Fact Check: The Universal Health Care Tax Cut

Recently I saw a Facebook post that was starting to seriously make the rounds among my more politically inclined friends. It made the case that if the US were to switch over to a Single Payer system, it could pay for the entire thing with its current budget and also provide a $200B annual tax cut. Also nobody would pay for private health insurance. Sounds pretty great. Details below.

Key facts (as written) to take away from this:

  • US gov't currently spends $1.04T on healthcare
  • If it switched to a Universal Payer system, it would pay what the UK pays
  • That cost would work out to $851B
  • Currently $2.2T is spent privately on healthcare

This of course had no citations of any sort so I decided to dig in. Note that there aren't dates attached to the #'s above either so I decided to cut them a break wherever they might be pretty darn close.

Current Healthcare Spending

In 2015, the US spent $3.2 trillion on healthcare, or $9,990 per person. This was 17.8% of the total GDP. That's actually quite close.

In 2015, Medicare and Medicaid together account for north of $1.2T; add the VA and a few other services and you get to about $1.3T. So the US government actually seems to spend more than the post suggested.

Using Some Single Payer Systems as Benchmarks

When we talk about the US taking on a single payer system, most people haven't done the many-PhD-theses worth of study to understand what it might actually cost like. I haven't, either. So it's common for people to rely on a benchmark--"perhaps the US would pay the same as other countries with Single Payer." Perhaps this is a bit naive, but let's look at it.

We'll look first at a comparison made by the Peter G Peterson Foundation:

The important thing to first note is that there's actually some substantial variation across different countries. We could pick the UK as our benchmark, but why? Let's look at all of them: compared to $3.2T, how much would the US spend if its cost per person was the same as some of its peers?

Since the US government spends about $1.3T per year on healthcare, you'd actually be able to give a tax cut if our cost per person dropped to that of Italy's! Not so much with the UK's system and Japan's, but you wouldn't need to raise much revenue.

Why All the Variation?

At this point I can only speculate. I haven't been able to find a good study to show why Switzerland spends twice as much per person as Italy. 

But as you start thinking about possible reasons in your mind, you might find a few. Perhaps Italians are very healthy with their Mediterranean Diets and red wine. Maybe national obesity is a factor, or prevalence of smoking, or how often people work out. Perhaps different kinds of regulations (which are legion) and union power plays a role. 

But it tells us this: not all Single Payer systems are made the same. So when you say, "a Single Payer system" for the US, which are you talking about? You can learn a bit about how some of the best differ in this study, but it's worth appreciating: they're quite different. (The report even claims, "The Health Systems Achieving Top Marks Do So In Diverse Ways.") And the Dutch system even has private insurers (and is closest to the Affordable Care Act, which has not and is not projected to lessen the widening gap between US and Dutch costs / performance).

Perhaps the UK's is hands-down best and everyone could just adopt it. If so, why hasn't Germany gotten around to picking it up yet?

Let's Go to Someone Who Thought a Lot About This: Bernie Sanders

Whether or not Bernie's right on this, it's interesting to see his take.

Sanders' website claims that National Health Expenditures would decrease by over $6T over a 10-year period. That's about $600B/year less. Over those next 10 years, the CMS predicts 5.6% year over year growth, which means the difference in spending would be less now and more in 2025. If it were magically implemented back in 2015, it would save about $476B that year, bringing the US's healthcare expenditure to $2.7T, which is a 15% reduction. That would still put the US well north of 2x the UK, and still far and away the highest healthcare spender in the world.

Why is this? I don't know; I'd love to actually get his analysis. Sadly that's not public.

But it suggests that the closest thing we have to a legitimate political architect of single payer in the United States doesn't think it's going to save anywhere close to the kind of money that would be needed for a tax cut. It would--as he said in the website--cost an additional $1.4T in taxes per year to cover.

(Note the website also says that the plan has been estimated to cost $1.38T/yr; after doing some quick math I am figuring that is new cost, rather than total cost, as that's about what the federal government already spends--the math doesn't add up that way and he also talks at length about how to increase revenues to pay for it.)

Final Takeaway

If the US reduced its national health expenditure costs per person to that of the UK, it could just about pay for everyone using current government spending on healthcare--without new taxes. However, it's not at all clear that adopting a Single Payer system would do that. Different Single Payer systems have dramatically different costs. And benchmarking isn't anywhere close to sufficiently rigorous.

Most interesting is that Bernie Sanders' proposed Single Player plan is calculated to bring the US to a spending level still highest in the world. Assuming he's not being wildly pessimistic for no good reason, what's keeping US Single Payer from getting anywhere close to its peers?

(If you have real insight into this--not guesses, as I have plenty--I'd be really interested to hear in comments.)

Also

Please stop sharing political rants that don't have citations. You're fooling yourself and actively misinforming your friends.

Some Other Interesting Sources For Your Exploration

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Erik Fogg

We do politics, but we don't do the thinking for you.