Cost estimates – Chris Jacobs' Writing Archive

Medicaid’s Blue State Bailout

In discussing future coronavirus legislation, Senate Majority Leader Mitch McConnell (R-Ky.) has taken a skeptical view towards additional subsidies to states, including a potential “blue state bailout.” But current law already includes just such a mechanism, giving wealthy states an overly generous federal Medicaid match that results in bloated program spending by New York and other blue states.

Section 1905(b) of the Social Security Act establishes Federal Medical Assistance Percentages, the matching rate each state receives from the federal government under Medicaid. The statutory formula compares each state’s per capita income to the national average, calculated over a rolling three-year period. Poorer states receive a higher federal match, while richer states receive a lower match.

However, federal law sets a minimum Medicaid match of 50 percent, and a maximum match of 83 percent. No poor states come close to hitting the 83 percent maximum rate, but a total of 14 wealthy states would have a federal match below 50 percent absent the statutory minimum. (In March, Congress temporarily raised the federal match rate for all states by 6.2 percentage points for the duration of the coronavirus emergency.)

Absent the statutory floor, Connecticut would receive a match rate of 11.69 percent in the current fiscal year, according to Federal Funds Information Service, a state-centered think-tank. At that lower federal match, Connecticut would receive approximately one federal dollar for every eight the state spends on Medicaid, rather than the one-for-one ratio under current law.

Federal taxpayers pay greatly because the overly generous match rate for wealthy states leads to additional Medicaid spending. In fiscal year 2018, Connecticut spent far more on its traditional Medicaid program ($6.5 billion in combined state and federal funds) than similarly sized states like Oklahoma ($4.9 billion) and Utah ($2.5 billion). Those totals exclude the dollars Connecticut received from Obamacare, which guarantees all states a 90 percent Medicaid match for covering able-bodied adults.

The budget crisis in New York that preceded the pandemic stems in large part from Washington’s overly generous match for wealthy states. Absent the statutory floor, the state would receive a Medicaid match of 34.49 percent this fiscal year, meaning it would have to spend approximately two dollars to receive an additional federal dollar.

But the one-to-one Medicaid match guaranteed under federal law led New York to expand its program well beyond most states’. At more than $77 billion in 2018, New York Medicaid cost taxpayers more than three times the $23.4 billion spent by the larger state of Florida. And a federal audit last summer concluded that New York Medicaid spent $1.8 billion on more than 600,000 ineligible enrollees in just a six-month period. Little wonder that Gov. Andrew Cuomo in January called the state’s fiscal situation “unsustainable” after the state announced a $6 billion budget deficit, most of which came from Medicaid.

To his credit, Cuomo proposed changes to crack down on Medicaid fraud and enact other program reforms. He also criticized Congress when it passed legislation to block New York and other states from changing their Medicaid programs during the pandemic. But he has not acknowledged the underlying flaws in federal law that, by encouraging profligate blue state spending, created the problem in the first place.

Of the 14 wealthy states that benefit from the guaranteed 50 percent minimum Medicaid match, Hillary Clinton won 11. If the dramatic drop in oil and commodity prices in recent weeks persists, the three traditionally red states—Alaska, North Dakota, and Wyoming—that benefit from the statutory floor may no longer do so, should those states’ income decline. In the number of states affected and overall spending levels, the 50 percent minimum Medicaid match encourages overspending by blue states at the expense of federal taxpayers in red states.

In December 2018, the Congressional Budget Office estimated that removing the guaranteed 50 percent Medicaid match would save $394 billion over ten years. If McConnell and his colleagues want to tackle rising federal debt while stopping blue state bailouts, they should amend the Medicaid statute accordingly.

This post was originally published at The Federalist.

How Congress’ Coronavirus Legislation Could See Millionaires on Medicaid

Congress’ urge to legislate quickly on the coronavirus outbreak has resulted in all manner of unintended policy consequences. Numerous reports indicate that the Internal Revenue Service has sent coronavirus relief payments to deceased individuals. Large restaurant chains have received loans from the Paycheck Protection Program intended for businesses that have less access to capital, even as small businesses struggling to survive report being shut out of the PPP.

Even more worrisome than these reports: A series of Medicaid-related provisions that provide a potential steppingstone toward a single-payer health-care system. These provisions not only encourage waste, fraud, and abuse, but will also further entrench government-run health care—the left’s ultimate objective.

Maintenance of Effort Provisions

Section 6008 of pandemic relief legislation the president signed on March 18 provides states a 6.2 percent increase in the federal Medicaid match. But the funds, designed in part to offset states’ revenue loss during the economic downturn, come with a huge catch.

To receive the additional federal funding, states may not adopt more restrictive Medicaid eligibility standards, impose new premiums, or otherwise restrict benefits. These “maintenance of effort” requirements echo provisions included in the 2009 “stimulus” legislation, which also raised states’ Medicaid match. But this year’s bill went even further, prohibiting states from terminating benefits for any enrollee during the coronavirus public health emergency “unless the individual requests a voluntary termination of eligibility or the individual ceases to be a resident of the State.”

In layman’s terms, this provision prohibits state Medicaid programs from terminating the enrollment of individuals with income that exceeds state eligibility limits. For instance, following a scathing report by the state’s legislative auditor, Louisiana last year disenrolled 1,672 individuals with incomes of more than $100,000 from the state’s Medicaid program—including some with income higher than Gov. John Bel Edwards’ salary.

But the provisions Congress enacted in March now prohibit Louisiana, or any other state, from disenrolling these ineligible individuals during the coronavirus outbreak. To put it another way, an individual who enrolled in Medicaid while unemployed could take a new job making $1 million per year, and the state would have absolutely no recourse to kick that individual off of the government rolls, so long as he wants to remain enrolled in “free,” taxpayer-funded health coverage.

Pave the Way for Single Payer?

It doesn’t take a rocket scientist to see how the next president could use these provisions to empower a vast expansion of government-run care. A Biden administration could leave the public health emergency declaration in place for its entire presidency—and would have strong policy incentives to do so. By preventing states from removing ineligible beneficiaries for its entire presidency, a Biden administration could massively expand Medicaid, turning the program into something approaching liberals’ dream of a single-payer system.

The Louisiana experience also shows the direct correlation between eligibility checks, enrollment, and spending on Medicaid. State officials removed at least 30,000 individuals from the program last spring, reducing enrollment in expansion by more than 10 percent, and lowering program spending by approximately $400 million. A Biden administration that prohibits states from removing ineligible beneficiaries for four or eight years would see taxpayers spending billions of dollars funding millions of ineligible enrollees—an enrollment explosion that could prove difficult to unwind.

Don’t Bail Out the States

House Speaker Nancy Pelosi (D-Calif.) has already begun work on the next coronavirus package, with she and her fellow Democrats adamantly insisting that a bailout of states stands next on Congress’ “to-do” list.

But it seems highly disingenuous for Pelosi and Democrats to call for bailing out state budgets, even as they prohibit those same states from removing ineligible individuals from the Medicaid program. Even Gov. Andrew Cuomo (D-NY) has called the new requirements on state Medicaid programs absurd: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’”

Conservatives in Congress should demand that lawmakers fix the Medicaid provisions, either by allowing states to remove ineligible beneficiaries, setting a specific end-date for the increased federal matching funds, or (more preferably) both. Otherwise, by prohibiting states from purging their rolls of Medicaid enrollees who don’t belong in the program, the United States could find itself with a single-payer system by the back door.

