Medicare for Kids Is A Political Winner
By James Medlock (@jdcmedlock) and Colin McAuliffe (@ColinJMcAuliffe)
The Political Economy
Medicare for All is a vitally important demand of the left. It’s the best policy, and it’s a clear rallying cry for activists. But opposition to single-payer among senate Democrats remains a substantial hurdle to achieving single-payer, even in the event that Democrats manage to win both the Senate and the Presidency in 2020.
Many Senate Democrats tend to support more incremental policies, which can vary greatly in their scope and effectiveness. For example, some Senators have reportedly been looking at a Medicare at 50, a buy-in program that would allow people over the age of 50 to purchase Medicare coverage. But this type of expansion focused on the near-elderly may ultimately backfire and make further expansion more challenging in the future.
A centrist think tank recently polled anti-Medicare for All talking points, and the message that was most compelling was not the much-discussed ban on private insurance, but rather a message about “lower quality of care for seniors.” Research backs up the idea that seniors are increasingly concerned that expansions of health insurance will come at their expense. While this is not likely to be true (Medicare for All would dramatically improve coverage for seniors currently on Medicare), it’s clearly a political impediment. Lowering the Medicare age to 50 may end up creating an even larger cohort of people who turn up to vote at much higher rates than younger people and who also see public health insurance expansions as a threat to their own coverage.
Instead of Medicare at 50, Democrats should consider Medicare for Kids. A program that covers all kids, from birth to 18, would have the opposite political economy as a program targeted to the old. Parents and children would have positive interactions with public health insurance and have an interest in supporting further expansions to older age groups.
Since kids have relatively low health costs, the coverage offered could be comprehensive, free-at-point-of service care, rather than the less generous coverage Medicare at 50 proposals offer. This would put us in line with the rest of the developed world; nearly all OECD countries offer full or partial cost-sharing exemptions for children. And this would also be in line with the original vision for the Medicare program. As Robert Ball, a key architect of Medicare said: “...we expected Medicare to be the first step toward universal national health insurance, perhaps with ‘Kiddiecare’ as the next step.”
The Policy Case
Our current healthcare system leaves many parents with unaffordable and unstable coverage for their kids. In 2018, the children’s uninsured rate rose for the first time in nearly a decade. The Children's Health Insurance Program (CHIP) has made strides in covering kids, but it has fallen short of universal coverage and has been under attack in red states. In Tennessee, 220,000 children have been cut from the roles, in part because parents are saddled with a complicated 47 renewal application. In Texas, lawmakers have imposed an automated system to apply a means-test multiple times per year, resulting in thousands of children losing coverage in error. Florida has gone so far as to charge premiums for coverage for parents under 150% of the poverty line. All in all, 800,000 kids lost CHIP/Medicaid coverage in 2018, and a Georgetown analysis found little evidence that this could be explained by the strong economy rather than administrative sabotage. Even in states that are committed to make the program work, administrative burden can reduce coverage rates. Many kids who are automatically enrolled at birth lose coverage on their first birthday due to paperwork mixups. And about 27% of children enrolled in Medicaid churn off the program within a year. Health insurance should be a source of stability for families, but instead, low-income families are at risk of losing coverage simply because they get a small raise or miss one piece of paperwork.
Middle-class families are being hurt by the children’s health system as well. When someone on employer-sponsored insurance shifts from an individual plan to a family plan, they face $3800 in additional costs on average. This more than negates the Child Tax Credit, which is supposed to make parenting more affordable. And if their employer coverage is unaffordable, the so-called “family glitch” in the ACA prevents them from getting subsidies on the individual exchanges. This has resulted in some families spending as much as 25% of their income on coverage, or in some cases choosing to only insure one parent so they can afford children’s coverage. Even parents with high-quality insurance risk going bankrupt if their children have expensive conditions.
Our health system is hurting poor and middle-class parents alike, but the means-tested nature of CHIP ends up creating a fractured political coalition. The phenomenon of Medicaid envy has left some middle-class people feeling squeezed as they see others getting free care, while state-level crackdowns on Medicaid get less attention because only those with the least political capital are harmed. A universal program that automatically enrolls every kid would bring these interests together. It would eliminate the stigma, instability, and bureaucratic burdens facing the poor, while also addressing the very real cost issues facing the middle class.
The US is already last among rich developed countries in spending on families, with one of the highest child poverty rates, and removing the burden of children’s health insurance would be an important step towards remedying this.
How To Pay For It/The Political Economy of VATs
A Value Added Tax (VAT) is a type of consumption tax used in nearly every developed country aside from the US. It differs from a sales tax in that it is levied at each stage of production rather than only at the final point of sale, and it is usually included in the final price of products rather than added in addition. VATs are very easy to enforce and capable of raising huge amounts of revenue. To consider why a VAT is the best way to fund Medicare for Kids, it’s worth taking a step back and considering the political economy of taxation. Some left priorities can be funded by the federal government simply issuing currency without additional revenue sources. Most others can and should be funded by steeply progressive taxes like wealth and high-end income taxes. But healthcare is such a large item than broad-based taxes are necessary. These broad-based taxes may take the form of mandatory premiums, payroll taxes, income taxes, or VATs, but they are unavoidable. This is a substantial political challenge, but the formula that has proven sustainable in social democratic countries is to make the benefits of the welfare state extremely visible (by making them universal and generous) while making the taxes that fund them less salient (a heavy reliance on payroll taxes and VATs that aren’t as noticeable). A similar phenomenon might explain why it is so difficult politically to move away from employer-sponsored health insurance, where the benefits of having insurance are very visible, but the costs are often hidden in payroll deductions and employer-side contributions.
