I confess to being a die-hard “Hamilton” fan — so much so that I cannot help but view our current political discourse through that lens. At first glance Bernie Sanders might seem most like the main character, the founding father who wanted to expand the role of the federal government. However, Senator Sanders is no Alexander Hamilton; at least Hamilton’s policies made economic sense.
Sanders’s health care platform calls for the United States to transition its hybrid public-private system to a single-payer one in which health care is publicly financed by the government. Though the senator calls his plan “Medicare for All,” his program would be much more generous. Under his national health insurance program, or NHI, co-pays, deductibles and other forms of cost-sharing would be eliminated and insurance would be comprehensive.
On the surface, Senator Sanders’ plan sounds great, but the common adage holds true here: if it sounds too good to be true, it usually is. Upon closer scrutiny, it seems less and less plausible. Sanders predicts that a single-payer plan can cut overall health care spending by 20 percent over a decade while simultaneously adding 29 million previously uninsured individuals into the health care system and increasing benefits. The only nation in recent history to have cut health care spending by that much is Greece — hardly an example of responsible fiscal control. Meanwhile, Sanders would eliminate cost-sharing which would inevitably lead to higher demand. That combined with the lavish all-inclusive care that the senator promises makes his cost-cutting promise an implausible act of fiscal acrobatics.
On the surface, Senator Sanders’ plan sounds great, but the common adage holds true here: if it sounds too good to be true, it usually is.
Even if those savings were to happen, the majority would come from cutting payments to doctors and hospitals. Medicare keeps its purse strings tight by reimbursing doctors just 80 percent of what private insurers pay them. Making this universal would be, in effect, a drastic pay cut for an industry that employs nine percent of American workers. Cuts of that magnitude would shutter hospitals and strangle the research and innovation that make advances in care possible.
Sanders’ draconian tax policies would raise less revenue than he needs to fund his massive spending increases. Under the candidate’s plan, the wealthy (those making $250,000 or more a year) would face a 40 percent increase in taxes. While the revenue maximizing rate — the percentage at which the government gains the most revenue — for higher income brackets would be roughly an effective rate (not to be confused with the marginal tax rate) of 63 percent, the Senator proposes the equivalent of 73 percent after state and local taxes.
For capital gains, the optimal rate is an even lower 28 to 32 percent. Economists agree that capital gains should be taxed lower than income in order to encourage investments that would benefit the economy overall, a sentiment reflected in public policy around the world. Sanders throws that reasoning out the window by proposing the highest capital gains rate in the world. Such a policy would have the double bonus of hurting investment and raising less government revenue. In the words of “Hamilton,” Sanders’ tax policy, far from being a financial diuretic, would be an economic sedative.
Economists agree that capital gains should be taxed lower than income in order to encourage investments that would benefit the economy overall, a sentiment reflected in public policy around the world.
Given all those factors, it should be no surprise that the Sanders health care plan would cost much, much more than promised. A study by Kenneth Thorpe, a health economist at Emory University, estimates that the NHI would actually cost $2.5 trillion per year, leading to a whopping $1.1 trillion deficit for the program. In context, that deficit alone is more than the federal government spends on defense, education, scientific research, transportation and infrastructure combined. The Council for a Responsible Federal Budget estimates that Sanders’ plan would irresponsibly balloon the federal debt up to 150 percent of GDP in a decade.
To compensate, Sanders’ 6.2 percent payroll tax for health care would have to increase to 14.3 percent, and the 2.2 percent income-based premium would increase to 5.7 percent. This would have to be done while retaining the extravagant income/capital-gains tax rates that the senator proposes. These proposed payroll tax increases would disproportionately affect middle-class and working-class Americans. Most economists agree that the burden of payroll taxes, even the share employers pay, fall almost exclusively on employees themselves in the form of lower wages.
For many employees in small businesses, the new tax would essentially become a cut in wages. In practical terms, this would mean that 71 percent of working households that currently have private plans and 85 percent of those on Medicaid would pay more for insurance under a single-payer system. For a program that supposedly helps lower-income working families, the Sanders health care plan would fail spectacularly.
The Green Mountain State’s proposed plan would have required an 11.5 percent business tax and a graduated progressive tax of up to 9.5 percent on individuals.
Ironically, the most prominent example of why single-payer would not work comes from Bernie Sanders’ own state of Vermont. The Green Mountain State’s proposed plan would have required an 11.5 percent business tax and a graduated progressive tax of up to 9.5 percent on individuals. Governor Peter Shumlin, an ardent supporter of publicly-financed health care, admitted that “the potential economic disruption and risks would be too great for small businesses, working families and the state’s economy.” If such a plan could not work for Vermont, one of the most receptive states in the nation, then how can such a plan work for the entire country?
The Affordable Care Act, which mixes both public and private health insurance, seems downright conservative in comparison to a single-payer system. Yet even that law has faced a rocky implementation process as the health care system struggled to adapt. Imagine the even greater shock of redirecting trillions of dollars of health care spending while simultaneously expecting little to no economic repercussions. It should come as no surprise then that even economists like Kenneth Thorpe, who actually helped spearhead single-payer health care in Vermont, have voiced their skepticism.
Imagine the even greater shock of redirecting trillions of dollars of health care spending while simultaneously expecting little to no economic repercussions.
We should look at practical solutions instead of focusing on a supposed panacea that would be impractical and hurt our economy. To paraphrase the immortal words of George Washington in the musical “Hamilton,” “Dreaming is easy, implementing is harder.”
Calvin Chiu remains an advocate for common sense, and a die-hard Hamilton fan.