This post was originally published at The Federalist.

Hospitals’ Corona Cash Crunch Shows Problems of Government-Run Care

The coronavirus pandemic has inflicted such vast damage on the American economy that one damaged sector has gone relatively unnoticed. Despite incurring a massive influx of new patients, the hospital industry faces what one executive called a “seismic financial shock” from the virus.

The types of shocks hospitals currently face also illustrate the problems inherent in Democrats’ proposed expansions of government-run health care. Likewise, the pay and benefit cuts and furloughs that some hospitals have enacted in response to these financial shocks provide a potential preview of Democrats’ next government takeover of health care.

Massive Disruptions

The health-care sector faces two unique, virus-related problems. The lockdowns in many states have forced physician offices to close, or scale back services to emergencies only. The cancellation of routine procedures (e.g., dental cleanings, check-ups, etc.) has caused physician income to plummet, just like restaurants and other shuttered businesses.

While many physician practices have seen a dramatic drop-off in patients, hospitals face an influx of cases—but the wrong kind of cases. According data from the Health Care Cost Institute, in 2018 a hospital surgical stay generated an average $43,810 in revenue, while the average non-surgical stay generated only $19,672.

The pandemic has raised hospitals’ costs, as they work to increase bed capacity and obtain additional personal protective equipment for their employees. But as one Dallas-based hospital system noted, coronavirus’ true “seismic financial shock” has come from the cancellations of elective surgeries that “are the cornerstone of our hospital system’s operating model.”

This rapid change in hospitals’ case mix—the type of patient facilities treat—has inflicted great damage. Replacing millions of higher-paying patients with lower-paying ones will rapidly unbalance a hospital’s books. Changing patient demographics, in the form of additional uninsured patients and patients from lower-paying government programs, only compounds hospitals’ financial difficulties.

A Preview of Democrats’ Health Care Future

The shock hospitals face from the rapid change in their case mix previews an expansion of government-run health care. The Medicare Payment Advisory Commission noted in a report released last month that in 2018, hospitals incurred a 9.3 percent loss on their Medicare inpatient admissions. To attempt to offset these losses as hospitals treat coronavirus patients, Section 3710 of the $2 trillion stimulus bill increased Medicare payments for COVID-related treatment by 20 percent.

With respect to the single-payer bill promoted by Sen. Bernie Sanders (I-VT), neither the conservative Mercatus Center nor the liberal Urban Institute assumed the higher reimbursement rates included in the stimulus bill. Mercatus’ $32.6 trillion cost estimate assumed no increase in current Medicare hospital or physician payments, while Urban’s $32 trillion cost estimate assumed a 15 percent increase in hospital payments and no increase in physician payments. Raising Medicare reimbursements to match the 20 percent increase included in the stimulus bill would substantially hike the cost of Sanders’ plan.

Conversely, presumptive Democratic nominee Joe Biden believes his “public option” proposal, by making enrollment in a government plan voluntary, represents much less radical change. But his plan increases the generosity of Obamacare subsidies and repeals current restrictions prohibiting workers with an offer of employer coverage from receiving those subsidies—both of which would siphon patients toward the government plan.

In 2009, the Lewin Group concluded that a government plan open to all workers would result in 119 million Americans dropping their private coverage. Such a massive influx of patients into a lower-paying government system would destabilize hospitals’ finances much the same way as coronavirus.

Economic Cutbacks and Job Losses

Sadly, the coronavirus pandemic has allowed us to see what a rapid influx of lower-paying patients will do to the hospital sector. A few weeks into the crisis, many systems have already resorted to major cost-cutting measures. Tenet Healthcare, which runs 65 hospitals, has postponed 401(k) matches for employees. In Boston, Beth Israel Deaconess has withheld some of emergency room physicians’ accrued pay, a measure sure to harm morale as first responders face long hours and difficult working conditions.

This economic damage from a rapid change in hospitals’ payer mix echoes a study in the Journal of the American Medical Association last spring. That study concluded that a single-payer health care system paying at Medicare rates would reduce hospital revenues by $151 billion annually, resulting in up to 1.5 million job losses for hospitals alone. Robust enrollment in the government-run health plan Biden supports would have only marginally lower effects.

Hospitals, like the rest of our economy, will in time recover from the financial impacts of the coronavirus pandemic. But they may not bounce back quickly, or at all, from another expansion of government-run health care—a fact that hospital workers facing cutbacks, and patients needing care, should take to heart in November.

This post was originally published at The Federalist.

Unanswered Questions on Single Payer

This month’s Democratic presidential debate will likely see a continued focus on the single-payer health care proposal endorsed by Sens. Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts. But for all the general discussion — and pointed controversy — over single payer at prior debates, many unanswered questions remain. The moderators should ask Sanders and Warren about the specific details of their legislation, such as:

►Section 901(A) of the bill states that “no benefits shall be available under Title XVIII of the Social Security Act” — i.e., Medicare. And an analyst with the liberal Urban Institute has said that “you can call (the bill) many things — from ambitious to unrealistic. But please don’t call it Medicare.” Why do you insist on calling your proposal “Medicare for All” when it would bear little resemblance to the Medicare program and, in fact, would abolish it outright?

►You have claimed that single payer will make health care a human right. But the bill itself does not guarantee access to a doctor — it only guarantees that patients will have their care paid for if they can find a doctor or hospital willing to treat them. In fact, in 2005, the Canadian Supreme Court ruled that “access to a waiting list is not access to health care,” because patients in that country’s single-payer system could not access care in a timely fashion. Why are you promising the American people access to care when your bill falls short of that promise?

►The Urban Institute estimated that a similar single-payer plan would raise national health care spending by $719.7 billion a year, because abolishing cost-sharing (e.g., deductibles, copayments, etc.) will increase demand for care. But the People’s Policy Project called Urban’s estimates “ridiculous,” because “there is still a hard limit to just how much health care can be performed because there are only so many doctors.” Which position do you agree with — the Urban Institute’s belief that individuals consuming more “free” health care will cause spending to rise, or the position that spending will not increase because at least some people who demand care will not be able to obtain it?

►Countries like Canada and Great Britain, both of which have single-payer health care systems, permit individuals to purchase private insurance if they wish — and many Canadians and Brits choose to do so. Why would you go beyond Canada, Britain and other countries to make private health insurance “unlawful” — and do you believe taking away individuals’ private insurance can pass constitutional muster with the Supreme Court?

►Four years ago, your Senate colleague Robert Menendez, D-N.J., was indicted for accepting nearly $1 million in gifts and favors from a Florida ophthalmologist. Menendez had tried to help that ophthalmologist — who was eventually convicted on 67 counts of defrauding Medicare — in a billing dispute with federal officials. Given this ethically questionable conduct by one of your own colleagues regarding the Medicare program, why does your legislation include no new provisions fighting fraud or corruption, even as it vastly expands the federal government’s power and scope?

