Financing National Health Insurance

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February 4, 2003

This progressive funding package was developed in 2001 by Tony Mazzochi (Labor Party) and Drs. David Himmelstein and Steffie Woolhandler (Harvard), with assistance from Dean Baker (Center for Economic Research and Policy). We thank Dean Baker for updating the financing and charts for this press conference.

By eliminating unnecessary, duplicative paperwork (with single-source financing) and adopting rational, proven mechanisms to stretch our health care dollars (such as bulk purchasing of medications), the United States can provide comprehensive health care coverage - including long-term care - to every resident of the United States for less than what we are currently spending.

In addition, by adopting measures that will control health care costs in the future (such as negotiating fair fees with doctors and budgets with hospitals), national health insurance will save billions of dollars ever year subsequent to its adoption, thus ensuring an affordable health care system for future generations.

These are the conclusions of several state-level studies by the conservative D.C. consulting firm The Lewin Group, as well as national-level studies by government agencies such as the U.S. General Accounting Office and the Congressional Budget Office.

The National Health Insurance Act, developed and endorsed by the Physicians Working Group for Single Payer National Health Insurance (an ad hoc coalition of over a dozen of the nations most prominent physicians, see www.physiciansproposal.org), Rep. John Conyers (Chair of the Congressional Black Caucus) and distinguished colleagues in the Progressive and Hispanic Caucus, would provide comprehensive coverage (including medications, coverage of all 42 million uninsured persons, and long-term care) to all Americans as of January 1, 2005.

Using data from the Lewin Groups recent study of single-payer in California, along with a package of progressive financing developed under the direction of the late Tony Mazzochi, a life-long advocate for economic justice, it is estimated that the NHI would reduce health spending in 2005 from $1,918 billion to $1,861.3 billion (a savings of over $56 billion) while covering all the uninsured. Ninety-five percent of families would pay less for health care than they do today.

An equitable way to raise a budget of $1.861 trillion ($56.7 billion less than without reform) is the following:

1. Keep most existing government revenues in place (approx. half the U.S. health care budget).


2. Implement a variety of mechanisms to make health financing more equitable and progressive, so that low and middle-income families pay a smaller share of their incomes for health care than the wealthiest 5% of Americans. Close loopholes so that corporations pay their fair share.


3. 3. Impose a modest payroll tax on all employers (3.3%).

Sources of Revenue (2005)

Government: $852.5 billion

Keep existing federal, state and local revenues that currently pay for Medicare (employer and employee payroll taxes of 1.45% each or $194 billion) and other federal and state programs (with the exception of revenues that now pay government workers health premiums).

Employers: $220.8 billion

Implement a modest payroll tax of 3.3% on all public and private employers, while eliminating employer premiums for private health plans. Employers that currently pay all or part of their employees health premiums will face much lower health costs than they do today (employers who provide coverage currently pay an average of 8.5% of payroll for much less comprehensive coverage). A 3.3% payroll tax is low enough so that all employers (including those that do not provide coverage today) should be able to contribute without undue hardship.

In 2005, without reform, the average employer that offers coverage will contribute $2,600 to health care per employee (for much skimpier benefits). Under this proposal, the average cost to employers for an employee earning $35,000 a year will be reduced to $1,155, less than $100 per month.

Heath tax on the richest 5% of Americans: $221.8 billion

The wealthiest Americans, who accumulated nearly all the gains from economic growth in the past two decades, should pay their fair share for health care. Today, poor and middle-income Americans pay a higher percentage of their incomes for health care than the very wealthiest Americans. This budget includes an additional 5% income tax on the top 5 to 1% of the population, the group that in 2002 had declared incomes of $140,000 to $250,000. This tax exempts the first $140,000 in income, and does not include unrealized capital gains in stocks, bonds, home sales, etc. The budget also includes a 10% income tax on the richest 1% of Americans, those with average incomes of $1,100,000 (exempting the first $250,000 in income, and not counting capital gains on stocks, bonds, property). The most well-off Americans also are the most dependent on a healthy labor force for employees and services. Thus, they will benefit greatly from their modest additional investment in universal health care.

Tax on stock and bond transactions: $144.6 billion

Anyone who buys or sells a stock will pay a transaction tax equal to one quarter of one percent of the purchase price. For example, a $100 stock purchase will be taxed a total of 50 cents. For those who invest and hold on to stocks, the tax is minimal. Other financial transactions will also be taxed minimally. This will provide another progressive revenue stream for health care. The wealthiest 10% of households own over 80% of all stocks, including those in mutual funds or pension plans. Over 40% of all stock is owned by the richest 1 percent of households. About half of all households own no stocks, not even in mutual funds or pension plans such as IRAs, 401(k), 403(b) or Keogh plans.

Close corporate tax shelter loophole: $105.2 billion

According to the Treasury Department, corporations are very skilled at avoiding paying their taxes, costing the government billions annually. An increase in abusive tax shelters - various accounting methods that have no legitimate business purpose and are invented solely to lower a companys taxes Ð means that corporations are paying less in taxes (as a percentage of profits) than they did in the 1960s. Closing these loopholes and making corporations pay their fair share of taxes will raise over $100 billion annually for health care (David Cay Johnston, ‘Corporations Taxes are Falling Even as Individuals Burden Rises’ New York Times, Feb 20, 2000 and ‘US Takes Aim at Tax Shelters for Companies’ New York Times, Feb 29, 2000.)

