Universal Health Care Might Cost You Less Than You Think

 We don’t think of the premiums we already pay as taxes, but maybe we should.

As the national debate about health care kicks off ahead of the 2020 presidential election, we’re going to be hearing a lot about the costs of increasingly popular progressive proposals to provide universal health care, like Bernie Sanders’s Medicare for All plan.

One common refrain on the right and the center-left alike: Since the rich can’t foot the bill alone, are middle- and working-class supporters of a more socialized health care system really ready to pay as much for it as people do in some of the high-tax nations that have one?

The problem is, we already do, and we often pay more.

It’s true that by conventional measures, taxes on workers’ wages in the United States are comparatively very low and even very progressive, affecting the lowest-earning workers the least and taxing those who can afford it more.

But these measures obscure an important fact of American life: Unlike workers in many other countries, the vast majority of American employees have private health insurance premiums deducted from their paychecks.

If we reimagine these premiums as taxes, we’d realize that Americans pay some of the highest and least progressive labor taxes in the developed world.

 

Just how heavy is the burden placed on American workers by employer insurance premiums? By combining data from the O.E.C.D. Taxing Wages model with data from the Medical Expenditure Panel Survey, we can see what percentage of each worker’s compensation — a figure that includes cash wages as well as the taxes and benefits employers pay on behalf of their employees — goes toward taxes and health care, and how progressive these payments really are.

What this data shows is that lower-income workers, higher-income workers, single workers, and married workers with children all contribute around 40 percent of their pay toward taxes and health premiums. And when those health care costs are taken into account, the less well off no longer pay less than high-earners, as they do in taxes alone.

So, while opponents of comprehensive plans like Medicare for All claim those plans will greatly burden middle-class families, the truth is that we already have an unfair system. Middle-class workers in America are charged the same health insurance fees as upper-class workers despite the vast income differences between the two groups, and pay more of their earnings toward taxes and health care than workers in many wealthy countries.

For instance, according to this analysis, when an American family earns around $43,000, half of the average compensation when including cash wages plus employer payroll tax and premium contributions, 37 percent of that ends up going to taxes and health care premiums. In high-tax Finland, the same type of family pays 23 percent of their compensation in labor taxes, which includes taxes they pay to support universal health care. In France, it’s 2 percent. In the United Kingdom and Canada, it is less than 0 percent after government benefits.

Consider the impact of these insurance premiums on American families with children. Through the earned-income tax credit and the child tax credit, the federal tax code does a lot to ensure that the effective tax rates of lower-middle-class workers go down considerably when they have kids. But these efforts are effectively negated by the burden of employer-based health insurance.

When single workers decide to start a family, they need to switch from an individual health plan to a family health plan. The average individual health plan has an annual premium of just under $6,400 — with employees directly paying around $1,400 of that. For family plans, the premium is around $19,000 with employees responsible for around $5,200.

This jump in premiums for workers who start families is what ensures that middle-class workers with children put around 40 percent of their labor compensation toward taxes and health care, despite policies that reduce their formal taxes.

Moving from our system to a European-style system would make our overall system of taxes and health insurance payments much more progressive for the majority of Americans, because the elimination of private health premiums would more than offset the rise in formal taxes for all but the wealthy.

Although the financing details of Medicare for All remain provisional at the moment, a RAND report on a more concrete single-payer proposal for New York State found that the plan would cut health care costs dramatically for the lowest income group, while increasing them by about 50 percent for the highest income group. Middle-class people would also experience net savings on health care equal to around 10 percent of their income, with only those earning 10 times the federal poverty line or above — that’s $134,000 for an individual or $276,000 for a family of four — paying more than they do now. 

If we don’t move toward a European-style health program, we’ll remain stuck in a system where Americans, regardless of their incomes, pay ever larger amounts out of their paychecks to fund health care. The fact that we don’t call these payments “taxes” doesn’t change that fact, so it shouldn’t blind us to the best solutions.

If policymakers in America want to boost the fortunes of the middle class, and especially middle-class families with children, shifting the health insurance burden up the income ladder while bringing down overall health care costs, as Medicare for All would, is one of the surest ways to do that.

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