Financing Single Payer: Let’s Stick to the Facts

Financing Single Payer: Let’s Stick to the Facts
Doug Hoffer, Independent Policy Analyst

Some have suggested that Dr. Hsiao’s plan to finance the new system will not work. But this is the wrong place to start. Dr. Hsiao submitted a proposal; it is not the state’s plan. Rather, it is a point of departure for further research and debate.

Dr. Hsiao recommended using a payroll tax to finance the new system. For a variety of reasons, including administrative convenience, the payroll tax should be part of the eventual funding scheme. However, using ONLY the payroll tax is both unfair and impractical.

For example, there are a number of Vermonters below retirement age that don’t work. Some of the non-working folks have substantial non-wage (“unearned”) income from capital gains, interest, and dividends. A universal health care system that does not require contributions from wealthy non-working Vermonters would be an insult to the rest of us.

And furthermore, if someone earns $100,000 in wages and an additional $100,000 from other sources, his or her effective rate would be half of that paid by everyone else. That is, assume the payroll tax is 8%. A person earning $40,000 would pay $3,200. The person earning $200,000 with only half from wages would pay $8,000, which is only 4% of total income. Does that seem fair to you?

In addition, limiting funding to payroll would exclude a substantial amount of taxable income. After subtracting wages for federal employees (who will not be part of the system), total Vermont payroll in 2010 was $11.1 billion. In contrast, total adjusted gross income in 2009 (latest year available) was $15 billion. Thus, even after subtracting federal wages, there would be well over $3 billion of income NOT taxed for the new system. This makes no sense.

Finally, the expected cost of the system is the predicate for conversations about financing. Unfortunately, the opposition has been trumpeting an “analysis” that assumes the system will cost much more than is expected (almost twice; see John Franco’s op-ed) and that it will be financed solely with a payroll tax. Not surprisingly, using these assumptions leads to substantial deficits and an unsustainable system. But the analysis is fatally flawed and is poisoning the discourse.

So let’s not get ahead of ourselves and let’s insist that all the parties stick to the facts.

6 Responses to “Financing Single Payer: Let’s Stick to the Facts”

  1. Wendy Wilton says:

    In constructing my projection of revenues and expenses in the creation of a state health care fund I have been very careful and thoughtful to be fair to the process. What I have done in my proposal is beyond the Hsaio study in that I have matched revenues to expenses. If anyone wants a copy of my work I will send it to you, just email me at

    I will be preparing a second version of my numbers in the coming weeks. Mr. Hoffer states that I have double-counted administrative costs in my current model. However, as the pricing for the Green Mountain Care premiums in my model were 10% too low (based on current Catamount demographics)in my new version I will eliminate the administrative costs and increase the premium cost, accordingly. Bottom line is the math is still the same.

    I have repeatedly challenged Mr. Franco or Mr. Hoffer to a public debate on the fiscal issues. Each time they have an excuse as to why they can’t despite that they continue to criticize my work erroneously in blogs such as this one. Each day I get confirmation that my numbers are generally correct.

    I am not ideologically opposed to single payer, and I think many of Hsaio’s ideas have merit (although with caution on the amount).
    But I need to see that the numbers work, which is why I created the projection. I am disappointed that the legislature did not demand several financial models to be completed before passing the bill, and hold the administration’s feet to the fire–it appears they have forgotten their fiduciary responsibility to the people of the state. My numbers are not getting ‘ahead’ of anything–this should have been done prior to the vote.

    There will be no greater disappointment for the supporters of single payer than for it to fail on the issues of finance which should have been vetted well ahead of implementation. What about that debate guys? Wouldn’t that be informative for Vermonters?

  2. Tyler Resch says:

    Allow me to make a grammatical correction. The sentence ” . . . there are a number of Vermonters below retirement age that don’t work.” I had to puzzle over that. If you said “who don’t work” it would be clear. People are a who, not a that. The case for single-payer (and I am ardently in favor of it) would be more credible if clear language is used.

