The cost to the American public is negative---a single payer system progressively redistributes wealth funded by money that is already going into healthcare AND progressive taxing.

Every dollar spent on medical care is a dollar that comes out of someone’s income, taken from a worker or a business owner or a shareholder or a family. So it’s not quite right to say that “insurance companies” or “the government” pays our healthcare bills. We pay the premiums or the taxes— and usually both. Insurance companies and the government are the intermediaries that collect the money and send it where it needs to go. But the money comes from us, no matter the healthcare system. The American people fund our healthcare system today, and the American people would fund our healthcare system under Medicare for All. What changes under Medicare for All is the size of the national healthcare bill, where we send the money, who keeps some of it for profit (and how much they keep), and which people pay how much.

That last question—who pays how much—is also a question of social values. How much should the rich pay for healthcare compared to the middle class and the poor? How much should the healthy pay compared to the sick? Our current healthcare system takes an implicit stand on these questions, but the answers often remain hidden beneath a fog of complexity. M4A brings these ethical issues out of the shadows, forcing us to decide collectively which values should be embedded into a system that consumes nearly a fifth of our economy and takes care of us at our most fragile moments.

TODAY’S HEALTHCARE BILL Under the current system, Americans are projected to share a $52 trillion healthcare bill during the 2020s, with annual expenditures above $4 trillion at the start of the decade and over $6 trillion by its close. We each contribute to that bill in three main ways: taxes, insurance premiums, and out-of-pocket costs. (Employees technically have a large chunk of their premiums covered by employers, but at the end of the day those premium payments come out of money set aside for employee remuneration. For instance, if your work is worth $75,000 a year to your employer, who has to chip in $15,000 for your insurance premium, your salary will only be $60,000.)

Most of these costs are hidden. We usually think of our healthcare costs as what we pay personally for premiums plus what we spend out of pocket during the year. But according to a study by the RAND Corporation, those costs make up just one-fifth of what we’re really paying for healthcare.1 Employer-paid premiums and healthcare taxes make up a far larger share of spending.

Indeed, employer-paid premiums function like a hidden tax, taking more and more money out of American paychecks every year. As a result, the hidden costs of healthcare are particularly stark for Americans with insurance through their jobs. If you have employer-based coverage and want to know how much you’re really contributing to our multitrilliondollar healthcare bill, here’s one way to get an average estimate: take what you personally contribute to premiums and out-of-pocket costs, then multiply by seven.2

Americans spend a lot of money on insurance premiums and out-of pocket costs. But we pay far more for healthcare through taxes and lost wages. These high costs are not distributed equitably. When all the taxes, premiums, and out-of-pocket costs are tallied, poor and middle-class Americans currently pay a larger share of their income for healthcare compared to the wealthy. 3 Every group in the bottom 60 percent of the income distribution is paying a larger share than any group in the top 40 percent. The top 1 percent are contributing a smaller share of their income than the bottom 20 percent.4 On average, the poorest fifth of households are paying more than a third of their income for healthcare. 5

Public healthcare programs like Medicare and Medicaid are financed at least somewhat progressively, with the top 10 percent of earners contributing a larger share of their income to these programs than the rest of the population. (Remember, progressive financing means richer people contribute a higher proportion of their income, like the federal income tax; regressive financing means poorer people contribute more as a proportion of income, like the sales tax.) That’s because public programs are mostly financed by taxes, some of which are progressive.

In contrast, private healthcare spending is steeply regressive. Lowincome Americans—those with a mean pretax compensation of roughly $40,000—contribute three times more of their total compensation to private healthcare costs compared to the highest earners.6 Private healthcare spending is regressive because insurance premiums and out-of-pocket costs are regressive: a $20,000 insurance premium and a $5,000 deductible aren’t much of a burden for a millionaire executive but might be a huge drag on the finances of a teacher or a nurse. The tax break for employer-based coverage makes our system even more regressive, giving a bigger windfall to people in the highest tax brackets.

Our current system also places a far larger financial burden on people who need more medical care. Americans in poor health have out-of-pocket costs three times higher than those in excellent health.7 Some Americans might pay no out-of-pocket costs in a given year, while those with acute or chronic illness might spend many thousands of dollars.

High deductibles in particular have the effect of shifting costs onto people with the greatest medical needs. Many patients with chronic illnesses reliably spend up to their deductible year after year: for instance, they might need to take a high-cost medication over the course of many years, or they might have a condition like cystic fibrosis or sickle cell anemia that requires frequent hospital admissions. Because these patients predictably spend their entire deductible, high deductibles function like a tax on chronic illness.

