The Missing Pieces of Medicare For All

The new plan from Senator Bernie Sanders needs a tax policy not just to fund it, but to dictate how it works.

Andrew Harnik / AP

Take a second to step back. Breathe. A certain clarity of perspective is required to understand the weight of the moment. On Wednesday, Vermont Senator Bernie Sanders introduced a bill that could fundamentally reshape a party and the course of partisan politics: the long-awaited Medicare for All Act of 2017.

With the support of 15 congresspeople and significant grassroots and poll support, the bill is unprecedented, both in the scope—it would in essence nationalize one-sixth of the largest economy in world history—and in seriousness. Although the initiative is almost certainly doomed over the course of the next few iterations of Congress, it’s now a rallying point, one its creators and sponsors aim to make the center of Democratic policymaking for years to come.

The broad strokes of Medicare for All are simple enough. Sanders’s plan would completely replace the existing patchwork of employer, exchange, and public insurance—save for Veterans Affairs and the Indian Health Service—and replace them with a plan that covers, well, everything. Medicare for All would cover doctor visits, specialty care, inpatient visits, drugs, home care, and mental-health services, while also taking care of vision and dental benefits. Save for a provision allowing some limited cost-sharing for prescription drugs, all of those services would be covered with no cost-sharing—no deductibles, copayments, or coinsurance—whatsoever. Additionally, the plan bars private insurers from providing “health insurance coverage that duplicates the benefits provided under this Act,” and would slowly expand to edge those insurers out of the market over the course of four years.

What takes shape over the 96-page document isn’t really a scaled-up Medicare program, but something new altogether. As currently constructed, Medicare actually contains quite a bit of cost-sharing—particularly for prescription drugs—and an entire industry of private plans exist to beef up Medicare coverage and provide additional services for seniors. Sanders’s plan would more accurately be described as The U.K.’s NHS on steroids—a entirely government-backed endeavor bounded only by the limits of the delivery system and of the tax base that pays for it all.

But that last point is crucial. Especially in a system with no artificial or individual limits on how people can use their health insurance, the funding structure is absolutely vital to understanding how the system as a whole will respond to the health-care choices of over 300 million people. And beyond the “how will they pay for it?” criticisms from both Republicans and Democratic holdouts, for all American health-care reforms—especially one this massive—questions of redistribution, the minutiae of tax policy, and how those economic factors shape and alter behaviors and health-care choices are important. In fact, those questions are as important in understanding if the policy actually meets the goals of covering people and containing costs as the specifications of Medicare benefits. And the Sanders plan, as of yet, answers none of those questions.

The decision not to include a funding scheme was a calculated one, and as Sanders himself told the Washington Post, “there has not been the kind of research and study that we need” to put together cost estimates and funding plans in the proposed bill. Still, the landscape of ideas isn’t completely barren, as the Sanders camp also released a six-page white paper Tuesday outlining some ways that the country could pay for Medicare for All. Unsurprisingly, the list of suggestions includes some pretty Sanders-standard stuff, including heavy wealth taxes and an increasingly progressive tax system. The two suggestions most directly related to how health insurance is funded now are a 7.5 percent payroll tax on employers and a 4 percent income tax for families above poverty.

While that document was not intended to provide a singular roadmap to paying for Medicare for All, it’s worth noting that the document contains at its most optimistic about $1.6 trillion per year in combined revenues between suggestions. That means that if Sanders gets everything on his tax wish list—including raising the marginal income tax by something like 15 percentage points on the richest quintile of Americans—the revenues still come up to be about half of the $3.4 trillion the country spends annually on health care, or about $5,000 of the over $10,000 in care spent per capita.

Even if his plan saves half a trillion or more per year in administrative costs under a unified program, there’s a pretty big gap between here and there. This is all math with the kind of rigor that might not even qualify for “back of the envelope” status, but the clear call is that the Sanders plan will have to do some novel things to create revenues or dramatically cut the cost of care in order to work.

Ideally, the preferred tax solution could do both. Although the Affordable Care Act is often derided for its length, the muscle that makes the entire program work on a theoretical level is its hundreds of tweaks to the Internal Revenue Code, tweaks that are not only designed to pay for the costs of care, but also to encourage or modify decisions related to the purchase and use of health insurance. The individual and employer mandates, often targeted by critics on the left and right, were envisioned as critical to the affordability of the ACA, as they either encourage enough people enough businesses to participate to offset risks assumed by the federal government, or provide enough in tax penalties to offset loss.

Additionally, the tax subsidies for different kinds of health-care packages were designed to shunt tax funds to the people with the most health problems and highest risk. On paper, the whole system of taxes in the Affordable Care Act is also designed to lower health-care costs, attempting to provide net payments from the healthy and wealthy into the system’s coffers to be used for net withdrawals by the sick and poor. Pre-ACA health-care taxes, like the payroll tax for Medicare and tax exemptions for coverage from employers, buttressed that system by promoting the path from full-time employment to retirement as the typical way to pursue and provide health insurance, and also increased provision and take-up.

Of course, the Sanders plan is a rejection of many of those byzantine and sometimes draconian tax measures, and by virtue of simply covering everyone, it won’t have the same problems with trying to coerce or cajole people into participation. But it will still have to find a way to use taxes to lower costs, or to use new tax sources to provide comfortable-enough revenues.

One such tax that could achieve both and has long been discussed in health-policy theory is the Value-Added Tax, or the VAT, which would function as a sort of national sales tax on consumption. While a broad-base VAT on a wide range of consumer goods might be a burden on the poor and the sick; rebates, subsidies, or exemptions could create a rich revenue source that places the burden on the middle and upper classes and doesn’t affect investment or savings. The presence of a government health-care monopoly and questions of border-adjustment for pharmaceuticals and medical devices would complicate the analysis, but consumption taxes on extraneous health-care services, prescriptions, or in contracting between physicians and vendors could also be used as a control for utilization and government expenditures. Indeed, many countries with comparable high-cost universal-coverage systems supplement their funding with broad-base consumption taxes.

Even if VAT or other new tax schematics aren’t on the table, the policies on the table will have to be tweaked so that they fit the goals of Medicare for All. In order to create a system that is both economically progressive and provides for health equity, it will have to abide by three main rules: People under certain incomes should receive more on average in lifetime benefits than what they pay in taxes, the system should itself lower costs, and when supply is finite, it should be directed towards those who need more care.

Tax policy and the funding structure matter for each of those. They aren’t ancillary concerns; rather, they affect the nuts and bolts of how the policy works. It’s not just about where the money comes from, but from whom it comes and how. Health and wealth are intricately connected. Health policy is tax policy.

That’s why the Medicare for All bill as it stands is fundamentally incomplete; an unknowable quantity. Again, some of that is by design—the legislation won’t pass and the document serves mostly as a way to gain consensus on the vision. But while relegating the less sexy, and much more controversial funding elements to the background is perhaps politically pragmatic, putting it off can only hurt the policy in the long run. For example, it’s possible that somewhere in the foreseeable future, politicians, now enamored with the idea and bound by their pledges to Medicare for All, could pass it with a largely unsubsidized VAT, passing many of the consumption costs onto the poor people the program is meant to help.

Given the vision of Medicare for All as a paradigm that breaks the inequalities central to American medicine, it follows that the paradigm’s funding can’t reinforce those inequalities. Ensuring the progressive vision means ensuring every cent is accounted for up front, and that the costs and mechanisms of managing those costs are known. In order to meet its desired potential as a policy that reshapes the country, the Sanders plan still has plenty of work to do.