Medicare for All: Is it a good idea?

By: Maybeh Finder

For many years, health care has been a hotly debated issue in this country.  There are many different ideas on how to solve the current problem we have; one of the most influential of which is Bernie Sanders' idea of Medicare for all, but is this a good idea? Many people have criticized the plan, saying it would cost too much, but are those criticisms justified? Would the Medicare for All plan that Bernie Sanders and many of his Progressive allies support fix our current problem with health care? That is the question that we'll be diving into in this blog.

Could we pay for it?:

The short answer: yes. The long answer is:

Medicare for all would cost around $2.4-3.6Tn/year, and for the sake of this blog, we'll use the most widely-used statistic of $3.2Tn/Year. The first method of paying for this plan is to cut our current health care spending programs. We currently spend about $1.1Tn/Year on health care, so if we subtract that amount from the $3.2Tn/Year projected cost of the new plan, the remaining deficit is $2.1Tn/Year. Still very expensive, but not nearly as much as was previously stated. The next way of raising revenue for this program is to cut military spending. Since Sanders in a non-interventionist, and since we are not taking into consideration opposition to getting his reforms across, it is safe to assume that he would cut military spending to $400Bn/Year. The USA would still be spending the most money on defense of any country in the world, and we'd still be about equal to the other top three spenders combined, certainly enough for our self-defense. Lowering the defense budget would raise another $300Bn/Year, which would lower our current M4A deficit to $1.8Tn/Year.  This deficit is still very high, but significantly lower than our starting figure of $3.2Tn/Year.

The next way we could pay for new Medicare program is to end tax loopholes that the rich and large corporations use. These closures, under the best circumstances, could raise $1.4Tn/Year towards the program. One argument against this idea is that companies may find more loopholes and rich people may leave the country, which would impact the revenue amount.  A safer estimate for how much this would save is $800Bn/Year, which is a lot, but much less than the $1.4Tn/Year. This would bring our Medicare for All deficit to $1Tn/Year.

Now the question in all of your heads is, "How would we pay for the $1Tn?"  The answer is simple, increase taxes. Even after closing loopholes, we could still increase corporate taxes without affecting the bottom line of many businesses. About 27% of businesses offer health insurance, with the average health insurance plan costing $6,700 per employee per year. There are 140 million wage earners in the US, and about 1/4 of them receive health benefits from their workplace, about 35 million Americans. If we raise corporate taxes on these companies by 80% of their expenditure on health insurance, about $5,000 per employee, than we would raise $175Bn/Year in new revenue, lowering our M4A deficit to $825Bn/Year. You might say, "Well won't this punish companies who give health care to their employees in the first place?"  The answer is: no. Those companies would be the ones that would benefit the most from this plan, in fact, since they are the only companies that pay for health insurance in the first place.

The average American household currently pays $2,000/year in health care, so if that expense were eliminated and taxes were raised $1,500/Year, the average American would save $500 per year.  This tax would raise an additional $487.5Bn/Year, bringing the increased deficit down to $337.5Bn/Year. We could also implement a wealth tax, which would decrease wealth inequality and raise $200Bn/Year, bringing our deficit down to $137.5Bn/Year. 

Next, let's discuss the capital gains tax. The capital gains tax rate is 20% of the ultra-wealthy, lower than what most people pay in taxes. About $584Bn/Year in revenue is generated by the top 1% in capital gains, which results in about $116Bn/Year in capital gains revenue. If we increase the capital gains tax rate to 35%, the revenue amount would jump to $200Bn/Year. On the downside, raising this tax would lead to a decrease in investment, so a safer revenue amount to assume would be $175Bn/Year, a $60Bn/Year increase in revenue, lowering our deficit to $77.5Bn/Year.

We could also impose a financial transactions tax, which would generate $200Bn/Year in revenue, covering the amount of the remaining deficit and resulting in a surplus of $122.5Bn/Year.

So, in the end, we can technically pay for M4A, but there would be adverse effects.  Would these effects outweigh the benefits of Medicare for All or would the benefits outweigh the impact? 

The impact of Medicare for All:

First of all, the question that is likely in your mind right now is "what would we do with the extra $120Bn/Year in government revenue?" The answer is one of two things, either free college or decreased deficits.  Let's model the economic impact of both.

