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Best Option For Funding Medicare For All May Be Employer Mandate

One of the biggest political and technical hurdles standing in the way of Medicare for All is deciding how to pay for it, but voters have made clear there is one option they would support: simply requiring every employer to purchase Medicare (or equivalent) coverage for their employees.

This is the least disruptive option. It is successfully used by other countries. Most importantly, it is the only idea that is both popular and can reasonably produce enough money to fund the program.

In 2016, the United States spent more than $1.12 trillion on private insurance and another $352.5 billion on out-of-pocket expenses. It will be necessary to make up this roughly $1.4 trillion in either taxes, cost-sharing reforms, or new deficit spending in order to move toward a universal system with no or only nominal cost-sharing.

A well-structured employer mandate is the only option with clear majority support which would produce enough revenue. Most importantly, the idea of an employer mandate has grown more popular in recent years—from 53 percent of Americans in favor in 2016, to 62 and 63 percent in 2017, to 69 percent just last month—even though it has been attacked aggressively by lobbying groups.

In some polls, the employer mandate even scores slightly better than providing people subsidies to buy insurance or imposing higher taxes on rich people.

Other Options Either Don’t Cut It Or Lack Support

Reduced cost: Most friendly estimates of the recent Medicare for All bill find it would increase demand for health care by around 10 percent while reducing cost-per-unit by roughly 20 percent. That would yield about $300 billion. That’s helpful, but it’s still nowhere near enough.

These savings are mainly from lower administrative costs and drug prices. They could be much higher if hospital directors’ and doctors’ extremely high salaries are brought in line with international norms. However, there is no political party or group pushing that at the moment. Leading single-payer activists are actively opposed to efforts to bring physician pay down to international norms as part of reform.

Sales tax/VAT: Some European countries use a large Value-Added Tax (VAT) or sales tax to fund much of their social spending, but that scheme would face big hurdles here. First, the idea is not likely to be popular. Second, it would need to be large. The CBO found a 5 percent VAT, which excluded items necessary for subsistence, would raise just $180 billion in 2018. Finally, it would cause numerous winners and losers outside of health care. Any broad-based tax would hit retirees, students, stay-at-home parents, etc… very differently than our current arrangement.

Tax the rich: Taxing the rich is popular, but there is not really enough money there. The top one percent paid $568 billion in income tax in 2017. We would need to effectively triple the average income tax rate of the one percent to make up this missing $1.1 trillion, bringing it to 81%. Doing so would leave basically no room for other proposals to tax the rich to pay for big priorities like free college, paid family leave, child tax credits, free pre-k, etc. Unlike health care, these programs do not currently have an existing and easily transformed funding source.

Payroll tax: A payroll tax of 10-15 percent is the option most single-payer efforts have rallied around, mainly because it would be large enough and come close to replicating what employers are already spending on employees.

This approach has two big problems, mainly because a payroll tax is the far less popular and more disruptive twin of the employer mandate. First, it is not popular at all. In California, 65 percent support a state-based single-payer plan, but support drops to just 42 percent if it requires raising new taxes. People don’t understand how it would mostly replace what their employer is currently paying in private premiums. Activist groups have totally failed at building the outreach necessary to educate people on this issue. People would rather just make employers directly pay the government what they had been paying private plans, if that is the “goal.” That is easy to understand and to sell to the public.

The second problem is that a payroll tax would be disruptive while adding little new value. While meant to somewhat replicate the current employer-based system, it would still produce significant winners and losers based on existing union contracts, current private plans, employer demographics, and local health care costs, etc. Some of these are arguably very good policy-wise, but some are bad. Most proposals modify the payroll tax to minimize some of these issues, but that just makes the policy outcome more like an employer mandate.

Best Option For Medicare For All

Arguably the only reason the United States didn’t steadily move to state-based, single-payer-like systems decades ago was that the one popular funding pathway was closed to state lawmakers. After Hawaii took the first step by adopting a strong employer mandate, the federal government passed the Employee Retirement Income Security Act in 1974 making such mandates impossible. In Hawaii, this grandfathered mandate works well and remains extremely popular.

Since then, single-payer groups have gravitated towards a payroll tax as their funding source of choice, not because it is a good idea but because it is the only legal option. Yet opposition to such large payroll taxes has killed numerous state bills. State single-payer ballot measures have lost overwhelmingly due to taxes.

The good news, though, is that the federal government is not constrained. For federal legislation, single-payer supporters should ditch their weird ideological commitment to a deeply unpopular payroll tax designed to mostly replicate the revenue collected from current employer contributions and instead back an actually popular employer mandate. The policy outcome differences are modest, so it is foolish to get bogged down in a fight over the redistribution of revenue side when also having a massive fight about making the provision of services dramatically more progressive.

Compulsory premium contributions by employers into a system is effectively how countries like Japan and Germany fund much of their health care system, while other countries began this way but slowly transitioned towards more of a straight payroll tax much later. Given the political and financial dynamics of the American context, this very well might be the best option.

Former President George H.W. Bush. Photo: GPO.gov.
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Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is an expert on politics, health care and drug policy. He is also the author of After Legalization and Cobalt Slave, and a Futurist writer at http://pendinghorizon.com