►You have criticized President Donald Trump for his supposed attempts to “sabotage” the exchanges created under President Barack Obama’s health care law. How, then, would you stop a future Republican president from sabotaging a single-payer system when your legislation would vest more authority in the federal government than President Trump has?

Once Warren and Sanders finish answering these questions, the American people will likely recognize that, the senators’ claims to the contrary notwithstanding, single payer doesn’t represent a good answer for our health care system at all.

This post was originally published at USA Today.

“Cadillac Tax” Repeal “Deal” Is What’s Wrong with Washington

News articles over the weekend reported that Congress later this week may repeal would Obamacare taxes—the “Cadillac tax” on high-cost health plans, and the medical device tax—as part of a larger spending bill. In reality, however, Democrats eventually agreed to repeal not one but two Obamacare industry taxes—the health insurer tax, which costs approximately $150 billion over a decade, along with the medical device tax—in exchange for repeal of the Cadillac tax, which labor unions want because of their cushy health insurance offerings.

According to The Hill:

On a separate front on ObamaCare, the spending deal repeals three major taxes that had helped fund the law’s coverage expansion. The deal will repeal a 40 percent tax on generous “Cadillac” health plans, the 2.3 percent medical device tax and the health insurance tax.

Those are major wins for the health insurance and medical device industries, which had long lobbied to lift those taxes. The Cadillac tax, in addition to providing about $200 billion in funding over 10 years, had been intended to help lower health care spending by incentivizing employers to lower costs to avoid hitting the tax.

On its face, the news sounds like a win for conservatives. Far from it. The way Congress has addressed these issues illustrates all the problems with politics, both procedural and substantive, in the nation’s capital.

Problem 1: Awful Process

Obvious considerations first: Congressional leaders in both parties want to enact the annual spending bills—which run thousands of pages, and spend trillions of dollars—before breaking for the Christmas holidays at week’s end. But congressional leaders only released text of the two bills publicly on Monday night, so there’s no way American citizens, let alone rank-and-file lawmakers, can digest it before Congress decides. As one lawmaker famously said:

The spending bills are 1,773 pages and 540 pages, respectively. (The health care provisions are in the larger of the two bills.) According to the Joint Committee on Taxation, the repeal of the three health care taxes will cost the federal government $387 billion over ten years.

Nearly ten years after a Democratic-controlled Senate passed the massive Obamacare statute on Christmas Eve—laden with pork-barrel provisions like the “Cornhusker Kickback,” the “Louisiana Purchase,” and the “Gator Aid”—a Senate run by Republicans wants to pass a similarly pork-laden spending bill. It brings to mind the old adage attributed to former House Speaker Sam Rayburn: “There is no education in the second kick of a mule.”

President Trump has likewise confronted the problem of Congress passing huge spending bills on short notice before. When presented with a similarly massive—and pork-laden—omnibus bill in March 2018, he famously proclaimed “I will never sign another bill like this again.” Time will tell if he follows through on his promise, but Congress sure isn’t acting like they think he will.

Problem 2: Raising Health Care Costs

The “Cadillac tax” in particular represents one way to address the problem of ever-increasing health costs. Current law allows employers to offer tax-free health benefits to their workers without limit. This dynamic encourages firms to provide overly generous benefits to their employees, leading to the over-consumption of health care.

By encouraging employers and employees to consume health insurance, and thus health care, more wisely, the “Cadillac tax,” despite its flaws, should work to moderate the growth in health care costs. That is, if Congress ever allows it to take effect as scheduled.

As I noted earlier this year, the left has an easy “solution” to the problem of rising health care costs: Regulations and price controls designed to bring down costs through government fiat. These price controls will lead to consequences for our health system, of course—rationing of care most notably—but they do “work,” insofar as they will arbitrarily reduce health spending.

Conservatives who oppose government price controls should embrace solutions like the “Cadillac tax” (or something like it) as one way to slow the growth in health care spending—not least because Democrats enacted the tax as part of Obamacare. Instead, many conservative lawmakers appear poised to endorse its repeal, without an alternative strategy to control health costs instead, because they find it easier to pursue the path of least resistance.

Problem 3: Lack of Discipline

The Congressional Budget Office previously estimated that repealing the “Cadillac tax” would cost the government nearly $200 billion in revenue over a decade, and larger sums in the decades after that. How does Congress propose to replace that revenue? By repealing the medical device and health insurer taxes, of course!

Therein lies the problem in Congress: The current definition of a bipartisan “deal” occurs when both sides get what they want—at the expense of taxpayers, or more specifically future generations. One article notes that “in general medical device tax repeal is more of a priority of Republicans and ‘Cadillac tax’ repeal for Democrats.” That makes this agreement combining repeal of both taxes like an episode of “Oprah’s Favorite Things,” where everyone wins a car.

Except for one minor detail: Our country already faces $23 trillion in debt, and trillion-dollar deficits as far as the eye can see. The “deal” on these two taxes alone will increase that debt by another quarter-trillion dollars (give or take). That number doesn’t include the increased spending arising from Congress’ agreement to bust its spending caps, or all the other ancillary provisions (like a bailout for coal miners) hitching a ride on the “Christmas tree” omnibus.

At some point soon, Congress’ lack of discipline—its inability to say no to spending pledges our country cannot afford—will harm our economic growth and fiscal stability. At that point, the American people will realize that, by constantly trying to play Santa Claus, lawmakers have left a multi-trillion-dollar lump of coal to the next generation, in the form of our rapidly skyrocketing debt.

UPDATE: This post was edited after publication to reflect late-breaking developments concerning the omnibus spending bills.

This post was originally published at The Federalist.

Pete Buttigieg’s Plan to Tax the Middle Class

Democratic presidential candidate Pete Buttigieg claimed last month that “everything that we have proposed has been paid for, and we have proposed no tax increase on the middle class.” The South Bend, Indiana mayor is incorrect on both counts: He hasn’t said how he’d pay for all his proposed spending. He has endorsed one explicit tax increase on the middle class, and his recent retirement plan provides an outline for another. Add it up, and middle-class workers could face a trillion dollars in new taxes.

To support family caregivers, Mr. Buttigieg’s retirement plan restated his prior commitment to enact “an enhanced version of the Family Act,” which would provide 12 weeks of subsidized family leave. The candidate has yet to specify how exactly he would “enhance” the Family Act. But that legislation, introduced by Rep. Rosa DeLauro (D., Conn.) and Sen. Kirsten Gillibrand (D., N.Y.), pays for its new benefit by raising payroll taxes by 0.2% of income.

Mr. Buttigieg’s retirement plan also contains several new spending proposals, including a long-term care entitlement. He says the program would make benefits available to people over 65 and would “kick in after an income-related waiting period.” His plan cites two white papers as examples of “similar programs” proposed by scholars.

Mr. Buttigieg fails to note how both white papers propose to pay for the new benefits. In the first paper, the Long-Term Care Financing Collaborative envisions a program “fully financed by a dedicated revenue source,” including a payroll tax, “an explicit income tax surcharge, or other dedicated tax.”

The second paper, written by researchers affiliated with the Urban Institute, contains several policy details Mr. Buttigieg adopted, including waiting periods for wealthier people to qualify. That paper also proposes a specific funding source: “an additional tax of about 1.0 percent of earned Medicare-covered income.” In other words, an increase in the payroll tax—a tax increase on the middle class.

