Elizabeth Warren’s health-care financing plan, announced last week, threads several needles to attain three important characteristics: It is a universal health-care plan with zero out-of-pocket costs for consumers designed to avoid a new, broad-based tax on income or consumption.
That is a hard set of specifications to meet, and I wrote last week about just some of the problems Warren will face cobbling together the revenue she needs to make it happen. But “no new, broad-based tax on income or consumption” gets most of the attention despite being just one of the three key specifications. Another specification is universality, a key ideological goal of the Democratic Party coalition. I want to focus on the third specification, which hasn’t gotten enough attention: zero out-of-pocket costs for consumers.
I think it’s important to note: While other advanced countries do a much better job than we do of providing the whole population with health coverage, and many of them use a system where the government is the primary or sole insurer to do so, it is not typical to completely relieve the health-care consumer of any payment responsibility. In fact, out-of-pocket health-care spending as a share of household consumption is already below average in the U.S. compared to other advanced countries. As of 2015, 2.5 percent of American household consumption went to out-of-pocket payments for medical care, compared to 3 percent on average for OECD countries.
So if we eliminate out-of-pocket costs, we won’t have just gotten in line with our peers in terms of government responsibility for health care; we will have exceeded them. That might be nice, but is it necessary or even desirable, given the financing needs it would entail?
I think if you’re looking at Bernie Sanders’s approach, you have a coherent argument for answering yes. Health care is a human right, you would say. Its cost therefore should be paid through the government and financed through taxes, levied so that those with higher incomes pay more. It’s expensive, but it’s a moral imperative.
This argument is harder to make about Warren’s plan because of its heavy reliance on a new, per-employee charge on firms that effectively replaces existing employer contributions to insurance premiums. Economists will generally tell you that employer-paid health-insurance premiums come out of the wages employees would otherwise earn. That is, Warren’s proposed fee, like existing employer-paid insurance premiums, would be an economic burden on workers to finance some of their own health care.
If it’s okay to impose that indirect burden, why isn’t it okay to require some people to pay directly for some of their own care, for example through a deductible or co-payments? There are some advantages to a direct cost-sharing approach. It’s more transparent than the proposed employer fee. It’s less novel, so it would entail fewer political and legal challenges. Depending on structure, it might encourage more thoughtful and efficient use of care. It gives individuals somewhat more control over the costs they bear. Finally, an openness to cost-sharing would also make it much easier to finance Warren’s plan: She could bring down its fiscal cost at will by shifting some costs to consumers.
Of course, cost-sharing doesn’t sound nice — who likes deductibles? — and allowing for it would open up ideological space between Warren and Sanders, since Sanders’s long-standing bill calls for no cost-sharing. But that ideological space already exists: Her plan relies on trillions of dollars in financing that is economically tantamount to cost-sharing, while his relies on taxes. She’s already said workers will keep implicitly financing a large chunk of their own care under her plan. Why not make it explicit?