We're getting to that point in the election season where the leading candidates from both political parties are beginning to unveil their plans to get America back on track. Previously, we've looked at the Social Security overhaul ideas for Republican presidential hopefuls Jeb Bush and Chris Christie, as well as Democratic front-runners Hillary Clinton and Bernie Sanders.
What we haven't seen much of yet, though, is how the candidates plan to tackle healthcare reform.
Bernie Sanders wants to fix America's healthcare system
According to research provided by the Organisation for Economic Co-operation and Development from 2015, the U.S. spends 16.2% of its GDP on healthcare, amounting to $8,713 per person. Relative to other developed countries, this is by far the highest. The U.S. is also the only developed country among OECD nations that doesn't have a universal health plan.
In a nutshell, we're spending more on healthcare than any other developed nation, but we're simply not seeing commensurate returns for that extra spending. We still have 29 million uninsured Americans, and premium costs are once again galloping higher in part because drug developers and private insurers have few checks and balances in place to keep them from raising their prices.
However, Democratic candidate Bernie Sanders believes he has the solution. Dubbed "Medicare for All," Sanders' plan, unveiled earlier this month, looks to turn health insurance into a right rather than a privilege that only some Americans can take part in.
When unveiling his plan, Sanders commended the Affordable Care Act, better known as Obamacare, for working to get more than 17 million Americans insured since its inception, but he was also clear that more needed to be done to get the remaining 29 million Americans insured. Let's briefly take a look at the components of Sanders' universal health plan, examine what its strengths are, analyze its weaknesses and uncertainties, and ultimately take a look at how it could affect you directly.
Medicare for All: how it would work and be funded
The idea behind Medicare for All is simple: Sanders wants all Americans, regardless of income, to have access to medical care.
What we're really talking about here is a single-payer healthcare program that would be federally administered and cover all aspects of medical care. Sanders notes that his proposal would cover everything from primary care and emergency visits to prescription medication, diagnostic tests, and medical equipment.
The cost for Sanders' plan? How about a brisk $1.38 trillion per year? However, over the course of the next decade, Sanders' Medicare-for-All plan is forecast to reduce cumulative healthcare spending by more than $6 trillion compared with our current path. The example Sanders used was that a household of four with $50,000 in annual household income would see their annual healthcare costs fall from around $6,300 in current premiums and deductibles to just $466 once Medicare for All becomes law, a savings of more than $5,800.
How would Sanders pay for such grandiose healthcare overhaul? The answer can be predominantly be found by increased taxes on all Americans -- although some are expected to bear a bigger burden.
- 2.2% premium tax: Most American households would be responsible for paying an income-based 2.2% tax to help cover the cost of a national health plan. Based on current-year data, Sanders' plan would exempt a family of four living on an income of $28,800 and lower. This component is expected to generate $210 billion in annual revenue.
- 6.2% income-based healthcare premium paid by employers: In addition to American households being taxed, employers would be required to pay a 6.2% tax based on their income. This would raise a whopping $630 billion annually.
- Capital gains and dividends taxed as ordinary income: Sanders wants to tax all dividends and capital gains as ordinary income for households with $250,000 or more in annual income. Total revenue generated here is forecast at $92 billion annually.
- Progressive income taxes: Sanders would also look to raise marginal tax rates on those earning above $250,000 annually. New marginal tax rates of 37% ($250,000-$500,000), 43% ($500,000-$2,000,000), 48% ($2,000,000-$10,000,000), and 52% ($10,000,000 and up) would raise $110 billion in annual revenue.
In addition to these four tax increases, Sanders' plan also calls for limiting the amount of tax deductions for households earning above $250,000, introducing an estate tax on Americans inheriting more than $3.5 million, and reaping savings of $310 billion per year from the removal of several health insurance tax breaks (subsidies).
Strengths of Medicare for All
The obvious benefit of Medicare for All is that it disassociates healthcare from the workplace. The majority of Americans are currently insured through an employer-sponsored healthcare plan, which makes changing jobs, leaving a job you don't like, or being laid off an extremely tricky venture. Sanders' plan would eliminate that by making healthcare a right for all.
