What Single Payer Would Mean For Employers

Senator Bernie Sanders, the Independent senator from Vermont who challenged Hillary Clinton for the 2016 Democratic presidential nomination, on September 13 introduced the “Medicare for All Act of 2017,” legislation that would establish a U.S. single payer national health insurance system.

Senator Sanders was joined by 16 co-sponsors, one-third of Senate Democrats, including senators Elizabeth Warren (D-MA), Kamala Harris (D-CA) and Cory Booker (D-NJ), all possible candidates for the 2020 Democratic presidential nomination.

A similar proposal introduced in the U.S. House of Representatives by Rep. John Conyers (D-MI) has 117 co-sponsors. “Single payer” will clearly be a driving principle of the Democrats’ 2020 policy platform.

What is Single Payer?

As the name suggests, under a single payer health system, one entity, the government, pays all medical bills for basic health services. There is little or no private insurance and no employer-sponsored health coverage.

Under a “true” single payer system, as opposed to its various hybrids, there are no co-pays, no deductibles and no insurance premiums. Payments to health care providers are financed through taxation – generally a combination of higher income and payroll taxes.

Hospitals may or may not be public entities and physicians and nurses may or may not be employees of the single payer public health system. The U.S. Veterans Administration is closest to a true single payer health plan in the U.S., with the federal government not only paying medical bills but also owning VA hospitals and employing physicians and nurses.

Canada, France, Germany, Great Britain and others have variations on the theme of single payer health coverage. Canada is probably closest to a true single payer national health system, with the entire cost of basic medical services paid by provincial governments. Many Canadians also maintain supplemental private insurance to pay for health services not covered by the public system, such as dental care and prescription drugs.

The U.S. Medicare and Medicaid health systems are also variations on the single payer theme, though many Medicare participants also have supplemental private insurance. Senator Sanders’ legislation is entitled the “Medicare for All Act” precisely because the senator’s ultimate policy goal is to enroll all Americans in Medicare’s single payer system.

What would Single Payer legislation mean for employers?

It’s been said that Senator Sanders’ legislation would “revolutionize” the U.S. health system. Nowhere would that be more true than in the case of employer-sponsored health coverage. Were the “Medicare for All” bill to become law, after its four-year phase-in, Medicare would completely replace existing employer-sponsored health coverage.

This could be good news and bad news for employers. On the plus side, some employers might welcome being relieved of the cost and responsibility of sponsoring health insurance for their employees, especially self-insured plan sponsors.

On the other hand, employers would not only lose the opportunity to use health benefits as a differentiator to attract talent, but would likely face higher income or payroll taxes to finance Medicare for All.

Outlook for Single Payer Legislation

With President Trump in the White House and Republicans in control of the House and Senate at least through 2018 – the Sanders bill has no chance of being enacted before 2021 at the earliest, for four major reasons:

Cost and where will the money come from

Washington D.C. think tank The Urban Institute has estimated the cost of the Medicare for All proposal at $32 trillion over 10 years. With total federal spending about $3.8 trillion in FY 2016 alone, additional spending of $2.5 to $3.0 trillion a year to pay for Medicare for All would almost double annual U.S. government spending.

Senator Sanders’ bill does not specify where this money would come from. Some tax loopholes could be closed, of course, and the rich could be socked with higher income taxes, but there’s no sugarcoating the huge payroll tax increase that would be imposed on wage-earners. Until a consensus emerges in Congress on how to pay for it, Medicare for All will not happen.

Incidentally, the California State Senate approved single payer legislation this year, only to have the Speaker of the Assembly bottle up the bill specifically because it contained no funding mechanism to pay the $400 billion estimated annual cost. Whether Medicare for All ever moves from idea to law will depend on its cost and funding.

The existing employer-sponsored health system

Around the world, nations that have adopted single payer-type systems share one common trait – they did not have prior employer-based health coverage. The U.S., on the other hand, has evolved since WWII toward a fully functioning employer-based health insurance system.

Today, some 156 million people in the U.S. have health insurance coverage through an employer – compared to 43 million on Medicare and 62 million on Medicaid, according to the Kaiser Family Foundation.

Moreover, people with employer-sponsored coverage almost uniformly like the health coverage and physician choices they have. Replacing that successful health insurance model with something new and untested would risk blowing up, for good, what now works for many – a politically disastrous proposition. 

No guarantee that Medicare for All would be an improvement

The Veterans Administration system, Medicare and Medicaid, which are all single payer variations, have much-publicized problems, including long wait times for surgery, low provider reimbursements, narrow provider networks and sharply rising costs.

Despite Medicare payroll taxes of 2.9% shared by employers and employees, and premiums charged beneficiaries for Part B physician services and Part D prescription drug coverage, the retirement of the baby boomer generation will push total annual Medicare spending to over $1 trillion in 10 years. Indeed, it’s estimated that the Medicare hospital insurance trust fund will be depleted in 2029.

In other words, existing Medicare is not perfect and it’s not at all clear that it could swallow Medicare for All. Put another way, it’s not clear that the federal government could effectively manage the entire U.S. healthcare system – about one-fifth of the total U.S. economy.

What happens to Obamacare (the Affordable Care Act)?

Senator Sanders’ Medicare for All legislation would not only replace employer-sponsored health insurance; it would also replace the Affordable Care Act federal and state insurance exchanges.

For all its sustainability problems, including insurers pulling out and premiums soaring, to say nothing of Republican repeal and replace efforts, ACA exchanges currently enroll some 10 million peoplewith the help of generous subsidies to make premiums affordable.

Having dodged the bullet of repeal and replace, it’s ironic that the next challenge to ACA would come from within the Democratic Party itself. While progressive lawmakers may see single payer as the “Holy Grail” of public policy, it’s likely that mainstream lawmakers will work to defend the hard-won Affordable Care Act. In this case, they will surely see the perfect as the enemy of the good.

Next Steps for Employers

In the area of U.S. health policy, employers need to keep their eyes on several balls. First and foremost, they need to stay compliant with existing ACA law and regulations. So far nothing has changed in the Affordable Care Act.

Second, in the near-term, employers and their advocates, like the U.S. Chamber of Commerce and others, will monitor bipartisan activity on Capitol Hill to stabilize the ACA exchanges, including continuation of Cost-Sharing Reductions (CSR). ACA repeal and replace seems off the table for now so the White House and Congress will need to prevent collapse of the exchanges.

Third, employers will await agency implementation of the President’s Inauguration Day Executive Order directing HHS, IRS, DOL and others to roll back certain Obama-era ACA regulations. It’s not yet clear what agencies will do but the President’s order does give them authority to waive, defer or delay costly regulations that impact employers.

Finally, employers will be mindful of the health policy horizon, specifically Single Payer. Public support is growing, especially among millennials, who increasingly see health care as a right and believe the government has a responsibility to provide it.

Single Payer is an idea whose time has not come. Whether that time will ever come in the U.S. is unknown. But we do know that if its time does come, Single Payer will profoundly affect all employers and employees.