The Congressional Budget Office estimated last December that a one percentage point increase in the Medicare tax rate would raise $898.3 billion over a decade. If Mr. Buttigieg intends to fund his new long-term care program via the payroll tax, that tax increase, coupled with the 0.2% payroll tax hike in the Family Act he has already endorsed, would bring total payroll-tax increases to more than $1 trillion.

If Mr. Buttigieg doesn’t want to fund his long-term-care entitlement with the payroll-tax increase proposed in a paper his campaign cited, he should explain where that money will come from. His own claims notwithstanding, Mr. Buttigieg’s candidacy has lacked fiscal candor. His campaign told the Indianapolis Star last month that it had proposed $5.7 trillion in spending to that point, but cited a total of only $5.1 trillion in tax increases and savings.

Mr. Buttigieg’s retirement-security plan has since added other spending proposals with no mention of a funding source. There’s his plan to make those receiving Social Security disability benefits immediately eligible for Medicare, which will likely cost more than $100 billion. There’s his new requirement for state Medicaid programs to cover community-based services as a mandatory benefit, along with mandates on nursing homes—including a $15 minimum wage and higher staffing ratios—which will raise Medicaid spending.

Mr. Buttigieg called Elizabeth Warren “extremely evasive” for her answers on single-payer health care, saying, “I think that if you are proud of your plan and it’s the right plan, you should defend it in straightforward terms. And I think it’s puzzling that when everybody knows the answer to that question of whether her plan . . . will raise middle class taxes is ‘Yes.’ Why wouldn’t you just say so, and then explain why you think that’s the better way forward?” He should follow his own advice.

This post was originally published at The Wall Street Journal.

Warren’s Prescription the Wrong One

In an October analysis the Urban Institute concluded that a single-payer plan, similar to Sen. Warren’s, which eliminates virtually all patient cost-sharing, would raise national health spending by more than 20%, or $719.7 billion a year. In the researchers’ view, the additional demand stimulated by making health care “free” to consumers would overwhelm any potential savings from paying doctors and hospitals government-dictated rates. This higher demand would also raise the cost of single-payer well beyond Sen. Warren’s estimates, meaning middle-class families would face massive tax increases to pay for this spending.

That Prof. Johnson would cite the Urban Institute to argue that Sen. Warren’s plan would lower health-care costs, while ignoring the fact that the institute itself reached the opposite conclusion, speaks to the cherry-picked nature of the proposal, which has drawn derision from liberals and conservatives alike.

This post was originally published at the Wall Street Journal.

The Costs of “Free” Health Care

Libertarian columnist P.J. O’Rourke once famously claimed that “If you think health care is expensive now, wait until you see what it costs when it’s free.” A left-of-center think-tank recently confirmed O’Rourke’s assertion. In analyzing several health care proposals, the Urban Institute demonstrated how eliminating patient cost-sharing from a single-payer system would raise total health care spending by nearly $1 trillion per year.

Those estimates have particular resonance given the recent release of a health care “plan” (such as it is) by Sen. Elizabeth Warren (D-Mass.). Warren’s policy proposals contain myriad gimmicks and rosy scenarios, all designed to hide the obvious fact that one cannot impose a $30 trillion-plus program on the federal government without asking middle-class families to pay—a lot—for its cost.

The Urban Institute estimates show that a single-payer plan maintaining some forms of patient cost-sharing (i.e., deductibles, co-payments, etc.) seems far more feasible—or less unfeasible—than the approach of Warren and Sen. Bernie Sanders (I-VT), who promise unlimited “free” health care for everyone. Mind you, I would still oppose such a plan—for its limits on patient choice, economically damaging tax increases, and likelihood of government rationing—but at least it would have the advantage of being mathematically possible. Not so with Sanders’ and Warren’s current approach.

Option 1: An Obamacare-Like Single-Payer Plan

In the October policy paper, several Urban researchers examined the financial effects of various health coverage proposals, including two hypothetical single-payer systems. The first single-payer system would cover all individuals legally present in the United States. Urban modeled this system to cover all benefits required under Obamacare, and fund 80 percent of Americans’ expected health costs per year, equivalent to a Gold plan on the Obamacare exchanges. Americans would still pay the other 20 percent of health spending out-of-pocket.

This proposed “lite” single-payer system would still require massive tax increases—from $1.4-$1.5 trillion per year. But it would actually reduce total health spending by an estimated $209.5 billion compared to the status quo.

This single-payer system generates calculated savings because Urban assumed the plan would pay doctors current rates under the Medicare program, and pay hospitals 115 percent of current Medicare rates. Because Medicare pays medical providers less than private insurers, moving all patients to these lower rates would reduce doctors’ and hospitals’ pay—which could lead to pay and job cuts for health professionals. But in the Urban researchers’ estimates, it would lower health spending overall.

**Option 2: ‘Free’ Health Care Costs a Lot of Money**

Compare these outcomes to a proposal closely modeled on the single-payer legislation supported by Sanders and Warren. Unlike the first proposal, this “enhanced” single-payer system would cover “all medically necessary care,” with “no premiums or cost-sharing requirements.” It would also enroll all U.S. residents, including an estimated 10.8 million illegally present foreign citizens.

The Urban researchers found that the single-payer plan with no cost-sharing would raise total health spending by $719.7 billion compared to the status quo. Compared to the “single-payer lite” plan, which provides benefits roughly equivalent to Obamacare, eliminating cost-sharing and covering foreign citizens would raise total health spending by $929.2 billion. Moreover, the plan with no cost-sharing requires a tax increase nearly double that of the “single-payer lite” plan—a whopping $2.7-$2.8 trillion per year.

The Urban Institute estimates confirm that making all health care “free,” as Sanders and Warren propose, would cause an enormous increase in the demand for care. This would overwhelm any potential savings from lower payments to doctors and hospitals, meaning the health sector would face a double-whammy, of getting paid less to do more work. These estimates also could underestimate the growth in health spending, because Urban’s researchers did not assume a rise in medical tourism or immigration when calculating the increase in demand for “free” health care.

Socialists’ ‘Solution’: Hold Costs Down by Rationing

Socialist supporters of Sanders’ plan attacked these estimates, claiming that the Urban Institute failed to consider that a single-payer system would ration access to “free” health care. The People’s Policy Project called Urban’s estimates of increased demand “ridiculous,” in part because “there is still a hard limit to just how much health care can be performed because there are only so many doctors and only so many facilities.”

Its position echoes that of the socialist magazine Jacobin, which in response to a single-payer study by the Mercatus Center last year admitted that “aggregate health service utilization is ultimately dependent on the capacity to provide services, meaning utilization could hit a hard limit.”

An increase in health spending of nearly $1 trillion per year, and increased waiting times and rationed access to care: either or both of those scenarios represent the costs of “free” health care, based on the words of leftists themselves. The prospect of either scenario should make Americans reject this socialist approach.

This post was originally published at The Federalist.

Warren Advisor Admits Her Health Plan Raises Middle Class Taxes

That didn’t last long. Five days after Sen. Elizabeth Warren released a health plan (chock full of gimmicks) that she claimed would not raise taxes on the middle class, one of the authors of that plan contradicted her claims.