This situation is ironic given the broad consensus that American health policy should provide strong protections for people with preexisting conditions. One of these protections is that insurance companies shouldn’t be able to charge higher premiums to a person who has a preexisting condition. But high deductibles serve nearly the same role: people with preexisting conditions are likely to pay thousands of dollars more each year working their way through a high deductible.

MEDICARE FOR ALL How would the costs of Medicare for All compare to the current system? To answer this question, the first task is to determine what the total national healthcare bill would be under Medicare for All. This requires tallying up all the new costs of Medicare for All, including covering the uninsured, reducing out-of-pocket costs, and adding new benefits, and then subtracting the savings from reduced administrative costs and lower prices for drugs and medical services.

Between 2016 and 2020, at least ten different experts undertook detailed cost estimates of Medicare for All. Different analysts came to different conclusions: many experts found that national health spending under Medicare for All would be trillions of dollars lower over a decade than under the current system, while others estimated that Medicare for All would increase spending by trillions of dollars. Furthermore, the disparate cost estimates do not seem to simply reflect partisan bias. Charles Blahous, who formerly worked in George W. Bush’s presidential administration, conducted a cost estimate for the Mercatus Center, a libertarian think tank that receives funding from the Koch brothers. The report found that Medicare for All would decrease national health spending by $2 trillion over ten years.8 In contrast, the Urban Institute—a more liberal think tank —estimated that M4A would increase national health spending by $7 trillion over a decade.9

What explains these different conclusions? We saw one major reason in Chapter 4: there are different ways to design Medicare for All. When different experts estimated the costs of Medicare for All, they actually modeled different versions of the policy—the most important differences being in how much hospitals and doctors would be paid, how aggressively drug prices would be negotiated, and what benefits would be covered (in particular, whether or not long-term care is covered makes an enormous difference in the overall costs). Beyond these policy differences, analysts also made different assumptions about administrative savings; for instance, some assumed that M4A would cause Medicare’s administrative costs to increase nearly threefold as a percentage of its budget (an assumption we find implausible), while others assumed M4A’s administrative costs would be 3 percent or less, similar to Medicare today.

Finally, analysts made different predictions about how much more healthcare people would use after gaining insurance or having their out-ofpocket costs reduced. We know that people use more healthcare when it costs them less, but economically it’s difficult to predict exactly how large the nationwide effect would be under M4A. Because healthcare use is constrained by the supply of doctors and hospitals, the impact of M4A will also depend on how many new doctors enter the workforce, whether hospitals expand, and whether new facilities are built that wouldn’t have otherwise existed.

Out of a $52 trillion pie, any detail that alters total spending by just 2 percent counts for $1 trillion per decade. There are many such details when it comes to Medicare for All—hence the range of estimates.

Even with this variation, virtually all these estimates fall within the same general range: in the decade after enactment, national health spending under Medicare for All would be similar to current health spending, plus or minus 15 percent.10 To be sure, the dollar amount at stake in “plus or minus 15 percent” is enormous. It’s also important to avoid false equivalence between competing estimates; for instance, it’s likely that estimates at the high end of this range did not adequately account for administrative savings. More important is that these different estimates don’t just reflect different economic guesses but depend critically on what’s actually written into M4A legislation.

These recent cost estimates of M4A also build on a longer history of single-payer modeling. One comprehensive report examined twenty-two cost analyses conducted over thirty years estimating the cost of single-payer proposals at the state and federal levels, finding that nineteen of the estimates projected overall savings in the first year and that all suggested the potential for long-term cost savings.11

This evidence helps cut through some of the partisan rhetoric on singlepayer healthcare. On one side, critics sometimes speak as if Medicare for All would launch our spending into the stratosphere. On the other side, supporters sometimes hope that because single-payer systems in other countries are half as expensive as our current system, Medicare for All would swiftly cut our health spending in half. Neither of these scenarios is likely. The evidence paints a less dramatic picture: national health spending under Medicare for All could be somewhat higher or somewhat lower than under current law, depending on how the program is designed. But it is possible to cover all Americans under Medicare for All without spending more than we do now, if that’s a goal that legislators and the public seek to achieve.

