The Larger Problems of the Sanders Single Payer Plan

This is a contribution to Prospect Debate: The Cost of Sanders's Single-Payer Health Plan

Think about what a single-payer health plan means. The federal government pays for all health care for everyone. The pleasant thought is that all of your health expenses are being paid for. The unpleasant thought is that since all those expenses come out of the federal budget, your health care now depends on the decisions of Congress and the president. And an even more unpleasant thought—at least for progressives who may be inclined to support single-payer—is that people with progressive values will not always be in charge in Washington and therefore wouldn’t always be making those decisions.

In “The False Lure of the Sanders Single-Payer Plan,” I raised a series of objections to Sanders’s proposal. Responding from the Sanders camp, Gerald Friedman devotes all his attention to one aspect of my criticism: the cost estimates by Kenneth Thorpe that I cited. Joining in the debate, Thorpe has now shown again in devastating detail why Friedman’s cost estimate is far too low and consequently why the savings that Sanders is promising would not materialize.

Here I want to return briefly to three other arguments I made that Friedman never addresses: 1) the taxes and opportunity costs of the Sanders plan; 2) the excessive centralization of power implicit in his plan; and 3) the misleading lessons that Sanders and his supporters draw from the experience of other countries.

Taxing to the Limits—and Beyond

Even if we accept Friedman’s lowball estimates of the cost, the Sanders plan would require staggering increases in federal taxes. Those increases raise two kinds of questions—about the feasibility of the taxes and about the opportunity costs of using so much tax revenue to substitute for private health expenditures.

Sanders calls for six different increases to fund single-payer. Two of the changes—a new payroll tax of 6.2 percent and a new income tax of 2.2 percent—would affect everyone. The other four increases fall primarily on high-income households (higher income tax rates, taxing capital gains as ordinary income, eliminating deductions, higher estate taxes). Both sets of tax increases create serious political problems.

As a result of the first set, the post-tax income of Medicaid beneficiaries (who now receive coverage for free) would fall 8.4 percent. Other low- and middle-income people, to be sure, would get coverage worth more than 8.4 percent of their income, but they might not think so. For households with incomes between $18,550 and $75,300, for example, marginal tax rates (payroll and income tax combined) would rise from 30.3 percent to 38.9 percent. That will be a hard sell. Whether people at that income level with employer-provided insurance would objectively be winners or losers under the Sanders plan depends on whether Friedman’s or Thorpe’s cost estimates are right. (Thorpe estimates that 70 percent of the privately insured come out losers.) But, subjectively, even many winners would see themselves as losers because they don’t feel that their employer’s health-insurance payments were their money to begin with. Perceptions bias calculations against a tax-financed alternative.

The tax increases affecting high-income households raise other problems. I am in favor of more progressive taxes, but there is no peacetime precedent in American history for increases of the magnitude Sanders is talking about. In his health care and other proposals, Sanders proposes raising the top marginal rate on earnings (income taxes and payroll tax combined) to 77 percent—higher than in Sweden (67 percent), Denmark (55.6 percent), or any other European country. The capital-gains tax rate that Sanders is proposing (64.2 percent, not counting his financial transaction tax) would so high as to be counterproductive. At that level, the tax wouldn’t generate the expected revenue. People would hold on to appreciated assets rather than sell them, and capital would be locked into present uses, depressing new investment.

We need more tax revenue, but we need to find it at more reasonable rates and with a wholly different approach (see my article, “How Gilded Ages End,” Spring 2015, for a strategy that emphasizes attacking tax privileges). Moreover, we need that revenue to do things that aren’t being done now—not to substitute for hundreds of billions of dollars in current private health spending. The Sanders health plan imposes an enormous opportunity cost from a progressive standpoint. All that tax money substituting for private premiums is money that isn’t available for other public purposes. Once you get to 77 percent marginal income-tax rates, where do you go next if your cost estimates have been too low or for any of the many public purposes not served by Sanders’s program?

Excessive Centralization of Power

The single payer in Sanders’s plan is the federal government. The plan effectively removes any interest in controlling health costs not only from patients and providers, but also from employers and other levels of government, including states. If the federal government is the only institution with a stake in controlling health costs, it will have to do all of the controlling.

Over the years, other universal-coverage proposals have generally retained some sharing of the costs by patients, employers, and state governments so as to give them an interest in monitoring and checking cost increases. This was the case under the 1993 Clinton health plan, and it is also true of the Affordable Care Act, which emphasizes the principle of “shared responsibility.”

It is not clear from Sanders’s proposal whether he is proposing an individual legal right to free health care—that is, an “entitlement” that would be automatic from year to year and not come under the discretionary part of the budget that Congress needs to approve annually. Moving all health expenditures—17.5 percent of the economy—onto federal taxpayers as an entitlement exposes the Treasury to much greater risk than the more limited federal expenditures for Medicare and Medicaid (the latter, of course, shared with the states). If health care isn’t a federal legal entitlement and funds have to be decided on every year, health care would continually be up against every other rival for budgetary appropriations, including the military. Of course, Congress can modify entitlements, too, so either way it would ultimately decide not just total spending but many aspects of health care that are today one or two removes away from the political process.

Some of the defenders of the plan may point to Medicare and see nothing to worry about. But the existing Medicare program and Sanders’s plan are very different. Medicare has patient cost-sharing and limits on the scope of coverage, which Sanders would do away with. (Sanders’s term “Medicare for all” is a misnomer; Medicare as we know it would be abolished.) Once the federal government pays for all of health care for people of all ages and incomes, providers would no longer be in the position of making up their losses on Medicare and Medicaid patients by charging more to the privately insured. Everything would then depend on decisions in Washington about such questions as whether new treatments would be covered and what prices would be paid. 

Sanders has not been forthright in acknowledging that concentration of payment implies concentration of power. No doubt Americans would love to have all their health care paid for. Whether they would like to centralize those decisions in the federal government is another matter.

Misleading Lessons from Abroad

Sanders and his supporters misrepresent the experience of other countries. Many countries with universal coverage have multiple insurance funds and still have much lower costs than in the United States. Concentrating payment in a single payer—and making the national government that payer—is not the essential requirement for an improved health-care system. Canada, so often cited as the model of single-payer, organizes and finances health care at the provincial level. Other countries with multiple payers have regulatory and bargaining arrangements that keep costs under control.

Most of the European countries with national insurance systems introduced their programs long ago, when health care was a small fraction of their economy. They did not have to expropriate a highly developed private insurance system. The challenges are altogether different when health care represents more than one-sixth of the economy and private institutions are already in place serving the same functions as a federally financed and controlled system. Just as other countries generally built on their previous institutions, so can the United States.

The Affordable Care Act provides a framework that makes further progress possible. As I suggested in my article, it could be a basis for pursuing some reforms close to what single-payer advocates want. One of the most practical possibilities would be a Medicare buy-in for people aged 55 to 64. Another possibility would be to use the state waivers soon available under the ACA for public-option experiments at the state level. That process could even be pursued without any congressional action under a Democratic president, if one is elected in 2016. But that president would have to work creatively to make the most of the institutional possibilities at hand, instead of engaging in what would be a hopeless crusade for a proposal that will go down to defeat again, as it has every time it has come up before. 

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