  3. Peter D. Moss says:

    P. O Box 413, Fairfax, Vermont 05454
    phone and fax 802-849-2108


    (1) Employer-based private insurance exists only in AMERICA and it is an historical anomaly. During WWII, the mostly male U.S. troops were deployed around the world creating a labor shortage. At the same time, to hold down inflation which would be caused by labor shortage,Congress enacted wage and price controls. What were employers to do? Unable to offer higher wages, they instead offered “free” health insurance. Once the private for-profit insurers got into the health insurance market, this America-only anomaly became widely entrenched and it still is entrenched half a century later. Time to break with the unsustainable past.

    (2) There is a horrible lot of slush collected by the “non-profit” private health insurance industry. The last Vermont Blue Cross Blue Shield CEO took himself a $7-million-plus golden parachute upon retirement. The current CEO says he has no such power but the question remains: how can enough profit be collected in dues that enabled a $7-million golden parachute, as a retiring executive’s final paycheck is commonly called? In Massachusetts, a retiring BCBS CEO took himself an $11-million retirement package. And more importantly, why is there no legislative and legal action to prevent ANY profit from accumulating in a “non-profit” operation? Because the private insurers bribe the Legislature to allow excessive premiums and the U.S. Supreme Court says criminal bribery is First Amendment protected free speech if committed by a corporation. I believe non-profits should pay the difference between income and expense as a non-profit levy to be literally non-profit.

    (3) Many people do not understand enough about the insurance industry to understand the difference between mandatory buying of car insurance but not mandatory buying of health insurance. Isn’t the sauce for the goose good for the gander? Of course not. Car insurance is a reasonable legal requirement because (a) it is a statistics-and-probability based business. Only 40,000 people die in car accidents each year which is 0.0125 percent. Over 99.98 percent survive the car culture each year. (b) 320-million Americans only have 100-million cars which is about 31 percent. The other 69 percent are too old, too young, too poor, or use mass transit, bicycles, or walk. Actuaries do not know which 40,000 people will die but they do know that that number (or a few more or less) will die in and from cars. From these statistics, they calculate the probability and from that they calculate a reasonable insurance premium, which is further regulated by market competition.

    By contrast, everybody needs health care for life. No statistics, no probability, no kidding. Illness and disability, to say nothing of periodic testing and monitoring, is with all of us, all the time. There is no probability and this certainty does not permit spreading the risk. Therefore, mandatory private health insurance does not permit spreading the risk. Government can and should be a non-profit operation. The Swiss government even pays for funerals, on the assumption that sooner or later, all of us will need one. So why permit private for-profit health insurers to exist?
    C:\MyFiles\SingPay8.wpd — 542 words — 23 August 2011

  4. Sarah Flynn says:

    Please comment on how such a plan would affect senior citizens. Most of us are covered by Medicare and have some form of secondary health insurance, some paid for as part of our retirement packages.

    Since we are a growing segment of the population, and most of us aren’t working a regular job anymore, there is little to be gained by a payroll tax from us.

    We are on fixed incomes. Yes, there are some wealthy retirees who have investment income. My guess is that they are definitely a small minority. How do you see us participating in this single payer program if we do not have unearned income?


  5. Bob Zeliff says:

    Great work Doug.

    I have to say I do not think we should be pushing the payroll tax option now.
    I think we should keep the implementation and payment systems the same as we have now.
    - This will remove the huge argument we will get from the opposition and many Vermonters that GMC is just another huge tax to lay on the people of vermont who are over taxed already.
    Not withstanding the correct argument that it is more efficient and fair. I feel it is political foolish to push this…it is giving the opposition an argument that they can effectively leverage agains GMC in the sound bite driven median.
    - Second if we keep the existing payment system of employer contribution, employee contribution and individual payments….and of course the government payment… will be easy for all to sell the reductions in cost…when their bills get smaller. We must reduce cost if GMC is to be credible. This will show it directly in people and businesses costs. The savings will be real to them.
    I would like to see us stop talking about new taxes and focus on the benefits of GMC….reduced cost and better health care.
    just my 2 cents

  6. Paul says:

    I do not believe in raising taxes, I do not believe in taxing anything other then wages. Why should someone be punished for good decisions? You can not expect me to believe the Gov’t can operate a program better then any private company.

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