Think single-payer would be expensive? Think again

Can the U.S. ever get its health care costs under control? While the implementation of Obamacare has coincided with slower growth in health care expenditures the past few years, the rate of increase still exceeds the growth rate of the economy and that means more and more of our national wealth will continue to be diverted to paying for health care.

That means more money that won’t be available for public investments, like schools, roads, and other infrastructure and services, or for private investment by businesses, or for families or individuals as wages are suppressed to pay for rising health care costs.

For years, the most popular solution (at least when the public is polled) to reduce costs and improve health care delivery is for the U.S. to adopt a single-payer system, such as Medicare, for everyone. That’s one of Sen. Bernie Sanders’ most popular applause lines when he’s out stumping for the Democratic presidential nomination. Ask most seniors what they think about Medicare, and they might complain about the paperwork. Just don’t suggest they could do without it, or you’ll prompt a riot. Medicare, combined with modest supplemental policies, provide seniors in the U.S. with the best medical care available to average citizens in this country. And Medicare does so at substantially lower costs than private insurance can provide.

So why can’t we have Medicare for all? Mostly, it’s because of powerful special interests who make billions off the inefficiency of our current system. They invest heavily in Washington politicians, who make sure that sensible solutions, like Medicare for all, are kept off the table.

One of their biggest arguments against a single-payer system is that it will be too costly. But their argument overlooks the fact that our current system of private health insurance for most Americans is far more expensive and still leaves millions of people without access to anything but an emergency room.

In truth, Medicare-for-all would cost significantly less for the vast majority of Americans and businesses than our current system based on private health insurance. Here’s why:

As of 2013, the U.S. spent almost exactly $2.5 trillion on health care, according to the Centers for Disease Control, where this information is derived. That included the cost of private health insurance premiums, Medicare, Medicaid and other state and federal insurance programs, as well as out-of-pocket expenses, like co-pays, deductibles, and non-covered services paid for by citizens on their own.

Private health insurance premiums totaled $846 billion, while Medicare revenues (from all sources) totaled approximately $550 billion. Payroll taxes accounted for 38 percent of those Medicare revenues, while general taxes made up 41 percent, and premiums and other sources accounted for the rest. In order to shift to a Medicare-for-all system, we would need to replace the cost of private health insurance premiums with revenues from these other sources.

But we wouldn’t need to replace all $846 billion. Medicare isn’t a for-profit system, so we can easily lop 15 percent off the top. Shifting to a single-payer system would also bring enormous savings in administrative costs, the prices paid for services, and many other savings. But for the sake of argument, I’m not going to consider those here. We’ll only deduct the profit margin.

That leaves $719 billion that we would need to raise to cover the cost of replacing private insurance with Medicare-for-all.

So how do we do that? Let’s assume that we keep the funding mechanism exactly as it is today.

That means we would need to raise $294 billion from general taxes, $273 billion from the payroll tax, and $151 billion from premiums and other sources.

This would entail increasing the income tax (assuming no progressivity) by 2.1 percent on everyone. Make it 2.3 percent, and assume that low income people are exempt from the increase. For a family of three (husband, wife, and one dependent child) grossing $75,000 annually, this would result in a tax increase of $412 a year, after the standard deduction and child tax credit.

Their Medicare payroll tax would increase from the current 1.45 percent to 3.35 percent, which would result in an additional tax of $1,425 annually for the family as a whole. Their employer would pay an additional $1,425 as well.

Assume the family (or more likely their employer) purchases a supplemental health plan to handle those costs not covered by Medicare. For a family of three, figure that will cost about $2,000 annually.

So let’s add it up. The total increase in taxes and Medicare premiums for this family of three would be $3,837 a year, assuming their employer doesn’t pay for their supplemental policy.

This would be an increase in this family’s taxes. But what would they save as a result?

According to the Henry J. Kaiser Family Foundation’s annual report on health care costs in the U.S., the average private family health insurance premium (in 2013) was $16,351, and the average employee picked up $4,565 of that premium cost. At the same time, our typical family of three would have additional outlays, including co-pays, deductibles, and other health-related expenses. Most of those costs would be covered by a Medicare supplemental under a single-payer system.

So, under the current system, insurance and out-of-pocket expenses would realistically amount to at least $18,000 per year, assuming the family’s actual health care usage is very modest. The employer’s share of that would be $11,966, while the family would pay out just over $6,000 themselves.

Under a Medicare-for-all system, the entire $18,000 in annual expenditure is eliminated. The employer would no longer need to purchase the full health insurance plan, nor would the family need to participate in the premium cost or most current out-of-pocket expenses.

Instead, the family would pay (at most) $3,837 a year in additional taxes, while the employer would pay just $1,425. The savings to businesses would be so enormous, that it’s very reasonable to assume that the businesses would pick up the cost of supplemental insurance for employees. That would still yield enormous savings to businesses, reducing the cost of covering an employee’s family from an average of $11,966 annually to just $3,425. Under this scenario, the family’s costs drop from the $6,000 a year they currently spend to just $1,837. It’s also highly likely that the savings would give businesses more flexibility to provide wage increases, something that the constant rise in health care premiums has made more difficult in recent decades.

The actual savings to businesses and families would almost certainly be much greater than I’ve outlined here. Add progressivity to the income tax increase, or finance the Medicare expansion on other types of taxes, or allow Medicare to start negotiating pharmaceutical prices and you could easily cut the above numbers by 15-25 percent. For a typical family of three, Medicare-for-all would represent an enormous financial windfall.

So why aren’t the people marching in the streets for single-payer health insurance? Mostly, because they aren’t aware of the tremendous benefits they could see as a result of this change, or they believe it isn’t politically possible.

There is no question that there are major political impediments to advancing single-payer insurance in the U.S. The reason that President Obama opted to subsidize, rather than replace, the private insurance system is that he didn’t want to face the backlash of the insurance industry and its powerful lobby. They would potentially be joined by some health care providers, who don’t like Medicare’s lower reimbursement rates, and the drug companies, who would lose if Medicare began negotiating their fees for pharmaceuticals.

And that, in short, is why we don’t have a health care system that makes sense. Too many powerful and wealthy interests in this country make too much money off the inefficient system in place and they fight tooth and nail every time someone points out we could, and should, be doing much better.

Medicare-for-all makes sense. It’s cheaper, particularly for average Americans and small business owners and it will provide health coverage to everyone. Even with Obamacare, nearly one in nine Americans has no health insurance. That’s why we need candidates, like Bernie Sanders, who are willing to make the case. And we need an informed citizenry, including business owners, willing to stand up and fight for their interests, rather than rolling over to the wealthy and powerful every time, or allowing themselves to be distracted by the usual sideshows from the campaign trail.

We can have single-payer health insurance in the U.S. We the people simply need to stand up and demand it.