Money used to decrease deficits:

Every increase of $1 in the national debt leads to a decrease of $0.33 in private investment. Because of this decrease in investment, we can assume that a decrease in the deficit by $120Bn would lead to a $40Bn increase in private investment, giving more money to the very rich and corporations (that's the general trend of private investment). Companies with extra cash can lower prices, increase production, or line the pockets of their shareholders.  If the latter happened, the shareholders would either spend or invest a large portion of that money, resulting in the multiplier effect where they put money back into the economy and it multiplies.  The multiplier effect is calculated by the marginal propensity to consume divided by the marginal propensity to save. Since the marginal propensity to save for the top 10% is about 25%, the multiplier effect for this increase in investment would be 4, and therefore, we would see a $160Bn/Year increase in the economy over the long term.

Due to decreased spending on health insurance minus increased corporate tax rates, corporations would have about $17.5Bn/Year in extra money. Some of this money would go to increased wages, some to decreased prices, some to increased production, and some just to increase profits and build up shareholder wealth. Because of the wide range of different potential uses for the money, it is hard to calculate its multiplier effect, so we'll assume an average marginal propensity to save 10%.  Using this estimate, we could potentially see a multiplier effect of 10, but for the sake of fairness, we'll use a more conservative assumption of 7.5, leading to economic growth of $130Bn/Year in the long term. 

I also calculated that the average American household would save $500 a year in decreased health care spending minus increased taxes, resulting in $70Bn more in household net revenue.  Because the average American household saves 8% of their income, a conservative estimate for the multiplier effect for this increased revenue would be 10, leading to an increase in the long term GDP of $700Bn/Year.

So, in conclusion, the good parts of the Medicare for All plan would be an increase of $990Bn/Year in our economy, call it $1Tn/Year for the sake of simplicity. That's a 5% boost in our economy, plus we would have better health performances, longer life expectancies, and an overall boosted quality of life, as well as having the pleasure of saying that we "decreased the national deficit."

Now for the negative effects of increased taxes. The effects of increased corporate and individual taxes were already calculated by subtracting the decreased expenses of no more health care insurance minus the increased expenses of increased taxes. 

The Wealth Tax and Financial Transactions Tax would have very little impact on the economy because of the extremely low rate of taxation. Nevertheless, there would be an impact, so a safe estimate would be about -0.25% in economic growth, bringing our total growth down to 4.75%.

Next, the Capital Gains Tax. This tax would drive many investors to invest more of their money in non-US markets, and would significantly lower GDP.  -1.25% to the GDP is a reasonable estimate, bringing our economic growth down to 3.5%, or about $685Bn.

And now for the big one: closing tax loopholes. This move would drive some companies away from entering the US market; some companies would not expand further in the US market, and many rich people would leave the US for places with lower taxes. Since cutting corporate tax rates led to a long-term GDP increase of 1.7%, we can assume the inverse to be true when increasing corporate tax. Though the relative increase in taxes would be of a smaller magnitude by closing loopholes, we can assume -1.25% GDP growth, decreasing our total growth to 2.25%. Next, personal loopholes. It is unpredictable the actual impact of raising taxes on the wealthy, but it would be negative. A reasonable assumption is -0.75% economic growth, bringing the Medicare For All to a total of 1.5% economic growth over the long term, making our economy $315Bn bigger, plus increased health results.

Cutting military spending significantly would also have a massive impact on the economy. I can't find any hard numbers on GDP impact, but -1.5% would be reasonable, bringing us down to no economic impact.

Money used for free college:

Bernie Sanders says his free college proposal would cost $70Bn/Year, but this number is likely too low based off of the fact he said that his Medicare for All proposal would cost $1.32Tn/Year, so we'll just assume that the Medicare for All surplus pays for the free college proposal 100% with no money left over. It isn't that simple, but we'll assume that it is for the sake of argument.

There are 19 million college students in the United States, and the average college tuition is $10,000 per year.  Free college, therefore, would have a profound impact on the economy, as it would make more people employable and saddled with less debt. My research didn't turn up any numbers on this point, but a reasonable assumption is an extra 1% economic growth. 

So, free college would increase our economy by 0.5% more than if we were to use the $120Bn to decrease the national deficit.

Conclusion:

Instating Medicare for All and Free College Tuition along with all necessary taxes to pay for both programs would result in a long-term GDP increase of 0.5%, or about $105Bn. It would also, if done correctly, greatly increase educational standards as well as increase health care standards. We should absolutely pass these programs.