With little fanfare, Vermont is preparing to become the first state to implement a single-payer, government-run health-care system. The Vermont plan, if implemented, would abolish private health insurance in the state and replace it with a taxpayer-funded system under which the state government directly pays doctors and hospitals.
Of course the state is having a bit of trouble figuring out how to pay for the program’s estimated $2 billion price tag, considering that the entire state government’s operating budget is currently just $2.7 billion. Currently under consideration is an increase in the state sales tax from 6.9% to 29%.
At the same time, opponents of ObamaCare have often suggested the massive health-care program is really a stalking horse for such a government-run system. ObamaCare’s fans have sometimes suggested the same. Senate Majority Leader Harry Reid (D-Nev.) has said that the health-care law is “as step in the right direction” toward abolishing private health insurance.
But a single-payer system — or at least government-run health care — may already be a reality in far more ways than most Americans realize.
Already the government directly pays for more than half of every dollar spent on health care in this country. This compares to just 13 cents directly paid by the individual purchasing or consuming the health care. (Virtually all of the remaining 37% is paid for through insurance, much of which is also subsidized, directly or indirectly, by the government).
In fact, consumers in many countries that we associate with “socialized medicine,” such as France, actually pay more out of pocket for their health care than do Americans.
Medicare is the single biggest government health care program. At a cost of $612 billion this year, the massive insurance program for seniors alone accounts for one-fifth of all US health care spending. Medicaid pays an additional 15%. Altogether, there are at least a dozen government programs to provide or pay for health care.
In 2012, nearly 41% of New Yorkers receive health care through one or another government program, Medicaid in particular. According to the Kaiser Family Foundation, roughly 23% of New Yorkers are on Medicaid. By comparison, just 15% of Connecticut residents and 12% of New Jerseyans are on Medicaid.
Medicare is the second-largest health-care payer in New York, providing coverage for 12% of residents, slightly below the 14% in Connecticut and New Jersey.
But Medicare’s influence extends well beyond the number of enrollees. Because the program is the 800-pound gorilla in terms of paying for health care, it establishes the standards that private insurers use to set reimbursement rates for doctors and hospitals. Thus, directly or indirectly, the government is already involved in setting health-care prices.
ObamaCare will further expand the governments reach into health care. Based on CMS figures, it is likely that 3 to 4 million people enrolled in Medicaid as a result of ObamaCare’s expansion of the program. (The administration has claimed more than 8 million Medicaid enrollees, but most are simply part of the normal churn within the Medicaid program, not new sign-ups.) This represents a 5.2% increase in the number of Americans on Medicaid. In New York, the percentage of people receiving health care through the program will shoot up to more than 28%.
The evidence suggests that at many those new Medicaid recipients previously had private insurance before, but either were dumped by their employers or chose to go on “free” insurance.
The Robert Wood Johnson Foundation, long a supporter of Medicaid, has amply documented this “crowd-out effect,” concluding that in some cases, loss of private insurance could completely offset the increased gains from Medicaid expansion.
Similarly, a study by Jonathan Gruber of MIT, one of the architects of ObamaCare, and others found that for every 100 children who received coverage through Medicaid or SCHIP from 1996-2002, 60 lost private insurance. Given how far up the income scale ObamaCare expands Medicaid, such “crowd out” is liable to be even more common than before.
When not expanding the number of Americans receiving government health care through Medicaid, ObamaCare will be adding to those whose purchase of private insurance is subsidized by taxpayers. According to the Center for Medicare and Medicaid Services and outside organizations such as the Kaiser Family Foundation, possibly as much as 83% of the 7.5 million Americans who signed up for insurance through exchanges received a subsidy to help pay for their insurance. That could amount to more than 6.2 million people.
Worse, since it’s possible that fewer than 2 million enrollees were previously uninsured, millions of Americans who were paying for their own insurance have now moved into a system where the government is paying most of the cost.
And it’s not as though those subsidies are going only to the poor, who otherwise could not afford insurance. Although more generous to those earning 250% of the poverty line ($58,875 for a family of four), some level of subsidy is available up to 400% of poverty ($94,200 for a family of four). In fact, taking into account various income disregards, some families with even higher incomes could receive a subsidy. The Congressional Budget Office estimates that as many as 700,000 people with incomes more than three times the poverty level will receive a subsidy next year.
Nor should we forget that government also sets the rules for private insurance, regulating premiums, and mandating coverage for various medical conditions and provider groups. At the same time, certificate-of-need laws let state governments control where and when hospitals can be built or what medical equipment they may purchase.
ObamaCare may indeed take us further down the road to a government-run health care system, but it’s a road already well-traveled.
Now we face the same question as Vermont: Can we afford it?
Michael D. Tanner is a senior fellow at the Cato Institute.