How Will We Pay for Universal Health Care?

If there is one thing Democrats are sure about when it comes to universal health care is that they are unsure how to pay for it.  Everyone agrees that it has to be in the form of a tax, but as various iterations of Medicare-for-All are proposed, the funding mechanism changes.  For example, when running for president in 2016, Senator Bernie Sanders proposed a combination of taxes and fees, but according to a recent article: “Sanders didn’t offer a specific way to pay for the plan.  Regarding financing it said, “We will continue to get the best ideas from economists, doctors, nurses, and ordinary Americans to guarantee health care as a fundamental right.”[1]

Well, I am sure about how I believe universal health care should be funded and I will expound on that in a future article.  However, for now here is the core concept.  I am proposing a 15% health care transaction tax on all goods and services augmented by specialty taxes, such as increasing the tax on tobacco and alcohol products, a financial transaction tax, keeping the ACA’s tax on tanning bed use, and a tax on bullets.[2]  Additionally, all revenues would go into a trust fund and the enacting legislation would allow the fund to accrue revenues in excess of expenses so that reserves are available to support the program when there are changes in the nation’s economy; i.e. the program would not accrue debt.

The health care transaction tax is a sales tax and as such it is a flat tax.  Flat taxes impact low income individuals and families more than those in higher income brackets.  Consequently, there will mechanisms to offset those impacts such as prebates[3], tax credits, and deferments.  For example, a family eligible for the Supplemental Nutrition Assistance Program (SNAP) would not have to pay the tax on food items they purchase through the program.

Why a sales tax?  Currently, the majority of Americans obtain their health care through the private insurance market.  That includes all working Americans who get their insurance through their employer and self-employed Americans who purchase their insurance through the APA insurance exchanges.  When you include the families of working individuals, that’s about 185 million Americans/56% of the U.S. population.[4]  Another 36%/118 million obtain their health care through government programs such as Medicare, Medicaid, Tricare, and the Veterans Administration.  About 27 million are uninsured.

Based on these numbers, one third of Americans already receive their health care directly through government programs; the first step to a government administered single-payer system.  Slightly more than half have private insurance, primarily through their employer.  However, here is the catch.  Private insurance was never meant to provide all Americans with access to health care – and it doesn’t.  Thus, what is needed is a funding mechanism to ensure everyone has health care. 

Employer provided insurance adds to the cost of doing business.  Depending on the type of insurance and the number of workers, health insurance costs businesses hundreds of thousands to millions of dollars every year.  Although some of these costs are tax deductible, the cost is greater than the tax deduction, which eats into profits.  Worse, to offset these costs, businesses are shifting to high-deductible plans, which in turn shift more of the costs of health care onto the shoulders of employees. 

The health care transaction tax I am proposing will increase a company’s costs, but in most cases will be more than offset by the savings they’ll experience by no longer providing health insurance.  Likewise, while costs will increase for individuals (they’ll be paying the 15% tax on everything they buy), in most cases those costs will be offset by not paying for health insurance.  Additionally, since the money they paid for health insurance is actually salary that is withheld, the legislation will include a provision requiring employers to return that money to the employee as salary.[5]  In the end, both individuals and businesses will come out ahead financially and no one will be left out in the cold when it comes to access to health care.

There are other ways to finance universal health care, including payroll taxes, excise taxes, and taxes on high income individuals.  All have pros and cons, which I will describe in more detail in upcoming articles.


[2] I’ll explain why 15% in another article.  It could be a bit more or less.

[3] A payment made to eligible individuals/families each month to offset the cost of the tax.

[4] The private health insurance federal, state, and local employees get is also paid for by tax dollars.

[5] This will also provide federal and state governments with more revenues as that money is taxable income; something the government needs considering the size of the national debt.

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