Sanders' plan, since it would be federally administered, would also rely on the might of the U.S. government to negotiate the best deals possible to keep medical cost inflation under control. This means drugmakers, device makers, diagnostic developers, and so on would need to negotiate prices with the U.S. government and would likely find their pricing power weakened.
Another key strength of Sanders' plan is that it relies on upper-income individuals to play a bigger role. Wealthier individuals should be able to part with a greater amount of their annual income without it having an adverse impact on their ability to meet day-to-day expenses or to save for retirement. Predominantly focusing on households with $250,000 or more in annual income means only 2%-3% of households are affected, with the exception of the 2.2% income-based tax.
Weaknesses and uncertainties
Of course, there are weaknesses and uncertainties tied to Sanders' healthcare overhaul as well. Here are a few of these concerns.
First, the 6.2% tax being paid by employers is unlikely to be absorbed by businesses. As reported by USA Today, research from the nonpartisan Congressional Budget Office shows that employer tax rate increases are often passed along to employees in the form of lower wages, or to consumers in the form of higher prices (or perhaps some combination of the two). Layoffs would also, presumably, be a possibility. In addition, higher taxes on the wealthy could hurt business investment or job creation.
Another concern with Sanders' Medicare for All plan is that its indiscriminate 2.2% income-based tax could wind up impacting the seniors that he vowed to protect in his Social Security proposal. The income-based tax could hit seniors that qualify for Medicare but are currently still in the workforce. Basically we're talking about seniors who've not saved enough for retirement, and who are working well into their golden years in an effort to make up the difference. Even if Sanders' math suggests they'll be better off under a single-payer health plan, many seniors paying into Medicare currently may not find the idea even the slightest bit appealing.
An interesting point raised by the Los Angeles Times is that Sanders' plan may also throw caution to the wind when it comes to healthcare costs. On one hand, the government's unified efforts to combat alleged price gouging could help stymie medical cost inflation. Then again, providing access to everyone, for anything, could remove what efficiencies are in place right now to keep frivolous spending out of the healthcare system for unneeded treatments. It's unclear what checks and balances would be in place to prevent healthcare costs from rising under such a scenario.
The last big concern would be the current lack of healthcare capacity. The millions of people now enrolled in Obamacare have inundated the primary-care system to the point where some physicians literally can't take on any more patients. What happens when we eliminate copays and deductibles, and allow patients access to medical care whenever they feel they need it? The worry is it may be too much for the healthcare network to handle.
How Sanders' healthcare overhaul could affect you
Now for the important question: How would a Bernie Sanders presidency and the passage of Medicare for All (assuming Congressional approval) affect you?
As we've witnessed, Sanders' primary concern is the low-income and middle-class American family hovering around or below that $50,000 annual household income threshold. The assumption with a Sanders presidency is that these individuals, who comprise the bulk of the 29 million who remain uninsured, would now have access to affordable medical care.
The other half of American households (those making more than $50,000 annually) may not fare as well. Taxes for these individuals may rise, with well-to-do households earning $250,000 or more seeing notable tax increases.
However, investors and healthcare stocks and businesses could really take it on the chin with Medicare for All.
Holding stocks for the long term -- defined as at least a year and a day -- results in capital gains that are taxed at 0%, 15%, or 20% as it stands now. Removing this incentive to invest for long periods of time and taxing capital gains and dividends at an ordinary income rate (for households over $250,000) could discourage good investing habits. The solace here is we're only talking about this affecting the top 2%-3% of the investing population, but it still potentially sends the wrong message.
The other issue here would be healthcare investments, which I'd be willing to bet most investors own to some degree in their portfolios. The assumption here would be that the federal government's ability to negotiate better prices would severely hamper drug and device margins. Personally, I'm not even sure what role private insurers would have if Sanders' Medicare for All became the law of the land. Hospitals would likely also see their margins stomped.
There are still a lot of questions left to be answered and some specifics of Sanders' plan that need some finer tuning, but this rundown should at least give you a better idea of what positives and negatives you might expect if Sanders' single-payer vision becomes the law of the land.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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