— Former vice president Joe Biden, in remarks at a town hall in Cedar Rapids, Iowa, Sept. 20, 2019

A confused reader passed along a tweet with a clip of these remarks. What was Biden talking about?

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After all, the Medicare-for-all plan advanced by Sen. Bernie Sanders (I-Vt.) calls for eliminating premiums, deductibles and co-pays. Yet Biden suggests the plan would raise deductibles.

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Biden’s staff acknowledges that he misspoke, repeatedly, in this passage:

He meant to say the plan would double the federal budget, except for interest on the debt, not that it was twice the federal budget.

He meant to say a tax on employers was like a deductible from your paycheck. (The line he used in the last primary debate was: “It’s going to cost you in your pay — there will be a deductible in your paycheck”).

He meant to say the employer tax was 7.5 percent, not “5 percent and 4 percent.”

We understand politicians can misspeak — though Biden seems to do it more often than most — so we won’t be awarding Pinocchios. But the point he was trying to make gets to the heart of the debate about the cost of a single-payer health plan. So it’s worth exploring this issue and explaining it to readers, especially because more than 100,000 people watched the video embedded in the tweet.

The Facts

Sanders, as Biden noted, has said his plan will raise taxes, but argues that the cost of health care will be lower overall. Sen. Elizabeth Warren (D-Mass.), rising fast in the polls, has embraced Sanders’s plan but studiously avoids answering any questions about a possible tax increase. Sen. Kamala D. Harris (D-Calif.) used to support the Sanders plan but then crafted her own version, in part because of what she called “a middle-class tax hike” embedded in the plan. Her plan would phase in much more slowly and still retain a role for private insurance.

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Biden has rejected a single-payer approach and advocated building on the Affordable Care Act, the law expanding health-care access passed during the Obama administration.

Actually, no one really knows what would happen. You have to take any of the numbers offered by advocates and detractors with a huge grain of salt. As we have documented before, the cost of any health-care proposal will be affected by a variety of factors, including provider payments, health-care benefits, cost-sharing and administrative savings from a consolidated system. Any complex bill overhauling health care faces daunting prospects in a closely divided Congress.

But for the sake of argument, let’s look at the numbers Biden and Sanders are using.

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Sanders has offered a menu of possible options to finance the cost of Medicare-for-all. One option would require a 7.5 percent payroll tax that employers would pay to help fund the program. Another would be a 4 percent income-based premium paid by households. (That’s what Harris labeled a middle-class tax hike.)

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But Sanders argues that those taxes would be cheaper than the current system.

Sanders offers as an example a prototypical family of four earning $50,000. He says the employer is currently paying $12,865 a year in health-care premiums for this family, while the family pays $5,277 in premiums. Virtually every economist will tell you that payroll taxes or health-insurance premiums paid by an employer largely comes out of the pay earned by the employee.

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For instance, both employers and employees pay 6.2 percent to Social Security (on the first $132,900 of wages) and 1.45 percent to Medicare. The employer obviously counts that 7.65 percent ($3,825 for a $50,000 wage) as part of the cost of employing that person, as well as the nearly $13,000 in health insurance premiums. To the employer, the cost of that employee is not $50,000, but almost $67,000. (There are tax deductions for employer-provided health insurance, but we will ignore them as part of this illustration.)

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But note that almost $13,000 in insurance premiums is 26 percent of $50,000. Sanders’s 7.5 percent tax would be $3,750, so that suggests more than $9,000 in savings for the employer. Under Medicare-for-all, the total cost of the employee to the employer would be a little over $57,000, a reduction of more than $9,000.

As for the 4 percent income premium paid by the employee, that amounts to $844 a year, once the standard deduction is taken into account, Sanders says. That’s far less than the nearly $5,300 in premiums currently paid by this family.

Biden, by contrast, only focuses on the cost of tax increase (apparently because polling has found that it’s a way to undercut support for Medicare-for-all). In the debate, Biden argued that a three-person family earning $60,000 a year will face more than $5,000 in taxes — the 4 percent premium tax ($1,240 after the standard deduction) and the 7.5 percent tax paid by employers ($4,500), on the widely accepted economic theory that payroll taxes paid by employers are passed onto employees.

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Notice that he did not take into account any of the savings that Sanders claims his plan will generate both for the employee and employer. So he’s really only telling half the story, misleadingly ignoring a possible reduction in health-care costs for many Americans.

Sanders also chose an example in which the numbers work in his favor. The savings for the employer fade as an employee’s wages increase.

Sanders also focuses on the cost of a family plan, which has much higher premiums. The Milliman Medical Index, a respected accounting of health-care costs, says the employer contribution in 2019 will be $3,773 per person. (Total health-care costs for a family of four on an employer-provided plan are $28,386, Milliman says.) So a single person making $50,000 in theory would barely represent any savings for that employer — a 7.5 percent payroll tax on $50,000 is $3,750 — and the tax would quickly be higher than current expenses as wages increase.

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Similarly, wealthier Americans would end up paying much more in taxes than they currently pay for health-care premiums. (We take no position on whether that’s good or bad, and certainly Sanders and Warren have been forthright in saying the wealthy would largely finance the plan.)

The uncertain complexity was examined in a 2018 University of Massachusetts at Amherst study that predicted the impact of enacting Medicare-for-all in a variety of employer and employee scenarios. The report does not examine all of the same financing options as Sanders, but it calculated that a three-person family with $60,000 income would gain almost $1,600 (2.6 percent) in additional income under Medicare-for-all, while a family with income of $221,000 (top 20 percent of wages earners), would lose $8,520 (3.9 percent) and a family with $401,000 (top 5 percent) would lose $22,340 (5.6 percent). (To create these scenarios, the report relies on data for 2016 mean incomes for various income ranges.)

Meanwhile, the report said most businesses would see a reduction in costs with even an 8.2 percent payroll tax but that firms of more than 500 employees would experience a 5.7 percent increase in health-care costs.

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“Vice President Biden’s priority as president will be to make sure every single American has access to affordable, quality health insurance in the quickest, most cost-effective way possible,” Biden spokesman Michael Gwin said. “That’s why his plan is to build on and improve the Affordable Care Act by creating a public option, allowing people to choose between this new option and their private plan, and taking other steps to lower health-care costs. Biden has also made clear that any health-care plan that raises taxes on the middle class is a nonstarter.”

The Bottom Line

Biden emphasizes the higher taxes that Medicare-for-all would impose while ignoring the fact that for many middle-class Americans (if you accept Sanders’s math) the change may result in higher incomes and lower health-care costs. It’s a classic political gambit to focus on only half the equation, and we will keep an eye on how Biden frames this in the future to see if he merits Pinocchios.

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Biden may have bungled his lines at the town hall, but he still has not developed an effective or sophisticated counterargument to Sanders’s prediction of lower overall costs. You can understand why Warren has generally refused to even acknowledge that there are higher taxes embedded in Medicare-for-all. She stays focused instead on an overall reduction in costs, clearly not wanting to engage in a debate on Biden’s playing field.

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