Repeal the Bush tax cut of 2001 and invest the Bush ‘economic stimulus plan’ of 2003 into health care: $206 billion
The 2001 Bush tax cut ($120 billion) benefited the wealthiest Americans the most. Everyone should pay their fair share for health care. Bush has also proposed $865 billion in additional cuts over the next nine years (an average of $86 billion a year over the next decade), tax cuts that would mostly benefit those with very high incomes. Redirecting this funding into health care spending would provide a genuine economic stimulus while providing an important public service. Health care is a social good that benefits everyone (e.g. wealthy Americans not only need secure health coverage for their own families, they also depend on a healthy labor force for their incomes and services).

Household: $65.9 billion

National health insurance eliminates all household contributions to private premiums (including Medi-gap plans), co-payments, deductibles and all out-of-pocket costs for services not currently covered like dental, vision, and prescription drugs. Total household expenditures will drop from $326.7 billion to $65.9 billion annually. The only expenses left for individuals will be over-the-counter drugs such as aspirin, elective cosmetic surgery, etc. This represents an 80% reduction in current out-of-pocket expenses.

Existing non-patient revenues: $44.5 billion

Existing funds raised from donations from individuals and foundations and from hospital gift shops will continue to contribute a small percentage of the total budget.

Total budget: $1.861 trillion

Technical Appendix on Financing National Health Insurance

Dean Baker, Center for Economic Research and Policy
February, 2003

1) Overall estimates of spending with and without reform, 2005: Includes savings from administrative simplification ($178.2 billion) and bulk purchasing ($50.5 billion) minus an increase in utilization ($172 billion) as a result of universal coverage. The estimate of savings on administration (9.3 percent) and bulk purchases (2.6 percent) are taken from the Lewin Groups analysis of the Cal Care single payer proposal for California, figure 17 [www.healthcareoptions.ca.gov]. The estimates have been multiplied by the ratio of projected health care spending in 2005 to 2002 spending. The data on national health care expenditures and public expenditures for 2005 is taken from the Centers for Medicare and Medicaid Services, Table 3: National Health Expenditures Aggregate and per Capita Amounts, Percent Distribution and Average Annual Percent Change by Source of Funds: Selected Calendar Years 1980-2010 [http://cms.hhs.gov/statistics/nhe/projections-2000/t3.asp].

The estimated cost of a single payer system is taken from the Lewin Groups analysis of the Cal Care single payer proposal for California, figure 17 [www.healthcareoptions.ca.gov]. The estimate assumes that the ratio of the cost of a national single payer system to the cost of the current system will be the same in 2005 as the ratio Lewin estimated of the Cal Care plans to base line spending for California in the year 2002. This estimate includes the cost of home health care. It also uses the Lewin Groups estimate of a 10.7 percent increase in utilization resulting from universal coverage and the elimination of most forms of co-payments.

Future projections are based on data from the Centers for Medicare and Medicaid Services that show that health spending will grow 7.3% annually without reform (Table 3: National Care Health Expenditures Projections: 2002-2011). The growth rate of expenditures is assumed to be 1.3 percentage points lower each year in the universal system than with the current system, following the analysis of the California Cal Care plan by the Lewin Group (Lewin Appendix page H-18, Figure 9). The estimate of per capita expenditures divides the 2005 expenditures by population (levels and growth are taken from the Social Security trustees report, table V.A.2).

2) A 3.3 percent payroll tax will raise $220.8 billion, based on the Social Security trustees projection of the revenue yielded in 2005 by the 2.9 percent Medicare tax (Social Security trustees report, 2002 (table VI.E.10). 9) The savings per worker for firms that already provide workers with coverage are derived from Lewin Groups estimate that the average premium per worker in California in 2002 was $2256. This figure is increased by 15.1 percent to account for cost increases between 2002 and 2005

3) The tax yields from a 10 percent income tax on the richest 1% of families and a 5% percent income tax on the top 5 to 1% of families were calculated by taking the share of these groups income as indicated in Mishel, Bernstein, and Boushey, 2003, table 1.22

4) The estimates of revenue for the stock/bond transfer tax are taken from Pollin, Baker, and Schaberg, 2002. The 1997 estimate was multiplied by 1.49 to take account of GDP growth between 1997 and 2005. Other minimal rates of taxation used for this estimate are: Government bonds (0.1%), corporate bonds (0.1%), futures contracts (.02%), currency (0.1%), swaps (0.02%).

5) Reversing the Bush tax cut would raise an estimated 1 percent of GDP, which would be $120 billion in 2005. Re-directing the ‘economic stimulus’ plan to health care would contribute $86 billion a year (Families USA, ‘Tax Cuts for the Rich or Solving Major National Health Problems’ 2/3/03).

6) The estimate of $105.2 billion from closing corporate loopholes and having corporations pay their fair share of taxes is estimated by comparing corporate tax rates on profits from 1960 to 2002.

7) It is estimated that 3.7 percent of medical expenses will be born directly by households (e.g. purchases of over the counter drugs) and that 2.5 percent would come from charitable donations or other non-patient forms of income.