Medicare for All Could Grow Economy -- Or Cause Financial Havoc

(Bloomberg) -- Democratic presidential candidate Bernie Sanders’ Medicare-for-All plan could expand the economy or shrink it by nearly a quarter -- it all depends on how it is paid for, according to new analysis.

If Sanders were to fund his universal health plan with premiums individuals pay to the government, the economy could grow by about 0.2% by 2060, according to estimates from the Penn Wharton Budget Model. Cut out dental and long-term care from the services covered and that figure increases to 12% gross domestic product growth thanks to overhead savings.

But, lawmakers beware: Medicare for All financing could also result in a decidedly different economic future. Paying for the program with a payroll tax increase could decrease GDP by 15% by 2060, the report said. If Congress didn’t come up with any offsets and financed the spending with debt, economic growth would contract by 24% over the next four decades.

In all likelihood Sanders, or any Democrat pushing for universal health care, is likely to make more than just a single change to the tax code to finance it. But the calculations demonstrate that the funding source can have significant consequences on how the economy reacts.

A premium-based funding stream is more predictable because people can’t avoid paying when they stop working, for example.

The spread is one of the widest that Kent Smetters, faculty director of the Penn Wharton Budget Model, said he has ever modeled.

“The choices that you make now can seem subtle, but they can have dramatic long-term impacts,” he said. “Normally, we get excited about a quarter of a percent change to GDP.”

This presents a predicament -- and a warning -- for Sanders, who has so far been relatively quiet about how he plans to pay for universal health care. The premium-based funding is relatively unprogressive because everyone pays a similar amount. And some of the tax-the-rich funding mechanisms that Sanders has floated -- such as a wealth tax and tax hikes on the wealthy -- could have even more adverse effects than a payroll tax, Smetters said.

The budget model assumes that there would be subsidies for low-income individuals who couldn’t afford the premiums, but most middle income people and high earners would pay the same fee for health care under a premium system.

Sanders has espoused universal health care for years, but hasn’t ever outlined a specific plan to pay for it. He released a list of options in 2017 that included several tax hikes, such as a wealth tax, income tax rate increases and premiums split by employees and employers.

The Penn Wharton Budget Model estimated that under premium financing, each worker would pay the same fee, regradless of health status, age or wage. Workers who couldn’t afford the premiums would have those costs absorbed by Medicaid and the Supplemental Nutrition Assistance Program.

Using payroll tax financing, the modelers assumed the tax rate does not depend on age or health risk profile. It’s naturally progressive because higher-income workers would pay more in taxes than those earning less.

One thing didn’t change based on the financing source: health improvements were almost the same under all the options. Those include an increased life expectancy of about two years and a 3% larger population.

(Disclaimer: Michael Bloomberg is also seeking the Democratic presidential nomination. He is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)

To contact the reporter on this story: Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story: Wendy Benjaminson at wbenjaminson@bloomberg.net, Max Berley, Magan Crane

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