Furthermore, it’s likely that Medicare for All would decrease the yearly growth rate of healthcare costs—and therefore reduce healthcare costs over the long term. That’s because Medicare for All has more tools to contain spending over time, like putting more control on how quickly hospital payment rates and drug prices go up. For instance, per-person spending in Medicare increased just 20 percent from 2008 to 2018, while per-person spending in private insurance increased by 50 percent.12 Furthermore, since 2000, payment rates for hospital care and emergency department visits have grown far more rapidly in private insurance than in Medicare. 13 For this reason, ten-year projections are likely to underestimate the savings of Medicare for All. Over the long term, Medicare for All presents a powerful opportunity to finally get a hold on runaway spending growth.

To illustrate how all these forces come together, consider the Medicare for All proposal released by Senator Elizabeth Warren’s 2020 presidential campaign. On the benefits side, Warren’s plan adopted the comprehensive benefits of Bernie Sanders’s S1129 bill, including long-term care, dental, vision, and hearing, and virtually no out-of-pocket costs. To rein in prices, Warren proposed paying physicians at existing Medicare rates and paying hospitals at Medicare rates plus 10 percent. She also proposed steep cuts to drug prices, as much as 70 percent for brand-name drugs. The experts who evaluated the plan for Warren’s campaign estimated that the generous expansion of coverage and the aggressive cost control measures nearly cancelled each other out: national health spending under her Medicare for All plan was projected to be just below the $52 trillion per decade projected under current law. 14

How much would this kind of Medicare for All plan “cost”? From the perspective of the American public as a whole, the additional cost of Warren’s version of M4A would be zero dollars. (Or less.) Every dollar of healthcare spending is a dollar that comes from someone’s income: the American public could pay $52 trillion during the 2020s for our current healthcare system, or they could pay $52 trillion for M4A. The total cost is $52 trillion; the additional cost is zero. If anything, the cost to the American public is negative.

What changes is the path those dollars take to get from the bank accounts of the public into the hands of hospitals, doctors, and drug companies—and what these dollars buy. Under Medicare for All, the vast majority of that $52 trillion would be channeled through the federal government before being sent to its final destination in the healthcare system.

So when the New York Times ran the headline “Elizabeth Warren Proposes $20.5 Trillion Health Care Plan,” one translation is that $20.5 trillion in healthcare spending would be channeled through the government instead of through private insurers.15 (The $20.5 trillion in additional federal spending is less than the $52 trillion total mostly because the government already finances more than half of the nation’s healthcare spending, and also because some types of healthcare spending—like overthe-counter medical supplies and state spending on public health—would not be absorbed by Medicare for All.)

It’s notable that less of that $52 trillion would find its way into the marketing departments of large corporations, the salaries of insurance company CEOs, the administrative budgets of insurers and providers, or the bank accounts of insurance company shareholders—places where nearly a quarter of our dollars end up today. 16 Instead, a larger proportion would go into caring for patients, including the roughly 30 million Americans without insurance coverage under the current system who would be covered under Medicare for All.

This shift toward patient care is reflected in the ledger of the costs and savings under Medicare for All. One of the largest sources of savings under M4A is administrative efficiency: streamlining insurance overhead, and also reducing the administrative costs of providers. In contrast, virtually all the new costs under M4A represent new spending on clinical care: covering the Americans who are uninsured, making care more affordable for those with insurance, and covering new benefits like vision, dental, and long-term care. If national health spending stays about the same under M4A but we spend trillions less on administration, that means more total dollars will be spent on medical services: hospital care, physician services, nursing facilities, home healthcare, prescription drugs, and more. M4A does not starve the healthcare system of funds; instead, it redirects more of what we’re spending already into actual care.

PAYING FOR IT Even if M4A costs the American public about the same as the current system, how we pay for healthcare—and who pays how much—would change substantially. Trillions of dollars would be shifted from insurance company balance sheets onto the government budget. How would the government raise the necessary funds?

Financing the Status Quo First, let’s look at how we pay for healthcare right now. There are four main streams of healthcare financing in the status quo: the federal government, state and local governments, employers, and families. Although all the money ultimately comes from individuals, that money flows through these four streams.

