On Monday, House Speaker Paul Ryan declared that the Democrats’ embrace of single-payer health care—often called Medicare for All—shows that the party has “gone off the rails.”
While liberals will surely dismiss the speaker’s comments, the leading proposals do suffer from a potentially fatal Achilles’ heel: They would create the largest government debt burden in world history. Specifically, Sen. Bernie Sanders’ Medicare for All Act, as written, would add $32 trillion in debt over the decade, and as much as $170 trillion over 30 years.
Advocates repeatedly dismiss these figures and assert that single-payer will save money. In doing so, they confuse the proposal’s effect on total national health expenditures (NHE) with its effect on the federal budget.
To explain, let’s use the oft-cited Mercatus Center analysis of the Sanders proposal’s first decade of full implementation (2022-31).
Over that decade, America is currently projected to spend roughly $60 trillion on health care. Of this total, Washington will spend $22 trillion (mostly for Medicare and Medicaid), and state governments, businesses, and families will spend the rest.
The Medicare for All Act would nationalize nearly all of this spending.
There is a vigorous debate over whether NHE would rise or fall under a single-payer system. The Mercatus Center estimates that projected NHE could fall to $58 trillion (under the most generous assumptions), or rise as high as $65 trillion (under more plausible assumptions that also match those made by the liberal Urban Institute).
But regardless of whether projected NHE falls to $58 trillion or rises to $65 trillion, there remains the enormous question of how to federalize nearly all of this spending. Even under the most optimistic assumptions, Washington’s share of projected NHE would still rise from $22 trillion to $54.5 trillion (out of a $58 trillion health economy). Where is Washington supposed to get the $32.5 trillion to pay for this?
Single-payer advocates claim to have an easy answer: simply shift the dollars that state governments, businesses, and families today spend on health premiums and co-pays to federal taxes for health care, with no one worse off.
In theory, this makes some sense. In practice, no one has figured out how to convert all $32.5 trillion spent by states, businesses, and families into a federal tax.
For example, for the typical family of four with employer health coverage, total health costs including employer premiums, family premiums, deductibles, and out-of-pocket expenses top $28,000 per year. Of course, individuals today don’t directly pay those employer premiums, but under single payer, those costs will have to be covered somehow. Is Washington going to send each family a $28,000 tax bill? Or slam all businesses with a new tax of $28,000 per employee? Not even Sanders proposes that.
In fact, his legislation simply punts on taxes, and imposes a first-decade debt burden 16 times as large as the recent tax cuts. When pressed, Sanders offers a short menu of unprecedented (and often implausible) tax increases that altogether would fund just half of his legislation.
Sanders punts because designing a plausible $32.5 trillion tax hike—even for families no longer paying health premiums—is nearly impossible. A payroll tax would need to be set at 30 percent (on top of the current 15.3 percent tax). Alternatively, a value-added tax (essentially a national sales tax) would need to be set at 63 percent, according to data from the Congressional Budget Office. Income taxes limited to corporations and wealthy families would require nearly 100 percent rates.
Repealing the recent tax cuts and cutting defense spending to European levels would—combined—finance just one-eighth of the cost.
The poor may be hardest hit. Perhaps wealthier families could finance their “single-payer taxes” out of the savings from no longer paying health premiums. But 77 million Medicaid recipients currently pay no health premiums and thus would receive no windfall from which to pay this mammoth tax bill.
And even this $32.5 trillion tax increase would finance only the added net costs of single-payer health care. It would not leave much room for additional taxes to close the underlying budget deficit that is already heading toward 10 percent of GDP.
In 25 years of aggressive single-payer advocacy, not a single liberal politician, economist, or ambitious think tanker has produced a comprehensive plan to convert all state and private savings into a federal tax.
Instead, advocates like Paul Waldman of The Washington Post dismiss “How are you going to pay for it?” as a “bad faith” question following $2 trillion in unpaid-for tax cuts. Yet the plausible response is to repeal the tax cuts—not to add a staggering $32 trillion in debt ($170 trillion over 30 years) that would surely guarantee a financial crisis. Waldman also repeats the error of answering the $32 trillion tax question by focusing on whether or not total NHE would rise.
Other advocates adopt the Modern Monetary Theory argument that, because the federal government can technically issue unlimited currency, single-payer should essentially be financed with newly created money. The vast majority of economists on the left and right reject this framework because adding an extra $32 trillion to the money supply would almost surely create inflationary chaos.
Single payer is most persuasive with vague “if Europe does it, why can’t we?” rhetoric. But Europe nationalized health care when it was a small and affordable part of the economy, and then aggressively contained its growth by building a more modest health infrastructure over subsequent decades. No country has nationalized a massive, sprawling health system that constituted nearly one-fifth of its economy. No country has imposed a 40 percent cut in provider payments for (previously) private coverage. No country has designed a “free” system as generous as the Sanders plan. And no country has imposed “single-payer taxes” as high as American proposals would require.
Advocates continue to assert that America can easily shift $32.5 trillion in health spending from state governments, businesses, and families into a “single-payer tax.”
Fine. If it is so easy and doable, why has no one produced a plan?