How could California finance a single-payer healthcare scheme with only a payroll tax

Question

Apparently there's a legislative initiative in California to create a single-payer state-level healthcare system - see this story for example.

I've noticed, however, that the plan may be financed through an increase of the payroll tax to 15% (or is it by 15%? And - 15% over the existing tax or 2% of the payroll? Not clear). Isn't that extremely draconian / anti-working-class? I mean, if I understand this correctly, only salaried workers will be paying this tax, while businesses (small or huge) won't. Thus, if you're a Billionaire running a business empire and making huge profits, you will pay nothing, but all of your minimum-wage workers will now have 15% of their salary going towards health care costs.

Am I misunderstanding what this means? I don't live in the US so maybe I'm missing something.

Answer 1

I mean, if I understand this correctly, only salaried workers will be paying this tax, while businesses (small or huge) won't.

In the United States, payroll taxes are paid by employers. Employees never see that money and don't file it on their taxes unless they are self-employed. If self-employed, then they pay the tax as the employer of themselves. This isn't just salaried workers; it is all individual paid work. The payment could be salary, wages, or even contracted self-employment work.

The biggest example of this is Social Security and Medicare, which combined for a 15.3% tax on payroll. Nominally, the employer pays 7.65% in addition to any agreed wage and subtracts 7.65% from the employees wages. One can of course argue that from the employer perspective, they may pass that expense to the employee by cutting wages. But of course that can happen with health care benefits too. And the employer's share is in addition to the minimum wage, if applicable.

Currently, health care is paid by the employer. There may be a (pre-tax) charge on employer wages, but the employer pays. Generally the employer pays the bulk of it without charges against the employee's pay. So the most likely way for California to implement the tax would be as a replacement for the existing health care costs of employers. So I would think that they would charge the whole thing to employers. Or at least most of it, to match how health care "insurance" is currently financed.

I looked at some of the articles, and they don't seem to be saying one way or the other. That may simply mean that no one has bothered to ask. Perhaps employers are assuming that employees would pay it and employees are assuming employers would pay it.

My understanding is that this 15% is in addition to any other payroll taxes for unemployment insurance, etc. It certainly would be in addition to the Social Security and Medicare payroll taxes, which are already slightly over 15% in combination and federal. So if the current state payroll tax is 4% (just a guess, not based on actual rates), it would go up to 19%.

Another issue is that they expect half the funding to come from existing sources. For example, the state budget currently includes Medicaid spending. They plan to transfer that money to the new program. Also, I believe they expect Medicare to pay the single-payer and the single-payer would pay doctors, etc. The 15% is for the other $200 billion that is not currently government funded. So roughly half of the program is supposed to be funded by redirecting existing budget.

Answer 2

1. The 15% payroll tax would likely be on top of any existing taxes. One estimate puts the cost of single payer in CA at $400B. In fact, 15% seems optimistic. Canada has a graduated system from 15-33%, and that doesn't even count the VAT sales tax. Most likely the estimates are too low anyways (government estimates are notoriously low).
2. You have to tax everyone to fund a program of this size. You need a broad tax base to get these kinds of revenues. Why do you think Europe and Canada use a Value Added Tax(VAT)? It's an inherently regressive tax, but it's broad based so it generates lots of revenue.

Answer 3

As a contract software developer who got hammered badly by obamacare, I've looked into the situation in some detail.

California could set up its own health care system, patterned after Medicare, and finance it with a payroll deduction (as medicare is financed today). California would essentially become the only health care insurance company within its borders. This means a single risk pool that everyone participates in. Those that can afford to pay, will pay, right down to a graduated payment scale based on earnings.

One of the big problems with obamacare today is - a lot of healthy people aren't buying into the system - the penalty is a lot cheaper, and the risk is low as they can always buy in after they get sick. (The requirement to cover existing conditions without penalty) Sort of like not having to buy car insurance until after you have a wreck. Wouldn't that be great? Of course, the cost would go through the roof with largely high risk/high claims people buying insurance... any parallels to current health care costs are not coincidental.

So, yes, Cal could do this, if they can dig up the cash to get it rolling, and work out all the administrative methods to pay hospitals and doctors, and look for fraud. By making it a payroll deduction, everyone is automatically signed up - no way to just opt out.

I hope they do it, and prove that it works.

That's what should have happened with Obamacare - just extend the Medicare model to all citizens, with a fairly hefty increase to the payroll deduction. That is how medicare and how Britain's NHS works. Why this doesn't happen today, why it didn't happen in 2009... is beyond me. Couldn't be the bags of money the current health care industry has been slinging around politicians, could it?

Oh, surely not!

Eventually, when enough people get hammered as hard as I did (look up obamacare costs for a family of four - $1600-2500/month), they will demand change, to a degree that even massive amounts of lobbying money can't overcome.

Answer 4

Currently, what is considered a "payroll tax" is not income taxes set aside, but a specific set of taxes called FICA taxes. This includes 6.2% of wages, payed by the employee, into the Social Security fund, and 1.45% of wages to fund the Medicare program - the nationalized single-payer plan for those of retirement age (generally). The total is 7.65% paid by employee. In addition to that, employers/companies must match that payroll tax withholding.

Obviously, since the current rate is 15.3%, total, combined, they're probably talking about raising it, probably by 7.35% for employees with a corresponding match (if we're being very optimistic and thinking it's the "up to" scenario). So a person making $80,000 would see a bump of $5,880 with the company matching, for $11,760 total shared contribution increase for my imaginary worker in this scenario. While the total for the California worker would go up to 15%, total, that 7.65% still goes into federal SS and Medicare, so that increase amount would be a one-to-one match on the funding pool for a California non-Medicare single-payer plan.

If employer and employee would both see their health care premiums completely disappear, that would be in line with the cost of premiums ($5K - $7K single, $13K or more for many family plans). Whether it would completely be a wash, or maybe a savings for some, would probably vary pretty widely, as did the benefits vs cost burdens of ACA. With deductibles and co-pays being used so aggressively to try and shift more costs from premiums to end-user (a shift from employer to employee, generally, because of the unequal premium split noted below), that adds another level of variability to any insurance plan. This is why legislation dealing with this tends to be so massive and voluminous.

Zane Blog:ACA Policy cost averages for 2017

So, basically, any increased costs would not fall exclusively on the employee, but certainly it would disproportionately, because in most markets, and especially with the job market skewing more towards the worker in recent years, companies generally pay more than a 50/50 split of health insurance premiums, so the offsetting premium savings would go to the employer.

It's my understanding that they don't have the specific funding mechanism detailed in the measures that have passed, so my speculation about the benefits and shares is largely hypothetical.