state's exchange) shows that a family of 4 making $50,000 in Santa Clara County could pay as little as $2 a month in premiums, after Obamacare's premium assistance is factored in, and the children would qualify for Medi-Cal (California's version of Medicaid). This would cost them $24 a year in premiums, but as a high deductible plan, would only make sense for relatively healthy parents, for whom reaching $3500 in deductibles would be difficult.
If that family chooses the recommended "Enhanced 73" level of coverage, they could find coverage for $260 a month, bringing the total premium to $3,120 annually (not the $5,580 Bernie advertises) with a maximum family deductible of $3,800 (but again, no one really uses the maximum deductible every year). Both plans would allow the range of free preventive care that is now the law under Obamacare.
So again, in many cases, even Bernie's average family will end up worse off under his plan than under the current system, even if we ignore employer sponsored coverage.
But Bernie's trouble with math doesn't end there. He's claiming savings in the system that are not only unrealistic, but nearly impossible.
The Math Still Stinks: Bernie's Own Votes and Data Belie Savings Needed for His Plan to Work
With current estimates from the Center for Medicare and Medicaid Studies, total national health expenditure will average $4.1 trillion per year over the next 10 years (including population growth, cost growth, and inflation), and Sanders claims that his plan would save $6 trillion over 10 years, which would bring the average to $3.5 trillion. That's a 15% total saving from today's estimates in the short term of 10 years.
Let's make a quick note that in Bernie's 2013 bill, almost this exact portion of the costs - a 14% average - was mandated on the states in addition to federal spending. Hmm.
Now, roughly 44% of national health expenditures are private spending, including private health insurance and individual spending (copays, deductibles, cash services). In real terms, Sanders' only option is to save in what is currently private spending, as he, along with the rest of Congress, has voted again and again to prevent provider payment decreases in Medicare, and Medicaid reimbursement rates are already below that of Medicare.
So if one has to achieve 15% savings from just 44% of the spending, that necessitates a 34% savings against projected private health care spending. But Medicare reimbursement rates, which Sanders has voted again and again to increase or keep at the same levels, are currently just 20% below the average private insurance reimbursement rates.
What about prescription drug spending? Those are too high, right? Yes, but even there we don't have enough room to achieve a 34% saving. A paper published last year by Public Citizen (one of the most optimistic estimates) claimed that if the government could negotiate, Medicare Part D would save $16 billion of its $69.3 billion annual price tag. That is 23%, and the total current public spending on prescription drugs is minute compared to the total scale of national health expenditures.
Incidentally, we might point out that Barack Obama already negotiated the cost of prescription drugs under Medicare Part D down as part of the Affordable Care Act and closing the coverage gap.
At the very least, Bernie's current plan belies his lifelong voting record, and he in fact has no problem cutting funding for the current public programs. In the alternative, he has to raise much heavier regressive flat taxes on low and middle income Americans, but that doesn't sound too good in an election year, making his plan nothing more than a cynical campaign ploy.
This is the risk Bernie Sanders is asking us to take. He wants us to allow him to tear up Medicare, Medicaid, Children's Health Insurance Program, and the Affordable Care Act for a mathematically challenged unmitigated flat tax disaster of a plan.