In an interview with Axios published on Wednesday, but which took place before the plan’s release, Warren advisor and former Centers for Medicare and Medicaid Services Administrator Donald Berwick said the following:

Q: Many people may not know their employers cover 70% or more of their entire premium — money that otherwise would go to their pay. Is this the main problem when talking about reforms?

DB: The basics are not that complicated. Every single dollar — every nickel spent on health care in this country — is coming from workers. There’s no other source. [Emphasis mine.]

Compare that phraseology to what Joe Biden’s campaign spokesperson said on Friday about Warren’s plan and its effects:

For months, Elizabeth Warren has refused to say if her health care plan would raise taxes on the middle class, and now we know why: Because it does….Senator Warren would place a new tax of nearly $9 trillion that will fall on American workers. [Emphasis mine.]

In response to the Biden campaign’s criticism, Warren said last Friday that her health plan’s projections “were authenticated by President Obama’s head of Medicare”—meaning Berwick. Unfortunately for Warren, Berwick, by virtue of his comments in his interview with Axios, also “authenticated” Biden’s attack that her required employer contribution will hit workers, and thus middle-class families.

Warren also tried to defend her plan on Friday by claiming that “the employer contribution is already part of” Obamacare. Obamacare does include an employer contribution requirement, but that requirement:

Is capped at no more than $3,000 per worker, far less than the average employer contribution for workers’ health coverage—$14,561 for family coverage as of 2019— which will form the initial basis of Warren’s required employer contribution;
Does not apply to employers at all if the firm offers “affordable” coverage—an option not available under Warren’s plan, which would make private insurance coverage “unlawful;” and
Will raise an estimated $74 billion in the coming decade, according to the Congressional Budget Office—less than 1 percent of the $8.8 trillion Warren claims her required employer contribution would raise.

While Obamacare and Warrencare both have employer contributions, the similarities pretty much end there. Calling the two equal would equate a log cabin to Buckingham Palace. Sure, they’re both houses, but differ greatly in size. Warren’s “contribution”—which Berwick, her advisor, admits will fall on middle-class workers—stands orders of magnitude greater than anything in Obamacare.

Public Accountability?

In the same Axios interview, Berwick highlighted what he termed a tradeoff “between public accountability and private accountability.” He continued: “By not having a publicly accountable system, we are paying an enormous price in lack of transparency.”

His comments echo prior justification of his infamous “rationing with our eyes open” quote in a 2009 interview. As he explained to The New York Times as he departed CMS in late 2011, “Someone, like your health insurance company, is going to limit what you can get….The government, unlike many private health insurance plans, is working in the daylight. That’s a strength.”

Except that Berwick, as CMS administrator, went to absurd lengths to hide from public scrutiny after his series of remarks. He would gladly meet with health-care lobbyists behind closed doors, but refused to answer questions from reporters, going so far as to duck behind curtains and request security escorts to avoid doing so.

Warren apparently has taken a lesson in opacity from Berwick’s time as CMS administrator. At first, she avoided releasing a specific health care proposal at all, only to follow up by issuing a “plan” containing so many absurd assumptions as to render it irrelevant as a serious blueprint for legislating.

Unfortunately for her, however, Berwick committed the unforgivable sin of speaking an inconvenient truth about the effects of her proposal. Eight years after leaving office as CMS administrator, Berwick, however belated and however unwittingly, delivered some much-needed public accountability for Warren’s health plan.

This post was originally published at The Federalist.

Analyzing the Gimmicks in Warren’s Health Care Plan

Six weeks ago, this publication published “Elizabeth Warren Has a Plan…For Avoiding Your Health Care Questions.” That plan came to fruition last Friday, when Warren released a paper (and two accompanying analyses) claiming that she can fund her single-payer health care program without raising taxes on the middle class.

Both her opponents in the Democratic presidential primary and conservative commentators immediately criticized Warren’s plan for the gimmicks and assumptions used to arrive at her estimate. Her paper claims she can reduce the 10-year cost of single payer—the amount of new federal revenues needed to fund the program, over and above the dollars already spent on health care (e.g., existing federal spending on Medicare, Medicaid, etc.)—from $34 trillion in an October Urban Institute estimate to only $20.5 trillion. On top of this 40 percent reduction in the cost of single payer, Warren claims she can raise the $20.5 trillion without a middle-class tax increase.

How does Warren arrive at her numbers, and how credible are they? The below analyzes every proposal and assumption in her plan: both those generating savings within the health-care system and those creating additional revenue to pay for single payer. All numbers below rely on Warren’s own 10-year estimates; she bases the savings figures on reductions in spending relative to the Urban Institute’s 10-year score.

One gimmick applies to all of Warren’s revenue estimates, and is buried on page 12 of the revenue appendix:

We have used static estimates to score the revenue measures used to fund your [single payer] plan. These estimates thus do not account for the impact of these revenue measures on economic activity.

In other words, if taxing “the rich” and corporations shrinks the economy—which it undoubtedly will—then Warren’s revenue forecast won’t meet projections, and she will have a huge, multi-trillion-dollar hole in her estimates. (Oops.)

Savings Proposal 1: Insurer Administrative Spending

How Much: $1.8 trillion, which comes from assuming the single-payer program will have an administrative cost rate of 2.3 percent—what the authors claim as Medicare’s current administrative costs at present—rather than the 6 percent assumed by the Urban Institute.

What’s the Catch? Claiming that single payer would rely on Medicare’s current administrative costs ignores one fundamental point: Contrary to claims by Warren and Sen. Bernie Sanders (I-Vt.) that their plan would create “Medicare for All,” Sanders’ legislation (which Warren has co-sponsored) would abolish the current Medicare program, and create an entirely new government-run health program—with an entirely new regulatory regime.

Federal bureaucrats would have to translate the 100 pages of Sanders’ bill into (tens of) thousands of pages of regulations and guidelines. This massive undertaking would increase rather than decrease Medicare’s administrative costs for many years to come. One analyst at the Urban Institute warned that the new government program “might not have the resources to do a good job at setting prices for vital services.”

Second, the supposed 2.3 percent rate of administrative costs for the current Medicare program omits major costs excluded from the trustees’ estimate—such as the costs of construction for Medicare’s buildings, or the collection costs that the Internal Revenue Service shifts to the private sector (e.g., employers’ administration of payroll taxes). In 2009, liberal writer Ezra Klein said “a more straightforward estimate” of administrative costs for Medicare “would be in the range of 5 to 6 percent”—the range assumed by the Urban researchers. He continued:

Some activities that are considered ‘administrative’ are useful. Disease management, for instance….Good-faith investigations into waste, fraud, and abuse. Care coordination. Nurses who use e-mail or telephones to remind patients to take their drugs. Administration is not always wasteful.

Particularly given current improper payment rates—8.12 percent for traditional Medicare, and 9.8 percent for Medicaid—keeping administrative costs arbitrarily low would discourage anti-fraud efforts in the new government-run program, representing a poor use of taxpayer funds.

