Methodology: How We Calculated The Tax Rates For Our Medicare For All Examples
Editor's Note: This is a methodological explanation related to this feature story.
Experts offer widely different estimates for the cost of Medicare for All.
So for our analysis, we used a range of tax rates — 11.5%, 15% and 18% — to calculate what health care might cost our four Massachusetts individuals and families if the Unites States transitions to a single-payer system.
11.5% — The low end of our range combines a 7.5% payroll tax and a 4% "income based premium" proposed in a brief from Democratic presidential candidate and Sen. Bernie Sanders.
Because of the standard deduction, the first $29,000 of a family of four's income would be exempt, according to his campaign.
The brief lists other funding options, including a wealth tax, tax hikes on high earners and a fee on large financial institutions.
"In my estimate that [11.5%] would be quite enough; it might be more than enough" to pay for Medicare for All, said UMass Amherst economics professor Gerald Friedman.
Friedman's own models, updated for WBUR for 2019, show Medicare for All could be financed over 10 years with a 8.5% payroll tax and a 4% tax on non-wage income. Friedman says Sanders used Friedman's work in the past to build cost estimates for a single-payer plan.
But MIT economics professor Jonathan Gruber says 11.5% is not realistic.
"The starting point is that we [as a country] spend 18% of our GDP on health care. You could say we could have cost control and be more efficient," Gruber said. "So are we going to be at 18, or can we get down to 15, I think that's legitimate debate to have. Do we realistically think that in the long run we can do it with 11.5? That strikes me as a bit difficult to pull off."
Gruber helped build the financing models for a Vermont single-payer plan. It was never implemented, in part, because of required higher tax rates.
15% — Our mid-range tax assumes Medicare for All would bring down health care spending from the current 18% of GDP, but at a more modest rate.
Of note, 15% is about what Germans pay for their universal health care coverage. Employers and employees each pay half of a wage-based tax.
18% -- The high end of our range is what the U.S. spends on health care.
It might not be high enough. Some experts predict health care spending would grow even faster under Medicare for All, because patients use more care when it is free, and because the coverage would be more generous than what most Americans have now. The Sanders plan, for instance, would cover dental, vision and long-term care.
It's worth noting that the Vermont single-payer law would have imposed payroll and income tax increases of up to 21%. In New York, one estimate said payroll and non-payroll rates would have to rise in the range of 26% to fund a proposed single-payer plan.
Jodi Liu, a policy researcher at the Rand Corporation, estimated the cost of a single-payer plan for New York. She co-authored a report that shows health care spending would increase slightly if the nation moves to Medicare for All. Liu hasn't analyzed Sanders' current single-payer bill or looked at what it might cost individuals. But she's sure of this: A single-payer system would be a big financial transition.
"It redistributes the types of payments people are making and depending on how that specifies, that can have very large changes for a given individual," Liu said.
Liu, Gruber and Friedman were consulted for WBUR's analysis.