We don’t think of the premiums we already pay as taxes,
but maybe we should.
By Matt Bruenig April
29, 2019
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 taxesthey 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.
Matt
Bruenig is the founder of People’s Policy Project,
a think tank funded by small donors.
The
Times is committed to publishing a diversity of letters to the editor. We’d like
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https://www.nytimes.com/2019/04/29/opinion/medicare-for-all-cost.html
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