Many Americans would be surprised to learn that the government already finances the majority of healthcare spending in the United States: in 2017, public sources financed 61 percent of healthcare spending, and private spending financed 39 percent.17 (That’s a big reason healthcare costs are hidden today: we already pay for most of the healthcare system through taxes.) The federal government financed 44 percent of the nation’s healthcare spending. Much of this spending goes toward Medicare, Medicaid, and nearly a dozen other public programs. But the federal government also spends a considerable sum of money subsidizing private health insurance, including subsidies on the ACA marketplace and the tax break for employer-based insurance. Indeed, in 2017 the federal government spent nearly $280 billion subsidizing employer insurance—the largest expenditure in the entire tax code, worth about $1,800 for each person with job-based coverage.18 State and local governments financed another 17 percent of national health spending. Perhaps surprisingly, state and local governments spend almost as much on private insurance premiums for government employees as they do on Medicaid. All told, according to one estimate nearly 98 percent of Americans with health coverage have their insurance paid for or subsidized by taxpayers.19

Private sector spending is split between employers and families. Employers contribute to the insurance premiums of their employees; families pay insurance premiums as well as out-of-pocket costs when they receive care. The financing of private health insurance is steeply regressive. For instance, lower-income families with job-based coverage spend three times as much as a proportion of income on premiums and out-of-pocket costs compared to higher-income families: families below 200 percent of the poverty line spend 14 percent of their income on these costs, while those above 400 percent of the poverty line spend just 4.5 percent.20

Financing Medicare for All M4A would significantly change the way that the burden of healthcare costs is spread across the population. The details of M4A financing proposals are likely to evolve as they move through legislative and political debate. But there are two basic elements likely to serve as the foundation to any M4A financing plan: repurposing existing public funds, and replacing private healthcare spending with progressive taxes.

Repurposing Existing Government Funds The primary way to pay for M4A is to use money the government is already spending on healthcare. The federal government already finances almost half the nation’s healthcare spending. M4A can combine existing federal spending on Medicare, Medicaid, and private insurance subsidies into a single stream to be used for M4A.

One choice that will need to be made is whether states should contribute the money they currently spend on Medicaid programs and private insurance premiums into the overall M4A pool. Capturing this money would decrease the amount of new revenue that needs to be raised at the federal level. On the other hand, leaving this money with the states would allow them to direct the funds to other programs that have been crowded out by Medicaid over the past several decades, such as public education. Alternatively, if M4A was administered at the state level (an option described in Chapter 4), this money could be left with the states and also repurposed to cover M4A.

In any case, existing government funds would provide the single largest source of financing for M4A. Replacing Private Healthcare Spending with Progressive Taxes Combined with existing public funds, the second major way to pay for M4A is to replace existing private healthcare spending with progressive taxes. There are three general ways to raise this money: capture some or all of the money that employers currently spend on healthcare, capture some or all of the money that families currently spend on healthcare, or raise revenue from new sources.

Today, employers might send a portion of payroll each month to Aetna or Blue Cross to fund insurance premiums for workers. Under a Medicare for All payroll tax, employers would continue to send a portion of payroll each month to fund insurance for workers—but the check would be sent to Medicare. In that way, a payroll tax levied on employers would replicate the way that employer-based premiums are currently paid for.

A reasonable policy goal is to ensure that in total, less money comes out of payroll to fund health insurance under M4A than in the status quo. Even so, the shift from our current system to a payroll tax would create winners and losers. Businesses with higher-income employees have an advantage in the current system, because healthcare costs represent a smaller fraction of payroll. Replacing regressive insurance premiums with a flat or progressive payroll tax would likely benefit businesses with low-income employees; those with high-income employees might end up worse off (depending, of course, on the level of the tax).

Family spending on premiums and out-of-pocket costs could be replaced by an income tax, a payroll tax, a Medicare for All premium (standardized or income-based to make it progressive), or a value-added tax. (Common in European countries, a value-added tax is similar to a sales tax but is levied at each stage of production, rather than just at the point of final sale.) Instead of regressive premiums and out-of-pocket costs, most of these options could be designed to be progressive, thereby saving money for the middle class and the poor.

A reasonable policy goal would be to have any new taxes on middleclass or low-income families be lower than what these families currently pay for healthcare. One challenge for this approach is the considerable variability in what families currently pay for care—in particular, people with greater medical needs might pay thousands of dollars in annual out-ofpocket costs, while other Americans pay zero out-of-pocket costs in a given year. For this reason, any such taxes could be designed to be less than what most families spend on premiums alone, not taking into account out-ofpocket costs.

M4A could also be financed through new progressive taxes that are not meant to replace existing healthcare spending but are designed to bring in money from new sources. Proposals in this category include a wealth tax on the richest Americans, raising the marginal income tax rate on the highest earners, reforming the corporate tax code, a financial transactions tax, taxing income from investments at the same rate as income from work, and a variety of other reforms to broaden the tax base. A full analysis of the strengths and weaknesses of these various proposals is beyond our scope here. But the key point is that there are multiple options for M4A financing that don’t place a large burden on the middle class or the poor.