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Single-payer Health Insurance: How much will it cost?

Civitas Staff  |  January 23, 2008

North Carolinians make a total of $269.4 billion in personal income. Out of that they pay $20.6 billion in federal personal income taxes, $9.3 billion in state personal income taxes (including motor vehicles fees), $255.3 million in personal property taxes and $63.4 million in local personal income taxes. This makes for a total tax burden on personal income of 11.2 percent.

Suppose that we introduced a “single-payer” universal health insurance system in North Carolina. Under that system, the state government would pay for all healthcare expenditures in the state. Taxpayers would have to pick up the tab for:

• $45 billion in personal health expenditures;

• All current Medicaid expenditures, including the federal share of $5.6 billion;

• $13 billion worth of Medicare expenditures;

• $8.3 billion to provide full healthcare to the uninsured.

Such a scheme would dramatically change the tax burden on North Carolina’s families. In total, state taxes would claim a staggering 30.1 percent of total personal income, as opposed to 3.4 percent today.

The discerning reader might ask why Medicare should be included – it is, after all, a federal program. First of all, a single-payer universal health insurance system means, by definition, that there is one payer in the system. Second, it is not reasonable to expect North Carolinians to pay very high state taxes for their entire lives and then, on top of that, have to qualify for federal Medicare once they reach retirement.

These calculations also assume that the uninsured are provided the same healthcare as everyone else. Part of their care is now covered by existing providers, either with no compensation or with ex post compensation from the state. Such expenditures are hard to estimate today, and since many unusual people are likely in need of more healthcare than the average resident, it is reasonable to assume that they will cost the same per capita as every other resident from day one.

Some items that are not calculated for include:

• The effects of completely removing copays. Today, private plans charge copays. Some plans also have deductibles, which would also vanish. Both of these fee types have the effect of discouraging consumption. When they are removed, healthcare consumption will very likely increase. As a result, the state will most likely have to raise taxes even more.

• Healthcare costs have increased at slightly more than twice the rate of real GDP over the past 50 years. Since personal income tends to rise with GDP, this means that personal income – net inflation and taxes – will fall with the difference between the rise in healthcare costs and real GDP growth. In real numbers: starting with 2005, state taxes would go up by approximately 3 percent of personal income each year.

• Tax weariness among voters would most likely lead the General Assembly to try to contain healthcare costs. The Clinton plan of the 1990s had such a tax cap, and it sorely underestimated the rise in healthcare costs. If implemented, the tax cap would force healthcare rationing, causing either a deterioration of quality (as in France, Britain, Sweden) or lengthy waiting periods (as in Canada) – or both. The cost of these waiting lists can be seen in lost personal income as people are not healthy enough to work. Sick leave extensions and lost tax revenues would thus add to the overall costs of a state-funded healthcare system.

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