Bernie Sanders proposed a single-payer health insurance plan
back during the 2016 presidential primaries, and I see that the far left,
including 2020 presidential aspirants like Elizabeth Warren, Cory Booker, and Kalama
Harris are climbing on the bandwagon, along with a number of Democratic
senators. Apparently this is emerging as a key proposal for the Democratic far
left in the upcoming election cycles.
It sounds great, EXCEPT that no one is talking about the
costs. Sander’s proposal during the primaries had an estimated cost of $1.4
trillion per year, based on an analysis by Gerald Friedman, an economist at the
University of Massachusetts-Amherst. That is almost surely optimistic, since
most estimates like this are lowballed to make the proposals sound reasonable. In Sander’s case, he assumed about $6
trillion in “savings” over the next ten years as a way to lower the costs. Others
come up with higher costs. Kenneth Thorpe, a professor of health policy and
management at Emory University, put the cost at $2.4 trillion a year. A team
from the Urban Institute put the number at $2.5 trillion a year. The Committee
for a Responsible Federal Budget projected $2.8 trillion a year. Let’s be very generous
and assume a realistic cost estimate might be around $2 trillion a year, higher
than Sander’s low-ball estimate but lower than most other independent estimates.
Is this economically feasible?
Well, as I pointed out in a series of posts some months ago,
the federal government is already running a deficit of about half a trillion
dollars per year, and the federal debt is already at about $20 trillion, which
is 108% of the GDP, the total value of all goods and services the nation
produces in a year. So it would be pretty disastrous to increase the annual federal
deficit; in fact we should be reducing it. But let’s assume we just keep the
annual deficit the same, meaning that Sander’s plan would have to pay for
itself. What would that imply?
Currently personal income taxes are the source of most of
the federal government’s revenue (not counting pass-through revenue like Social
Security). Corporation taxes contribute only about 9% of federal revenue, and
various excise taxes and fees contribute about another 9%. All the rest, about 82%, comes from personal
income taxes. Those income taxes provide about $2.4 trillion per year. So if we
want to add another $2 trillion in expenses for a single-payer government-run
health system without increasing the federal deficit, that would imply that
personal income taxes would have to almost double.
Will American voters accept an almost 80-100% increase in
their personal income taxes? I don’t
think so, and I don’t think any politician who proposed that would get elected.
No doubt politicians like Sanders will continue to avoid the
cost issue, and provide fuzzy estimates based on unrealistic assumptions about
the amount of “waste and fraud” they will find to offset the costs. But realistically
a government single-payer plan covering everyone will require raising our taxes
to European levels, which often run 45-55% for the middle class. I would guess that
sort of tax increase would be politically unacceptable to American voters, so I
assume this far-left socialist populist movement is in the long run a dead end
for the Democratic Party.
In fact, there is evidence of that. Sander’s own home state
of Vermont tried it and then pulled the plug on the plan. Colorado had a referendum on a single-payer
plan last year and 80% of the voters rejected it. That ought to be a warning to the Democratic Party.
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