Are Voters Willing to Pay 18 Percent of GDP on Health Care?

Paul Sancya/AP Images

South Bend Mayor Pete Buttigieg, Senator Bernie Sanders, and Senator Elizabeth Warren participate in a Democratic presidential primary debate on July 30, 2019, in Detroit. 

One thing American health care does very well is hide what we actually pay for care, and most of the Democrats running for president actually want to keep it that way. The most important question in the Medicare for All debate is whether they have a point.

The Peterson-Kaiser Health System Tracker created a useful tool to highlight this. It estimates that, for the typical single worker making $50,000, out-of-pocket care, premiums, and state and federal taxes for health care, combined with what their employer spends on premiums, totals $11,500. Even that underestimates the total figure, since it doesn’t count other types of insurance (homeowner, auto, workers’ compensation) whose premiums are higher than they would be due to medical liability. Still, the number represents over one-fifth of the median income, which shouldn’t be surprising, since nearly 18 percent of our gross domestic product (GDP) is spent on health care.

The double-edged sword for Medicare for All is that it inherently makes this hidden cost mostly public. Without employers paying insurance premiums, and with out-of-pocket costs eliminated in favor of up-front direct taxes, the full weight of health care spending becomes immediately visible. Backers believe making this cost public can potentially make how we decide to pay it much fairer. But it also can make people angry.

Bernie Sanders and Elizabeth Warren are hoping for a two-step process for success: First, make the hidden cost well known, and then get people to accept large new taxes, since they will manage to come in lower than the hidden costs. Sanders summed up the message in last week’s presidential debate: “Yes, they will pay more in taxes, but less in health care for what they get.”

Everyone else in the field assumes that this strategy is either impossible or foolish. They think the only path forward is to play games to keep the hidden costs hidden. 

In the debate, Joe Biden claimed, “My plan costs $750 billion. That’s what it costs. Not $30 trillion.” Importantly, his plan would not result in less national health care spending than Sanders’s, or in the average individual paying less on health care overall.

In addition, by effectively nationalizing a large portion of Medicaid, billions of dollars would move onto the federal budget under Biden’s plan. And if the Congressional Budget Office follows its past practice and counts premium payments to the public option as federal revenue and claims payments as expenditures, hundreds of billions more dollars would surface, especially if his public option is as good as he is promising. This could result in an “official” number much larger than the $750 billion Biden is claiming. Even an allegedly modest plan like Biden’s, which tries to hide its costs, would inevitably reveal them.

Similarly, in the debate Beto O’Rourke claimed, “The middle class will not pay more in taxes in order to ensure that every American is guaranteed world-class health care.” This is technically true of the plan he supports, Medicare for America. But the bill requires you to pay an income-adjusted “premium” up to 8 percent to the public option or a private insurer, and requires your employer to spend a set amount on your insurance or pay the government an 8 percent payroll fee. Together this would approximate what workers currently pay for health insurance. And for most people choosing the Medicare option, the income-based premium they send the government would be pretty close to what they would pay through Sanders’s proposed 7.5 percent employer payroll tax.

In one of the debate’s most honest moments, Pete Buttigieg answered the question of raising taxes to pay for his health care plan this way: “Look, this is a distinction without a difference, whether you’re paying the same money in the form of taxes or premiums.” Yet it should be noted that his plan very purposely calls the payment a premium, leaning on our current structure.

The general hope is that, by requiring the astronomical sums spent currently on health care to be redirected to the new system using the same terminology and cost structure, what is now hidden can remain hidden. Whether the media, or importantly the CBO, will play along is a big question.

Kamala Harris’s recent break with Sanders on health care can mainly be attributed to coming to the political conclusion that trying to educate the public about what they really pay for health care is too difficult. Her decision to build a ten-year phase-in for her plan allows her to claim that it “will decrease the overall cost of the program compared to the Sanders proposal.” But this does not make her plan any less expensive once fully implemented. It just puts full implementation just outside the CBO’s ten-year cost estimate window.