Gimmick Factor (scale of one-to-ten): 10. In 2017, the fact checker for the Washington Post said “single-payer advocates are counting savings that might not materialize”—exactly Warren’s strategy. Furthermore, it appears ridiculous for Warren on the one hand to claim that greater enforcement of tax laws will generate additional revenue to fund single payer (about which more below), but on the other hand to claim that keeping administrative costs low will not encourage massive amounts of fraud in the new government program.

Savings Proposal 2: Prescription Drug Reform

How Much: $1.7 trillion in prescription drug savings, above and beyond the savings assumed by the Urban Institute, by assuming a 70 percent reduction in current Medicare prices for branded drugs, and a 30 percent reduction in current Medicare prices for generic drugs.

What’s the Catch? The plan assumes reductions well beyond the supposed savings in House Speaker Nancy Pelosi’s drug “negotiation” legislation (H.R. 3). It applies “negotiation” to all branded and generic drugs, reduces the target price for “negotiation” from 120 percent of the international average to 110 percent of that average, adds penalties for companies that raise the price of their drugs above the rate of inflation, and allows the federal government to license companies’ patents if they refuse to “negotiate” their prices.

As with the Pelosi bill, these proposals bring two problems. First, both Pelosi and Warren assume their legislation passes legal and constitutional muster, but it quite possibly does not. The Congressional Budget Office (CBO) noted in its preliminary score of Pelosi’s bill that the legislation “could result in litigation” on those grounds. Imposing an excise tax of up to 95 percent—which CBO noted “could cause the drug manufacturer to lose money” on their products—or licensing a company’s patents each raise legal issues regarding unconstitutional takings without proper compensation.

Gimmick Factor: 7. Not for the first (or last) time, Warren presupposes that trifling inconveniences like the U.S. Constitution and the rule of law need not apply to her plan.

Savings Proposal 3: Lower Hospital Payments (Part I)

How Much: $600 billion in savings, above and beyond the savings assumed by the Urban Institute, by paying hospitals 110 percent of current Medicare rates, instead of the 115 percent of Medicare rates assumed by Urban. (Physician payments would total 100 percent of current Medicare rates in both plans.)

What’s the Catch? Warren’s plan contains four main assertions to support these lower payment rates, all of them dubious. First, she claims that enacting single payer would reduce providers’ administrative-related expenses (separate and distinct from insurers’ administrative expenses) by anywhere from 50-75 percent. As noted above, however, the uncertainty associated with creating an entirely new regulatory regime could well increase the administrative burden on doctors and hospitals for many years.

Second, Warren claims that single payer would lead to additional revenues: “Physicians would gain back much of [their] time for additional patient care, increasing their billable hours,” and “for hospitals, this increased access [to services] means increased volume and enhanced revenues.” By making this argument, Warren encourages doctors and hospitals to bill for additional services—even as the rest of her paper claims to want to move the health-care system away from traditional fee-for-service medicine. Moreover, as I argued more than a year ago, her argument essentially means doctors and hospitals will get paid less for doing more work.

Third, the paper claims that increased antitrust scrutiny will improve efficiency under single payer: “hospital competition will be an important feature…to ensure that providers are competing for patients on the basis of care quality and experience.”

However, Section 614(f) of the House single-payer bill (but not the Senate version) explicitly prohibits the new federal program from “utiliz[ing] any quality metrics or standards for the purposes of establishing provider payment methodologies.” If all doctors and hospitals will get paid the same under single payer, such that the federal government cannot pay good doctors and hospitals more money, how exactly can medical providers compete on the basis of quality (or anything else, for that matter)?

Finally, Warren focuses heavily on aggregate effects of provider pay, while ignoring important underlying trends. In fairness, doctors and hospitals who see many Medicaid patients could see their overall payments go up under single payer, because most state Medicaid programs pay providers less than the current Medicare program.

However, providers with a large share of patients with private insurance (which pays far more than the current Medicare program) will likely receive a significant decline in their reimbursements. Calling these providers “inefficient,” as Warren does in her plan, does not take away from the fact that they would have to engage in pay cuts or significant layoffs—an April Journal of the American Medical Association study suggested up to 1.5 million job losses from hospitals alone—to become “efficient” (assuming that is even possible).

Gimmick Factor: 9. This argument revolves around an argument easily rebutted by logic: Doctors and hospitals will not accept less pay to engage in more work.

Savings Proposal 4: Lower Hospital Payments (Part II)

How Much: A total of $2.3 trillion in savings, by paying hospital-owned physician offices at the physician office rate ($500 billion in savings), reforming post-acute care payments ($500 billion), and instituting bundled payments that combine inpatient care with 90 days of post-acute care ($1.2 trillion in savings). Presumably, the difference between the $2.3 trillion total and the $2.2 trillion sum of its component parts reflects rounding, but the paper does not say so outright.

What’s the Catch? For starters, one can raise legitimate questions about the accuracy of Warren’s numbers. More than half of the savings, derived from the bundling of post-acute care, come from a Congressional Budget Office estimate from November 2013—i.e., six years ago. To the extent that the budget scores have changed, doctors and hospitals have already engaged in the kinds of reforms the paper calls for, or the Urban Institute’s modeling (upon which the Warren campaign based their estimates) has already captured these changes, the plan relies on unrealistic and outdated assumptions to generate its supposed savings.

Moreover, the document admits that “we further adjusted the bundled payment extrapolation to reflect the desired policy outcome of reducing this spending”—that is, “an additional reduction [in hospital payment rates] to achieve this spending aim.” Her campaign provided no details as to the specifics of that “further adjust[ment],” or the policy justification for doing so.

More broadly, depending upon whether one uses the current national health expenditure projections, the Urban Institute’s estimates of health spending under single payer, or a mix of the two, this proposal would reduce health spending for hospitals and post-acute care providers by anywhere from 5-10 percent, on top of the payment reductions located elsewhere in the plan. It seems highly unlikely that such reductions would prove economically, let alone politically, sustainable.

Gimmick Factor: 6. In theory, the health-care system could benefit from lower spending associated with these reforms. But in some cases, the changes may have already taken place—and in others, the cuts may dig too deep when combined with other payment reductions in the plan.

Savings Proposal 5: Lower Spending Growth Rates

How Much: A total of $1.1 trillion in savings compared to the Urban Institute estimates, by presuming that the growth in health-care spending will decline, such that it will equal the growth in overall gross domestic product. If costs continue to grow above GDP, the paper cites “several policy levers…to keep [costs] near GDP growth, including global budgets, population-based budgets, and automatic rate reductions.”

What’s the Catch? Most of the above options would presumably result in one-time savings to the health-care system. Payments would drop—and in some cases, drop quite dramatically—but after that drop, would continue to grow. But the paper states Warren’s plan “will certainly work to lower cost growth over time,” and assumes additional savings in future years on that basis.

However, the few specific ideas mentioned to keep the growth of health care costs at or below GDP growth—such as global budgets and automatic rate reductions—have serious drawbacks. Consider what the Congressional Budget Office said in a May report about under-funding in Britain’s single-payer health system:

Since 2010, the global budget in England has grown by about 1 percent annually in real (inflation-adjusted) terms, compared with an average real growth of about 4 percent previously. The relatively slow growth in the global budget since 2010 has created severe financial strains on the health care system. Provider payment rates have been reduced, many providers have incurred financial deficits, and wait times for receiving care have increased.

