Single-payer system would require $28 billion in new taxes

Single-payer system would require $28 billion in new taxes
A new report by the Washington State Institute for Public Policy examining a single-payer healthcare system concluded it would cost $28 billion in new taxes to implement. Photo: freepik.com

This year the state legislature passed SB 5526 which created a standardized health plan through the public health care exchange. Business and industry groups opposed to the bill viewed it as a step toward a single-payer system in which private medical insurance in the state would be more or less prohibited. However, a new report suggests that even with the “potential” 11 percent cost savings associated with it, the system would require $28 billion in new taxes to implement.

John Bauer is a senior research associate at the Washington Institute for Public Policy. At a July 23 meeting of the Joint Select Committee on Health Care Oversight he told members that if they were to institute a single-payer system, “basically you’re replacing…employer-sponsored (health)care by taxes, so those taxes would have to be large.”

He added that the $28 billion would include money already spent by the state and federal government through Medicaid and Medicare. “Financing is certainly a single-payer challenge.”

There are currently 400,000 Washington uninsured residents that make up six percent of the state population, compared to a 10-percent uninsured rate nationwide. Last year, the state spent $53 billion on healthcare. Medicaid and Medicare made up $27.9 billion, while employer insurance spent $24.6 billion; individual coverage made up $2.7 billion.

Although states such as Vermont have attempted to institute a single-payer system, no state has yet done so. Advocates of a single-payer system say it would reduce administrative costs and allow greater healthcare access for all. However, Bauer said that some aspects “would actually increase costs,” while “other aspects could potentially reduce costs.” He added that “we don’t have a clear understanding…of how long it would take for these effects to show up.”

The $28 billion estimate for a single-payer system comes from an initial report by the institute released in December 2018 as part of the 2018 supplemental budget, which also included an estimate of $43 billion in transitional costs to a single-payer system (page 42).

Amy Anderson is the government affairs director with the Association of Washington Business. She told Lens that the estimated costs are not only “astronomical,” but likely to be on the low side.

Aside from financial costs, private insurers could also sue under the Employee Retirement Income Security Act (ERISA), which according to Bauer “bars states from regulating self-insured employer sponsored health plans. Some employers would likely challenge single-payer implementation based on ERISA.”

The study compared the U.S. healthcare market to similar countries including Australia, Canada, Denmark, France, Germany, Japan, Netherlands, Sweden, Switzerland and the United Kingdom. However, it did not look at earlier single-payer proposals made in Washington. The U.K.’s healthcare system is wholly operated and funded by the public sector, while countries such as Canada and Australia have nationalized healthcare systems in which providers are in the private sector but are reimbursed by the government. Germany and Switzerland require health insurance, but residents can choose their insurer.

According to the report, the U.S. spends 18 percent of its gross domestic product (GDP) on healthcare, compared to 11 percent in most other countries. However, the report attributes that in part to higher pharmaceutical costs – the U.S. spends an average of $1440 on drugs compared to $670 in other countries. The report also notes long-term healthcare costs in the U.S. have risen since the 1970s compared to other nations due to “more rapid, and less discriminating, diffusion of new medical technologies.”

“There’s a reason why people cross in from Canada to the United States for healthcare -because of the quality,” Anderson said.

The report concluded that “it is not clear to what extent other countries’ single-payer systems and universal coverage policies, governmental controls, and taxation systems are translatable to the US.”

However, Anderson believes Washington would suffer the same problems other states like Vermont already have faced. “What would Oregon and Idaho look like, should Washington state implement a single payer system? How do you prevent folks in those states who don’t have health care coverage from coming? You do place in a residency requirement?”

Anderson also warns that a single payer system could disrupt the state’s business climate by taking away employers’ ability to recruit workers through healthcare coverage. “When you have such a competitive labor market, that is something employer’s can look to.”

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