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The Pro's and Con's of Single Payer

The Business News looks at a new study on how it will expand coverage but raise taxes

Posted on
Aug 17, 2018

As New York considers creating a single payer healthcare system to deal with rising healthcare costs, the Rand Corporation looks at the Pro's and Con's of a single payer system.

A study of a single-payer healthcare plan proposal for New York State found it would require “significant new tax revenue,” but would expand coverage as it replaces premiums, setting off a debate over whether the state should go this route.

The study by the Rand Corp, a nonprofit that specializes in health, education and security research, focuses on the New York Health Act, before the New York State legislature.

The New York State Health Foundation last December commissioned the nonprofit to evaluate savings, costs and feasibility of the New York Health Act single-payer proposal.

Rand found the plan would shift billions from insurance premiums to taxes, offer administrative and other savings and increase care.

“As payments for healthcare shift from premiums and out-of-pocket payments to progressive taxes, most households in New York could pay less and the highest-income households could pay substantially more,” Rand concluded as it released its research last week. “The shift in who pays more or less would ultimately depend on the design of the tax schedule.”

The study found that New Yorkers in the bottom 90 percent of household incomes would save $2,800 per person annually on average, as premiums, deductibles, copays, out-of-pocket payments and out-of-network charges are eliminated.

New York residents in the 90th to 95th percentile of household income would see average healthcare payments rise by $1,700 per person in 2022.

And the top 5 percent of New Yorkers by household income, with average income of $1,255,700 in 2022, would pay an average of $50,200 more per person.

“The analysis finds that overall healthcare costs would decrease slightly over time if administrative costs are reduced and state officials slow the growth of payments to healthcare providers,” Rand also concluded.

New York State Sen. Gustavo Rivera and Assembly Health Committee Chair Richard Gottfried, sponsors of the New York Health Act, touted the study as showing single-payer could work in New York State.

“The study confirms that New York Health would reduce total healthcare costs, while increasing spending on actual care rather than administration and insurance company profit,” they said in a joint statement.

The plan, they said, would “provide full health coverage to every New Yorker; save substantial money for almost all New Yorkers; and generate a net increase in employment due to increases in disposable income.”

“Rand shows we can make sure every New Yorker gets the care they need and does not suffer financially to get it,” Assembly Health Committee Chair Gottfried said in a written statement.

Rivera, ranking member of State Senate Health Committee, said the “study makes it clear that the New York Health Act is not only feasible, but the most fiscally responsible option for our state.”

The New York Health Act would lead to healthcare spending similar in 2022 to the status quo, dropping by 3 percent by 2031, according to the study.

But the plan would require $139 billion in new taxes for healthcare in 2022 and $210 billion by 2031 as payments go from premiums to taxes.

Under the status quo, the state is expected to collect about $89 billion in taxes from all sources in 2022, so new taxes would be a 156 percent increase.

“Economists and health policy experts say this model would result in a huge tax increase,” according to the Suburban Hospital Alliance, with Long Island offices in Hauppauge. “And it would require disentanglement from state laws, waivers from the federal government and elimination of all commercial insurance.”

Insurance agents also pointed to big taxes as a big problem, even if they replace insurance premiums.

“This report confirms what we already knew – a government-run, comprehensive health plan will cost too much and will be unsustainable,” Louis Atti, chair of the board of Big I New York, an association of insurance agents, said. “The state would have to collect 156 percent more in tax revenue in 2022, an increase of $139 billion, just to cover the cost of the plan. That cost will grow to $210 billion within 10 years. New York’s residents and businesses simply cannot afford these crushing tax increases.”

The insurance agents added that many New Yorkers are happy with their health insurance, while single-payer could reduce choices and eliminate existing options.

“Many New Yorkers already have health insurance coverage that works for them, including employer-sponsored plans and Medicare,” Atti said. “A state-run plan would disrupt these successful arrangements.”

And hospitals could be hurt as reimbursements likely drop, putting pressure on those who provide care.

“Hospitals already receive a significantly lower reimbursement from Medicaid and Medicare,” the Suburban Hospital Alliance said in a written statement. “A true single-payer system would set all prices, leaving no room for hospitals to negotiate.”

The single-payer plan would be funded by a trust fund, receiving money from the federal government now used for health programs, as well as state and local funding for healthcare and revenue from new state taxes.

A payroll tax paid by employers who pick up 80 percent and employees who pick up 20 percent would replace much of what today is paid in premiums. A second tax would be levied on other income, such as interest, dividends and capital gains.

Employers that currently offer health insurance would contribute $200 to $800 less per worker on average for health benefits under the single-payer plan in 2022 than through the status quo, according to Rand.

But employers that offer no coverage today would pay $1,200 to $1,800 more per worker on average in 2022 because of new payroll taxes.

Rand concluded that some residents and businesses might leave the state, “potentially altering the financing of the plan.”

“If even a small percentage of the highest-income residents move or find a way to shield income from the new taxes,” according to Rand, “tax schedules would need to be revised and could require increasing the financial burden on middle and lower-income residents.”

Atti believes the current system, including health insurance exchanges, can function without an overhaul.

“Rather than creating an entirely new system, we believe the state should build on the success of New York State of Health,” Atti said of the marketplace that insures more than 4.3 million residents today through public and private programs. “The state would also do well to focus on reducing the costs of medical care and prescription drugs, as these are the factors that drive high insurance premiums.”

Others said that the Rand study at least provides more information regarding whether to go the single-payer route.

“With a fair and factual assessment in hand, the public and policymakers can make up their own minds about the merits of a single-payer approach,” David Sandman, president and CEO of the New York State Health Foundation, said.

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