Harris also claims her plan doesn’t have a tax or premium on those making under $100,000 a year. But the ten-year phase-in means that, during the budget window, her plan will heavily rely on covering people via what she called the “buy-in provided in Senator Sanders’s Medicare for All bill.” Well, that buy-in option requires people to pay a significant income-based premium.

The big question among Democrats is whether trying to hide costs actually works.

While Sanders has learned from other countries about how to design a health care system, it is possible his opponents better learned the lesson about the politics of health care financing. Voters abroad don’t have to tolerate spending so much on care.

Canada has a pure single-payer system for basic care, with strong province-level control. Last year, it spent 10.7 percent of GDP on health care. Japan’s system has significant cost-sharing for care and uses a complex mix of employer-paid funds and local public programs. They spend 10.9 percent of GDP. Australia has its own Medicare for All to cover everyone, combined with a large private insurance system that the government encourages people to spend their own money on if they think it is worth it for faster care or more provider choice. They spend 9.3 percent of GDP. The United Kingdom, Denmark, Sweden, and Norway all have socialized medicine with tiny private-insurance markets. They all spend between 9.8 percent and11 percent of GDP.

American health care spending was comparable to international norms until the early 1980s. In 1975, President Nixon’s health care cost controls were lifted. Soon after, the medical industry defeated President Carter’s proposed hospital cost-containment legislation. While most industrialized countries were adopting price controls, government-run hospitals, or stronger standardization for private insurance, the United States under President Reagan embraced deregulation. Now, despite the United States’ relatively low levels of utilization, we spend roughly 18 percent of GDP on health care, mainly due to the extremely high prices drugmakers and providers charge private insurers.

In all health care systems, people have some modest complaints: cost-sharing in Japan, lower-than-average doctor salaries in Sweden, lack of public drug coverage in Canada, lack of coverage for certain expensive medications in the U.K., etc. Almost all of these complaints could be addressed by upping government spending on health care by 2 percent to 3 percent of GDP, but that isn’t happening. It seems across countries and types of health systems, as long as the government is actively paying a role in determining overall spending there is a remarkably consistent view of how much spending voters think is acceptable. And the United States missed the boat in the early 1980s when we embraced deregulation, leading to a rapidly growing health care industry full of for-profit entities with more money and political clout.

Replacing all these hidden health care costs with government revenue requires large taxes that voters immediately notice. When Vermont explored single-payer a few years ago, the funding mechanism for the state’s share would have included an 11.5 percent payroll tax plus an income-scaled premium of up to 9.5 percent. Vermont is a small enough state that Bernie Sanders, its pro-single-payer governor, and its numerous pro-single-payer state legislators could have gone individually to every citizen to make the case that these large taxes only replace current private spending. Yet these large numbers played a major role in killing support for the plan.

This, I think, is the biggest challenge for Medicare for All. Even if you can fully educate the public about our current hidden costs, instead of embracing the large taxes needed to shift spending onto government budgets, voters might simply reject any plan that consciously chooses to spend at such a high level. It might seem irrational, but quietly ignoring how much you are being ripped off likely feels better than consciously voting to keep being ripped off.

One way to deal with this problem is to have Medicare for All dramatically cut prices charged by providers. It would actually be possible to provide universal health care without any new middle-class taxes while getting rid of all premiums and deductibles if we were willing to cut U.S. prices to Canada/Belgium/Netherlands levels. Yet effectively no one in the single-payer movement is calling for this. In fact, Sanders, Warren, and everyone else in the field has actively gone out of their way to avoid talking about our insane hospital prices.

This has left primary candidates with an interesting choice. Do they try to sneakily redirect our current hidden spending into a better public system? Or do they peel back the curtain, hoping that Americans will actively support a level of government spending unacceptable to voters anywhere else? Much of the contentiousness you see on the debate stage reflects this problem, because pushing either one of the strategies makes the other harder.

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