Sen. Bernie Sanders’ “Medicare for all” plan has gained traction among some mainstream Democrats, including possible presidential contenders such as Senators Cory Booker and Kamala Harris. And buried in the details of some recent analyses is an intriguing notion: American businesses, now the biggest source of health care coverage in the United States, could completely exit the business of providing health care, if national or even statewide single-payer coverage ever takes root. That could make American firms more competitive globally and leave a lot more money for employee raises and other benefits.
The United States is the only advanced economy where employers are the primary source of health care. Famed investor Warren Buffett has called employer-provided health care the “tapeworm of American competitiveness,” because it forces American firms to bear a costly bureaucratic burden their foreign competitors don’t have to deal with. As health care costs have soared during the last three decades, employers have set aside more and more for benefits, leaving less for raises. In theory, there are reasons for the business community to support a single-payer system that would relieve them of an onerous obligation completely unrelated to most companies’ business models.
The enormous cost
But first, the eye-popping price tag for Medicare for all. New analysis by Charles Blahous of the libertarian Mercatus Center at George Mason University found that single-payer health care for all Americans would cost at least $32.6 trillion during the first decade, or $3.3 trillion per year. Total federal spending now amounts to $4.2 trillion per year, so adding Medicare for all spending to that tally would nearly double federal outlays. Other analyses of Medicare for all have put the cost of the Sanders plan in the same ballpark.
That might seem outrageous, but it’s worth keeping in mind that a Sanders-style single-payer system would transfer all health care spending to the federal government. “I’m scoring the federal cost here, and it’s enormous,” Blahous told Yahoo Finance. “The other side of the coin is businesses, individuals, states and others are not going to be paying these costs. They’re going to be given to the federal government.”
On the whole, the Blahous analysis finds that total health spending would actually decline under the Sanders plan, compared with the status quo, with the feds paying a lot more, but everybody else paying nothing. And more people would get coverage, since everybody would be eligible. As the only buyer of health care, the government would have the power to demand deep discounts, and there would be lower overhead because there would only be one administrative structure. Of course, we’d all have to get care through the government, and deal with the pitfalls that would entail.
Still, the tradeoffs for businesses could be attractive. Federal tax revenue from individuals and businesses will total about $3 trillion this year. So taxes would need to more than double to cover a giant new health care plan. Doubling everybody’s taxes sounds like a death wish for politicians. But it might not be as crazy as it sounds.
Businesses now pay about $1.2 trillion in health care costs per year, which provides coverage for about 49% of the American population. Federal income tax payments for businesses will only total around $243 billion this year. So corporate America pays 5 times as much for health care benefits for employees as it pays in federal taxes. If you tripled or even quadrupled corporate income taxes, while eliminating all their spending on health care, it would still amount to a net savings for businesses.
Individuals pay about $365 billion per year for health care, with some paying their own insurance premiums and others paying out-of-pocket expenses not covered by insurance. Individual taxpayers are the biggest source of federal tax revenue, forking over an estimated $1.6 trillion this year. So you could raise individual income taxes by $365 billion, or roughly 23%, and leave consumers on average no worse off.
The math here is vastly oversimplified, and it doesn’t take account of the massive disruption that would occur were the nation to revamp a sector that accounts for about 18% of the U.S. economy. It’s also obvious that President Trump and his fellow Republicans, who just passed a huge tax cut, would never entertain the idea of giant tax hikes to finance a huge socialized medicine program.
State Medicare equivalents
But that doesn’t mean the idea is dead. Legislators in several states, including Massachusetts, New York and California, have proposed legislation that would create statewide equivalents of Medicare for all, and several Democratic candidates for governor are touting the idea in this year’s elections. New York asked the Rand research organization to analyze the prospect of a statewide single-payer system, and the results suggest a bit more bang for the buck if the state took over health care.
Under the New York plan, the state would have to hike taxes by 156% per year to offer health care to every resident. Right—sounds terrible. But nobody would pay premiums anymore, and out-of-pocket costs would be cut in half. On the whole, overall health spending would decline slightly, even as more people got access to care. Rand estimates that net health care costs, including new taxes, would fall for 90% of the state’s residents, while they’d rise for the top 10% of earners. There would be unpredictable consequences as businesses and workers debated whether to stay in the state or leave.
This sort of change would be an epic political fight. A whole swath of the insurance industry would face extinction and fight like mad for its survival. The government’s concentrated purchasing power would drive down doctor payments and many other fees, forcing the adoption of new business models. With new patients surging into the system, demand for services would soar, straining capacity at many providers.
We’re not ready for all that. But we’re also not happy with the status quo, and we shouldn’t be, since Americans pay the most for health care and generally get the worst outcomes among advanced nations. If business leaders ever come around to the idea that their firms would be better off shedding the obligation to provide health care, it could bring lobbying power to a cause gaining populist support. That could be a recipe for revolution. Someday.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman