I’m not sure this has a strict factual answer, so I’m putting it here. Mods, please move this if it would be better suited somewhere else.
If the United States were to decide to provide Medicare to all citizens as a way of providing a baseline health insurance to everyone, how much would it cost? If the funding mechanism were a Value Added Tax, what percentage would it have to be set at?
I’m a bit ignorant of economics, but I know from threads here the the UK pays for its NHS through a VAT. I also see that their VAT is set at 20%, per the Wikipedia VAT article. Would ours have to be anywhere near that high just to provide Medicare?
See, this is the very basic problem with the Afordable Care Act or Obamacare, which ever you prefer.
If the real costs had been put forth honestly as a certain tax percentage, it could be a little more honestly debated. Instead we got a mandate to buy insurance from private companies.
The individual mandate to buy health insurance IS a tax. But it was not politically possible to say this up front, or to evaluate the costs as a tax. People would have had a screaming fit because the dollar number would be so high.
So we ended up with a ‘mandate to buy’ and a refusal to call it what it is, a tax. I think the next go around will have to call it a tax and respond to the tax payers with a more viable product.
I guess that’s the question I have. I was discussing Obamacare with a conservative co-worker at lunch today, and we were both talking about how it would probably be better to just open up Medicare to everyone but still allow people to buy supplemental insurance on their own (like the UK and Canada do).
She knows nothing about how other countries fund their healthcare systems, and I brought up that many use a VAT. However, I couldn’t come up with what OUR country’s VAT would have to be to provide Medicare to all citizens.
Would it be a 16% VAT then? I mean, I’ve seen the figure of 20% of GDP bandied about here in GD for US healthcare expenses, whereas the UK spends, IIRC 12%. But their VAT is 20%.
The 16% includes Medicare, Medicaid, the VA, and other programs which are already taxed for. Wikipedia claims that 60-65% of all health-care costs in the US are already paid through some level of government, although later the number cited is 54%.
One other data point - in 2005 the US government spent more per capita than the UK did (not total dollars spent on health-care per capita, but government dollars). And for us that only covers maybe 30% of the population. So, theoretically at least, you could get roughly UK-level service for all Americans just by spending what the government currently spends.
But if we were to expand Medicare coverage to all citizens and fund it through VAT, wouldn’t we stop pulling funding from other taxes? Wouldn’t the Medicare tax part of my pay stub just cease to exist?
medicare is funded via the payroll tax of 2.9% right now. Of the 2.6 trillion the US spends on health care, if we had medicare for all that would supposedly come down about 400 billion (due to medicare having lower reimbursement rates and lower overhead). So that means 2.2 trillion in health care spending.
Of the 2.6 trillion, about 1.3 trillion (give or take) is already publicly financed in various ways (medicare payroll taxes, income taxes, etc).
So you’d have to raise an additional $900 billion in revenue to come up with the 2.2 trillion (actually that assumes a balanced budget, which we do not have. The real number would be much higher).
So how much would that come to? I don’t know. But people would not have to pay for private insurance anymore, so the net effect would be a financial gain. However, I think that works out to about 20% or so (I have seen numbers of a 5% raising 285 billion and a 15% raising 725 billion).
Also using othyer countries as a model I think health care costs would come way down. I think I read somewhere that Medicare is much more efficient in terms of overhead than most HMO’s. So using currnet healthcare % of GDP might be significantly over estimating.
The UK does not pay for the NHS via VAT, but via National Insurance.
NI is very similar to income tax except that it’s paid on the first penny you earn (there’s no lower limit), it’s paid at one rate only, and the upper limit is a lot lower than that for the upper tax threshhold. I think the US has a similar almost-income-tax, or at least some states do, but the name escapes me right now.
(Also, that’s one rate of VAT. Food is mostly zero-rated, except for ‘luxury’ goods, so are medicines, and fuel VAT is a different rate).
Part of the definition of “tax” is that part or all of the yield (usually all) goes directly
to the government.
State governments require us to buy automobile liability insurance. None of the
auto liability premium yield goes directly to the government. In an exact analogy
were the Federal government to require us to buy health insurance it would not be a tax.
The NHS is paid for out of general taxation. VAT is just one way that tax is raised. It’s not specifically for the NHS.
This isn’t correct. National Insurance does not pay for the NHS. In theory it goes towards certain benefits, primarily state pensions (roughly equivalent to Social Security in the US). Furthermore, there are lower and upper limits to NI, pretty close to the lower 20% and higher 40% thresholds of income tax. In practice, the employee-paid portion of NI is much like an additional income tax, and indeed the government is considering merging income tax and NI.
Well, a country does ineveitably have to raise more tax (or cut expenditure elsewhere) if it wants a full-blown public healthcare system. And as it happens, the proportion of UK government revenue coming from VAT (about 14%) is roughly equivalent to the proportion of government expenditure on health (about 18%).
So I can see that US opponents of socialized helathcare might look around for a tax that the UK has but the US does not, that is also roughly equivalent to how much the NHS costs, and use that as an illustration of how much more tax would have to be raised. The 4% difference could perhaps be accounted for by the fact that US taxpayers already pay for MediCare etc.
UK VAT is a form of general taxation (not just for the NHS) and is currently at a historical high, to try to get our deficit down.
The take home message should really be: America pays the most of any country for its healthcare, as a % of GDP. Many european countries have comparable levels of care, plus universal coverage, and pay about half as much.
Of course, just like all the other times it’s been reduced (namely, one occasion where the rate dropped from 10% to 8%…at the same time as introducing a higher rate of 12.5% on certain goods).
If the US were to use the current Medicare funding system (the payroll tax), but raise that tax in order to provide Medicare for all citizens, what would that (now 2.9%) tax have to be raised to? That 2.9% tax covers some of the most expensive patients already, so would it need to be raised by 15-18 points to cover everyone? If we raised the payroll Medicare tax to 7.9%, how close would that get us to universal coverage?
Huh. I just looked it up and you’re right - I have no idea why, all these years, I’ve thought the NHS was funded by NI. Probably some misleading political statements led me to think that. Normally I’d check my facts before posting them - I shouldn’t post while so knackered.
The National Insurance limits are pretty different to the tax limits, however - the lower limit is £102pw. If you pay too much NI (like when starting a new job and accidentally put on emergency tax), NI is taken from every penny and, unlike overpaid income tax, is not recoverable. IME, a lot of employers lower-waged jobs do not send in the correct forms soon enough (often taking months - a friend of mine was still on emergency tax after six months and repeated requests to his employer), which is why I thought NI was paid on every penny.
In any case, the NHS is not funded just by VAT, so the OP’s premise is flawed. So at least my inaccurate post finally prompted someone to correct the OP - I’m surprised it took so long.
Actually, everyone’s nitpicking and BS ignores my actual question:
The premise doesn’t rely on what the UK’s system really is. I’m simply asking, if the US used a VAT (or, as I just asked in my previous post, an increase in the payroll tax), what would that tax have to be set at? What other countries actually use is irrelevant to that question. Yes, I was wrong about how the UK actually funds NHS, but that doesn’t actually change my question.