The frustrating thing about universal health care is that a system like the French have is clearly superior to anything that has been proposed, but implementing a system is considered politically impossible. In this article I explore why such a system is politically impossible.
To do this I will consider a simple idea, let's put everyone on Medicare. The first thing we need to know is how much will this cost. At present, the US spends about $2 trillion on health care[1], or about 15% of our $13 trillion GDP. About 45 million currently have no health insurance and so putting them on Medicare should increase costs above $2 trillion. On the other hand, a single payer system will reduce costs now incurred by insurers efforts to cost-shift expense on to somebody else. Obviously there is no reason to cost shift if there is a single payer and we can expect 10-15% savings to be obtained through elimination of this cost. To simply my analysis I will assume that the savings offset the extra expense of insuring more people with the result that the cost of the expanding Medicare will be about $2 trillion, less the portion charged to the patient and less uncovered items (e.g. cosmetic surgery). Let us assume that only 90% ($1.8 trillion) needs to be raised through the Medicare payroll tax.
Now to raise this $1.8 trillion Medicare uses a tax on income. Income is not the same as GDP, it is smaller, about $12.3 trillion. There are many types of income: wages and salaries ($6.4 trillion), proprietor income ($1.1 trillion), corporate contributions to pensions ($1.0 trillion), rental income ($0.07 trillion), dividend income ($0.8 trillion) and net interest ($0.6 trillion). This totals $10 trillion. There is also $0.5 trillion of corporate contributions to social security and Medicare. (All date from reference 2)
Included in $1.8 trillion of national income not accounted for are corporate taxes and undistributed profits ($0.8 trillion) and taxes on production and imports ($1.0 trillion). These funds are used to fund the regular government (local, state and national) and to fund economic growth. They are not available for funding Medicare.
To make the tax base as large as possible let us tax employee wages and salaries and pension income, for a total of $7.4 trillion at half rate and proprietor income, dividend, rent and interest income for a total of $2.6 trillion at full rate. Let us tax corporations half rate for salary and wage workers as we do now. Call the rate X. With this assumptions the total tax raised will be 7.4 X / 2 + 2.6 X + 6.4 X/2 in trillions of dollars. The first term is the amount paid by workers and pensioners, the second by self-employed and rentiers and the third the amount paid by corporations.
This sum must equal $1.8 trillion. Solving for X gives 19% base tax rate. With X = 0.19, the corporate contribution would be 6.4*0.19/2 = 0.6 trillion or about 0.5 trillion more than corporations are currently contributing. Since corporations collectively spend more than $0.5 trillion on employee health insurance they will be winners under this system.
As for workers, they will see their Medicare taxes rise from 2.9% to 9.5%. For a household making $40K a year the tax increase would amount to $2600, which is less than even a bare-bones policy would cost. However, consider the situation of a two-worker household with a gross income of $100,000. Medicare taxes would add $6600 to their tax bill, probably a lot more than what they currently spend on their employer-provided health insurance. The situation gets progressively worse for households earning in the $100-150K range, yet few of these people will consider themselves "the rich".
Since a significant portion of the Democratic base are professional households with income in the $100K region, this sort of plan simply will not fly. To make it palatable it would be necessary to combine the new Medicare plan with income tax reform. For example suppose we eliminate all deductions and apply a fixed progressive tax rate to all income. Then let us deduct the payroll tax (Social Security + Medicare) from this calculated total. Any excess is paid as income tax. With this system their would a flat tax of 15.7% levied on all wage, salary and pension income. This tax would pay for health care and social security. That is, it is not really a tax at all, but an insurance payment made to obtain real tangible benefits.
As income rises the income tax rate rises until it finally exceeds 15.7%, at which point employees and pensioners would start paying income tax. For self-employed people, they would pay 31.4% of their income in payroll taxes. Until their income reached a level at which they would pay income taxes at this rate, they would pay no income taxes. This system eliminates the problem of massive tax rates levied against middle class incomes. However, it makes almost all income taxes paid by a relatively small number of high income earners. To fund the government, it will be necessary to take 50-70% of income over say about 200K (and about a third of that below 200K) in taxes. That is, the top tax rate has to be not less than 70%, and possibly even higher.
Both the massive increase in income taxes AND the new Medicare tax would have to be passed simultaneously. This is a really tall order, and why European-style national health insurance is such a difficult proposition.
Of course, one can use value-added (essentially sales) taxes to raise some of the money needed, as is done in many European countries. We could also restrict coverage and push for lower costs to reduce the amount of money required. The challenges should be apparent.
- http://www.nchc.org/...
- http://www.economagic.com/...