What does that kind of chronic under-funding mean for patients? In Britain in January 2018, it meant 55,000 operations cancelled, waits of up to 12 hours in emergency rooms, and ER doctors apologizing for “Third World conditions” in their wards due to overcrowding. That is how Britain “saved” money on health care.

Gimmick Factor: 9. The assumption of further spending reductions reflects either an over-optimistic assumption, or an implicit admission that Warren will arbitrarily reduce health care spending to meet set targets. Given that Donald Berwick—of the infamous quote that “the decision is not whether or not we will ration care, the decision is whether we will ration with our eyes open”—co-authored Warren’s plan, the latter may in fact be the case.

Savings Proposal 6: Re-Direct State and Local Spending

How Much: $6.1 trillion, obtained by redirecting existing state and local spending on Medicaid ($3.4 trillion), and on premiums and health costs for state and local government employees ($2.7 trillion), to fund single payer.

What’s the Catch? Here, the catch comes less in the form of a budget gimmick than via political and legal obstacles. States fought the “clawback” payments included in the 2003 Medicare Modernization Act, which reflected a shift in funding prescription drug payments from the states to the federal government. They and local governments would likely object to any attempt to force them to fund single payer.

It is unclear what ability (if any) the federal government would have to force states to make such payments in perpetuity. Beginning with a 1997 decision that struck down elements of the Brady Bill, the Supreme Court has begun to reassert the Tenth Amendment’s prohibition on the federal government issuing orders to independently sovereign states. The 2018 ruling that allowed states to legalize sports gambling continued this anti-commandeering trend.

Similarly, the Supreme Court’s 2012 ruling that made Medicaid expansion optional for the states said Obamacare engaged in “economic dragooning” of the states. Requiring states and local governments to contribute more than $6 trillion to the federal government in the course of a decade seems like a clear example of “economic dragooning,” making it constitutionally questionable at best.

Also of note: While this $6.1 trillion in re-directed spending actually represents a funding option—replacing federal spending with state and local dollars—Warren’s plan tried to characterize it as a source of “cost reduction.” More accurately characterizing this spending as a funding source rather than as cost savings would increase the price tag of her plan from $20.5 trillion to $26.6 trillion over a decade.

Gimmick Factor: 7. If the left had any regard for the Constitution, they would question the viability of these types of proposals. Warren seems little concerned with such mere trifles.

Revenue Proposal 1: Employer Contributions

How Much: $8.8 trillion in contributions from employers, designed to replicate the contributions they currently make towards employees’ health insurance costs.

What’s the Catch? First, economists generally believe that firms will pass the costs of this “contribution” to their workers. Moreover, Warren’s plan would make this contribution mandatory, as opposed to current practice, in which firms can choose whether to offer health benefits to their workers.

Second, Sanders argued over the weekend that his proposal for a 7.5 percent payroll tax would be “more progressive” than Warren’s plan. To the extent that one cares about progressivity in the tax code, Sanders has a point, because a percentage-based payroll tax would impose higher costs for employees with higher incomes.

For instance, a firm employing an individual with a salary of $300,000 would pay $22,500 in payroll taxes—more than most firms pay in contributions to their workers’ coverage—while a firm employing an individual with a salary of only $30,000 would pay one-tenth that amount ($2,250) in taxes. Whether Sanders’ payroll tax would generate enough revenue to fund single payer at a rate of “only” 7.5 percent is a separate question; results from past examples, and from other non-partisan estimates, seem far from promising on that front.

More fundamentally, one line in the document speaks to the problems inherent in this proposal: “Additional rules, including anti-evasion rules, would be developed” (emphasis added). Just some of the language in Warren’s paper describing this mandatory contribution speaks to its complexity, which would impose its own costs on businesses:

To calculate the contribution, employers will determine what they spent on premium contributions for employer-sponsored insurance, other health-related expenses for employees, and health plan administration in each of the last three years, and divide that by the number of employees of the company in each of those years to arrive at their average annual health care cost per employee. (Part-time employees would count in proportion to the number of hours they worked.) A similar calculation would apply to pass-through entities, such as law firms or private equity funds, and health-related expenses now paid by them or their owners or partners, even though such individuals technically are not employees. Self-employed individuals would be required to provide Employer Medicare Contributions if they exceed an income threshold.

Under the first year of [single payer], employers would be obligated to take that per-employee cost, adjust it upwards to account for the overall increase in national health care spending, multiply it by their total number of employees, and contribute 98% of that amount as their Employer Medicare Contribution. Over time, an employer’s health care cost-per-employee would gradually be shifted downwards (or upwards) towards the average health care cost-per employee nationally among firms paying the Employer Medicare Contribution.

The plan implicitly acknowledges the possibilities of gaming this proposal—for instance, by having firms drop their coverage to avoid making contributions. Her paper talks of a “Supplemental Employer Medicare Contribution requirement for large firms with extremely high executive compensation and stock buyback rates”—parameters for each not specified—if the structure outlined above fails to generate the needed $8.8 trillion in revenue.

Gimmick Factor: 8. This “contribution” will not only hit the middle class, it will raise costs for businesses in the process. Some firms may succeed in reducing their contributions, but only by engaging in economically inefficient or complicated behavior.

Revenue Proposal 2: Additional Income Taxes

How Much: $1.4 trillion in revenue coming from employees no longer paying premiums for employer-sponsored insurance on a pre-tax basis, along with the abolition of health-related tax incentives (health savings accounts, itemized deduction for medical expenses, etc.)

What’s the Catch? By no longer having to pay premiums on their employer-sponsored coverage, individuals will save money—at least in theory. But because premiums for employer-sponsored coverage are paid on a pre-tax basis, workers would have to start paying income and payroll taxes on these dollars.

Gimmick Factor: 5. This tax will absolutely hit the middle class, Warren’s claims notwithstanding. Whether one considers this additional revenue a broken promise depends on whether one focuses on the $1 individuals will “save” in premiums, or the 30-40 cents of income and payroll taxes most people will have to pay because that $1 in “savings” now counts as added income.

Revenue Proposal 3: Taxes on Banks

How Much: A total of $900 billion in revenue from a 0.1 percent tax on financial transactions ($800 billion) and a “systemic risk fee” for banks with more than $50 billion in assets ($100 billion).

What’s the Catch? Apart from the fact that such taxes raise costs for retirement funds, and thus every American with a 401(k) or IRA, past experience suggests financial transaction taxes do not raise the amount of revenue promised. Italy, France, and Sweden each raised a fraction of the revenue they originally estimated from a financial transactions tax, in part because the number of trades fell as trading moved elsewhere. In fact, Congress repealed an earlier version of a financial transaction tax in 1965 as poor and ineffective tax policy.

Gimmick Factor: 6. At best these taxes will have little revenue impact, as markets and trading desks adjust their business models. At worst, it will raise costs for savers, including those in the middle class struggling to save for retirement.

Revenue Proposal 4: Taxes on Corporations

How Much: A total of $2.9 trillion in revenue from a repeal of accelerated depreciation ($1.25 trillion) and a country-by-country minimum tax on foreign earnings of 35 percent, the American corporate tax rate Warren wants to return to after repealing the 2017 tax reform legislation ($1.65 trillion).

