Costs more than its worth—increases payroll taxes to 36.5% & lowers disposable income of 65% of Americans.

Advocates of this idea suggest that Americans currently covered by private health plans would be financially better off, even after their taxes are raised to fund the proposed new government program. For example, Senator Bernie Sanders (I–VT) has said: “Are people going to pay more in taxes? Yes. But at the end of the day, the overwhelming majority of people are going to end up paying less for health care because they aren’t paying premiums, co-payments or deductibles.”2

That assertion is incorrect. Our analysis finds that in order to fund such a program, it would be necessary for the federal government to impose substantial, broad-based taxes equal to 21.2 percent of all wage and salary income. Those taxes would be in addition to the payroll taxes that most workers already pay for the existing Social Security and Medicare programs, bringing total payroll taxes to 36.5 percent for most workers.3

No proponent of this idea has provided a complete plan to pay for this proposal. Senator Sanders and Senator Warren have each offered plans to partially fund Medicare for All through combinations of payroll taxes imposed on employers and increased income taxes. We have chosen to model the full tax burden to pay for Medicare for All, and we used a higher payroll tax rate on employees because it is the standard measure for projecting the tax burden of a social insurance program. Moreover, this approach avoids the significant behavioral response effects of other possible tax increases. Additionally, the Committee for a Responsible Federal Budget (CRFB) recently provided several pay-for options. The CRFB highlights a 32 percent payroll tax split evenly between the employer and the employee, and notes that it would raise the same revenue as a 23 percent payroll tax paid solely by the employee. That latter figure is very similar to what we derived (21.2 percent). We modelled a payroll tax paid solely by the employees because imposing a tax on employers (all or in part) would produce additional adverse effects on cash compensation, employment, and business profitability—particularly for employers with workers near the statutory minimum wage, whose hourly wage cannot be reduced to offset the cost of the new tax. The resulting smaller tax base would, in turn, necessitate even higher tax rates to collect the same amount of revenue.

 We also find that nearly two-thirds of American households (65.5 percent, comprising 73.5 percent of the population) would experience reductions in their disposable income, making them financially worse off. Those households would pay more in new taxes to fund the program than they would save as a result of the program eliminating their current spending on private health insurance and out-of-pocket medical expenses.

After accounting for both the tax increases and the reductions in private spending for health insurance and medical care, we find that average annual household disposable income would decline by $5,671 (or 11 percent) under a new government-run health care program.

Among households with employer-sponsored health benefits, 87.2 percent would be worse off financially under a new government-run health care program, and their annual disposable income would be $10,554 lower, on average. That would occur despite those households receiving wage increases, as employers responded to the new program by converting the value of current tax-free, employer-provided health benefits into additional taxable cash income.4

We assume that, should Medicare for All legislation pass, employers will convert funds they spend on health benefits today into higher wages. Appendix A includes a more detailed discussion of this assumption and resulting changes to the tax base.

 The reason: Workers would pay much higher taxes to fund the cost of the new program because workers would need to (1) replace their own private spending, (2) replace non-workers’ private spending, and (3) pay for the additional spending that would result from the program stimulating increased use of medical care.