In the US, our welfare state is a combination of means-tested benefits (like TANF and SNAP) that most middle-class people don’t interact with, and tax credits (like the EITC and Child Tax Credit), which benefit middle class people but aren’t very visible because they’re embedded in our complicated tax code. On the revenue side, we rely more heavily on politically salient income taxes, while relying less on lower salience taxes like payroll taxes and consumption taxes. This makes the US welfare state fragile and difficult to expand.
Over the long term, if we’re going to build a social-democratic welfare state, we should work to reverse this situation. Medicare for Kids would address this on the benefit side, by being a universal and visible improvement to the lives of over 100 million parents and children. And if we fund it with a small VAT, it’d be a foot in the door towards a more social democratic tax system. Once it’s implemented, the tax will become essentially invisible, and the electorate may be more inclined to support further tax increases in exchange for never having to see a health care premium, copay, or deductible ever again.
In fact, nearly every country that implemented a VAT has raised the rate over time and many conservatives are fearful of this dynamic. The Cato Institute warned that VATs are so effective at raising large amounts of revenue that imposing one “would be akin [to] pouring gasoline on a fire and ensuring that America will become a European-style welfare state.” The work on comparative taxation and welfare policy by Harold Wilensky backs this idea up. He calculated a “backlash score” for various types of taxation, and found that the success of tax backlash movements across the developed world was correlated with the degree of visible taxation in a country’s tax structure.
While it’s likely that VAT-financed universal healthcare for kids would be durable once implemented, this doesn’t solve the problem of getting it passed in the first place. Data for Progress asked Civis Analytics to poll this policy using partisan framing and counterarguments to get a sense of where public opinion on Medicare for Kids could land if it became a highly salient issue. The full question reads as follows (we used the term “national sales tax” instead of value-added tax since this is not likely to be a term many Americans are familiar with):
Some Democrats have proposed spending $130 billion per year to establish a program called "Medicare for Kids", which would automatically enroll all Americans under the age of 18 in a comprehensive government health insurance plan. This program would be funded by a 1.5% national sales tax.
Democrats say that millions of children are uninsured and are forced to go without necessary medical care. They claim that the Medicare for Kids program would guarantee that all children get the care they need.
Republicans say that the national sales tax would raise the prices of goods and services that Americans need. They say that it is unfair to burden taxpayers with the healthcare costs of children from well-to-do families who can afford healthcare on their own.
Would you support or oppose this proposal?
Nationwide, Medicare for Kids has 42 percent support, 36 percent opposed, and the remaining 22 percent don’t know. Additionally, Yougov Blue polled the same Medicare for Kids proposal on behalf of Data for Progress, but with the VAT replaced by a payroll tax. The results for each of these were very consistent, with the VAT-funded M4K polling at net positive 6 percent and the payroll tax-funded M4K at net positive 4 percent.
Remarkably, the urban-rural divide in support for Medicare for Kids is not nearly as severe as it is for many other issues. Medicare for Kids has at least a plurality support across urban and suburban congressional districts, as well as several Republican and rural districts. This is an impressive result for a proposal that includes middle-class tax increases. It’s in line with polling results for a Medicare Buy-In that doesn’t include an explicit tax increase (43-37).
While this is encouraging, we should be careful not to over-interpret this result. It remains true that any attempts to raise broad-based taxes will be met with fierce resistance, and large middle-class tax increases are likely a total non-starter. However, what we find here is that small broad-based tax increases may be tractable if they are used to fund popular programs that have relatively low budgetary costs.
It’s been said that the US has never implemented a VAT because liberals think it’s regressive, and conservatives think it’s a money machine, and only when these positions are reversed will we be able to implement one. Regressivity is a valid concern, and from reading the Republican counter-argument we polled, it’s clear why it’s so easy to make convincing-sounding arguments against universal benefits funded by broad-based taxes. It’s crucial to account for the spending that VATs and similar taxes enable, which can result in much more progressive outcomes, especially compared to our extremely regressive health system. We could also implement a cash transfer to offset the effect on low-income people, the way Canada has, or simply expand the broader welfare state.
Medicare for All should remain the central demand of the left on healthcare, and it would be a mistake to pre-compromise. Medicare for Kids offers a viable path forward for state governments who want to build on their wildly successful Medicaid expansion programs but who do not want to wait for action at the federal level. At the federal level, it is substantially better than the incremental policies that have been proposed by centrist Democrats. Rather than a buy-in for the near-elderly, we should demand a full decommodification of children’s health insurance, funded in a way that will make further expansions easier down the road.
James Medlock (@jdcmedlock) is a Bay Area-based healthcare policy analyst.
Colin McAuliffe (@ColinJMcAuliffe) is a co-founder of Data for Progress.