What’s the Catch? First, as the Committee for a Responsible Federal Budget notes, “much of the revenue from [repealing accelerated] depreciation comes from a timing shift that increases tax payments now but reduces them later.” Under Warren’s proposal, companies could still write off their equipment, they just couldn’t do so as quickly as under current law. As with an expansion of Roth IRAs, this proposal would generate up-front revenue, but that revenue would decline over time.

Second, increasing corporate tax rates—which Congress just lowered, with bipartisan support—would again encourage companies to relocate overseas. An appendix to Warren’s paper admits that the long-term revenue impact of this change “depends on how U.S. multinationals would change the location of their profits, the location of their headquarters (i.e., inversions), and the evolution of the tax rates applied by other countries.” Ironically enough, if other countries raise their tax rates, a minimum tax on foreign earnings would yield the United States no revenue.

Gimmick Factor: 7. The depreciation proposal by definition will generate diminishing revenue for the federal government, and both will encourage companies to make inefficient, and therefore growth-sapping, decisions to avoid taxes.

Revenue Proposal 5: Taxes on ‘The 1 Percent’

How Much: A total of $3 trillion in revenue from high earners, including an additional 3 percent wealth tax on those with net worth over $1 billion ($1 trillion) and higher capital gains taxes for “the top 1 percent” ($2 trillion).

What’s the Catch? The first prong of this proposal would increase Warren’s wealth tax from 3 percent to 6 percent. (Her initial 3 percent wealth tax would fund other proposed programs.) This tax would force individuals to forfeit to the federal government 6 percent of their net worth per year, every year.

Lawrence Summers, a former advisor to both Presidents Clinton and Obama, wrote earlier this year that Warren’s initial wealth tax would not generate as much revenue as promised, due to likely attempts at tax avoidance. (Summers also noted that nine of 12 countries in the Organization for Economic Cooperation and Development have repealed their wealth taxes since 1990, finding them too cumbersome to administer.)

For instance, individuals could accelerate donations to charities, to decrease the amount of their wealth subject to the tax. Doubling the proposed wealth tax rate from 3 percent to 6 percent would only encourage this type of behavior, lowering its potential to generate revenue.

The second prong of this proposal would require “the top 1 percent” (not defined more specifically) to pay capital gains taxes every year. If a stock held by such an individual rose from $40 to $45 during a year, for instance, the individual would owe taxes on the $5 worth of appreciation—whether the individual sold the stock or not.

Beyond the fact that individuals might have to sell assets early just to pay the new capital gains tax, Warren’s proposal creates another problem: This “mark-to-market” approach would likely lead to major revenue fluctuations, and potentially revenue losses, for the federal government during recessions. For instance, if the stock held by the individual referenced above dropped in value from $45 to $35 over the course of a year, the individual could write off that $10 loss too. The net result would be dramatic drops in revenue for the federal government that coincide with drops in the stock market.

Gimmick Factor: 8. Taxing “the rich” may represent good politics, but seems unlikely to generate anywhere near the amount of revenue Warren would have you believe. (It also will generate negative economic impacts—which, as noted above, Warren’s advisors did not consider when arriving at their estimates.)

Revenue Proposal 6: Tax Enforcement

How Much: $2.3 trillion in revenue from increased tax compliance, including additional funding for the IRS’s Criminal Investigation Division, and expanded third-party withholding and reporting requirements.

What’s the Catch? The Congressional Budget Office estimated last December that a $20 billion increase in the IRS’s enforcement budget would raise a total of $55 billion in revenue over a decade. The net increase in revenue of $35 billion amounts to 1.52 percent of the $2.3 trillion Warren promises these provisions would collectively raise.

Gimmick Factor: 9. This proposal likely worked backwards from a number—“Let’s assume we can reduce the tax compliance gap [the gap between taxes owed and taxes paid] from 15 percent down to 10 percent”—and then filled in some policies that they claim could reduce the tax gap by one-third. However, analysts at CBO likely will not use the same crude methodology to derive their estimates, nor should they. Moreover, adding the new requirements Warren proposes will raise compliance costs, including for small business owners and self-employed individuals (including this one) firmly ensconced in the middle class.

Revenue Proposal 7: Immigration Changes

How Much: $400 billion in direct revenue from immigration policy changes.

What’s the Catch? First, the fact that for more than a decade, both Republican and Democratic Congresses have failed to enact immigration legislation, meaning this proposal assumes something that likely will not happen.

Warren apparently looks to use the same money from immigration reform twice—first to fund single payer, and then to fund Social Security benefits for new immigrants.

Second, the Urban Institute report from which Warren derived her own estimates admitted that “we do not attempt to estimate any potential effect of additional residency (legal or otherwise), or medical tourism that could result” from single payer. It seems one-sided for Warren not to consider any potential increase in health-care spending resulting from immigrant populations—because even Hillary Clinton has admitted that “too many…illegal aliens…come in [to the United States] for medical care as it is”—while simultaneously using tax revenue from immigration reform to pay for her plan.

Third—and most importantly—Warren’s plan relies on a 2013 Congressional Budget Office score of an immigration reform plan to derive its supposed $400 billion in revenue. But that CBO score showed that the budgetary savings from enacting immigration reform came off-budget. That means that some or all of the “revenues” from immigration reform—which Warren wants to use to fund single payer—could come from immigrants paying payroll taxes, which they will eventually receive back in the form of Social Security payments.

Just like Democrats used reductions in Medicare spending both to “save Medicare” and “fund [Obamacare],” Warren apparently looks to use the same money from immigration reform twice—first to fund single payer, and then to fund Social Security benefits for new immigrants.

Gimmick Factor: 10. Warren knows she can’t use immigration to pass single payer, and her advisors undoubtedly know that any payroll tax revenue from changes to immigration laws would need to be directed to Social Security benefits. They just found themselves short of revenue, and decided to add changes to immigration laws as a “magic asterisk” to make their numbers work—at least on paper.

Revenue Proposal 8: Elimination of the Overseas Contingency Operations Fund

How Much: $800 billion from eliminating and defunding the Overseas Contingency Operations Fund.

What’s the Catch? Ironically enough, OCO’s prominence—and Warren’s decision to use it as a funding source for single payer—comes in large part from its current use as a budget gimmick. The 2011 Budget Control Act exempted OCO funds from the legislation’s caps on defense spending. To avoid a sequester of defense spending under the BCA, Congress and the administration have used OCO to fund operations previously included in the “base” Pentagon budget, and which have little or no direct connection to overseas operations, or the Global War on Terror.

As it happens, however, the Budget Control Act’s enforcement mechanisms for discretionary spending (including defense spending) are already scheduled to expire at the end of Fiscal Year 2021—September 30, 2021. Warren’s pledge to eliminate an account whose prime purpose (i.e., circumventing defense spending caps and the sequester) will already end eight months after her potential inauguration seems unnecessary at best, and disingenuous at worst.

Gimmick Factor: 8. This particular example of fiscal legerdemain seems particularly meta—engaging in one budget gimmick by repealing another budget gimmick.

This post was originally published at The Federalist.