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Labor Party Briefing Paper
Financing
Just Health Care

OVERVIEW

The Labor Party proposes a national health insurance program for the United States that would provide universal coverage of comprehensive health benefits for every U.S. resident. By eliminating administrative waste and profit in the private health insurance industry, the United States can pay for universal coverage as well as extensive benefits such as nursing home, prescription drugs and long term care for the same total amount of money (an estimated $1.213 trillion for 1999) that we now spend.

The Labor Party proposes to keep most existing government revenues in place (nearly half the current U.S. health care budget); implement a variety of mechanisms to make the wealthy pay their fair share; and impose a modest tax on all employers (a dramatic windfall for employers now purchasing health care).

Key Components of Just Health Care Financing

Keeps much of the existing health care financing in place – the government already accounts for half of health care spending.

Eliminates employer contributions to private insurance premiums; replacing them with a modest employer payroll tax of 3.303 percent

Eliminates individual premiums including Medicare Part B and co-payments as well as 80 percent of out of pocket costs

Creates no new taxes for workers (except for wealthiest 5 percent of Americans)

Creates new funding sources that draw on the incredible wealth gained by the richest Americans over the last decade

Protects health industry workers via Just Transition

© Labor Party 2000 Publication Number 706

Introduction

Although we spend more on health care than any other industrial nation, we are the only one not to cover all its residents.1 Nearly 45 million of us – most with full-time jobs – have no coverage whether through the job or government program like Medicare and Medicaid.2 Many of us lucky enough to have health insurance have inadequate coverage and forego needed care and medication because of high co-payments and deductibles.

The Labor Party proposes national health insurance: a public insurance fund (with the federal government as the insurer) and a private delivery system (health care services – doctors, hospitals, clinics – remain private). Individual health care consumers will have the freedom to choose their doctors, hospitals and other health care providers.

From birth to death, all medical care is covered, including: doctor visits access to specialists hospitalization prescription drugs mental health treatment nursing home and long-term care dental and vision services occupational health services preventive and rehabilitative services medical supplies and equipment

How Much Does the United
States Spend on Health Care?

In 1999, the United States spent an estimated $1.2 trillion on health care – 12.8 percent of the Gross Domestic Product or an average of $4,443 per person.3 The total U.S. health care budget – for all doctors, drugs, dentists, hospital care and administration – is funded currently by:

Tax revenues (including the employer and employee Medicare payroll tax) fund government services including Medicare, Medicaid, public health programs, health care for government workers and the military and medical research.

Federal programs

Medicare Payroll Tax (1.45% each on employee & employer): $121

Employer contribution to Medicare for federal workers: $2.8

Health insurance premiums for federal workers: $13.8

Medicaid and additional Medicare: $185

Public health programs: $49.7

Total: $372.3 billion

State and Local programs

Health insurance premiums for state and local employees: $57.5

Employer contribution to Medicare for state and local employees: $6.8

State share of Medicaid and other services: $127.5

Total: $191.8 billion

Federal/State/Local Hospital Construction and Research

Total: $40.4 billion

Total: $604.5 billion

Business. Employers contribute to employee health care premiums, worker compensation and company in-patient health facilities.

Employee health insurance premiums: $224.5

Workers compensation: $23.6

In-patient health facilities: $4

Total: $252.1 billion

Individuals. Individuals pay all or part of health care premiums, co-payments, Medicare Part B premiums and out-of-pocket expenses.

Premiums paid by households: $83.7

Part B Medicare Premiums: $19.9

Out of Pocket Spending: $223.1

Total: $326.7 billion

Non-patient revenues. Funds raised from donations from individuals and foundations and from hospital gift shops contribute a small percentage of the total budget.

Total: $30.2 billion

Total: $1.213 trillion

Current Financing of U.S. Health Care System
1999 Estimates
Current Financing of U.S. Health Care System

Just Health Care:
Sources of Revenue

By eliminating administrative waste and profit in the health care system, the United States can provide comprehensive health care coverage to every resident of the United States for the same total amount of money (an estimated $1.213 trillion for 1999) that we now spend.4 The savings from the elimination of private insurance, however, comes at the expense of the jobs of nearly 1.25 million workers in the health care industry.

To raise a global budget of $1.213 trillion and to provide a Just Transition for health care industry workers, the Labor Party proposes to:

  • Keep most existing government revenues in place (nearly half the current U.S. health care budget);

  • Implement a variety of mechanisms to make the wealthy pay their fair share; and

  • Impose a modest payroll tax on all employers which will create a dramatic windfall for employers now purchasing health care. Part of the windfall in the first three years of Just Health Care will fund the Just Transition for workers.

Government: $533.3 billion
Keep existing federal, state and local revenues that currently pay for Medicare (employer and employee payroll taxes – 1.45percent each or $121 billion) and other federal and state programs (with the exception of revenues that now pay government workers’ health premiums).

Employers: $155.1 billion

Implement a 3.303% tax on the payroll of all public and private employers:
    

   

$151.1 billion

Keep existing employer expenditures for corporate clinics: 

$ 4.0 billion

With a modest tax of 3.303 percent on employers’ payroll, those employers currently paying all or part of their employees’ health premiums will see an enormous windfall. Private employers spent an estimated $224.5 billion in 1999 on health insurance for their employees and contributions to federal, state and local government employee health premiums totaled $71.3 billion — a total of $295.8 billion. Part of this windfall will fund a Just Transition for health care industry workers in the first three years following implementation of national health insurance.

In addition, the federal government will gain additional revenue by taxing the windfall (after completion of Just Transition during the first three years of implementation). Of the $151.1 billion proposed employer tax, approximately $126.8 billion comes from private employers. This represents a savings of $97.7 billion for private employers. If the full amount were taxed at the marginal corporate tax rate of 35 percent, the federal government could reap up to $34.2 billion in additional corporate tax revenues.

Employers currently offering few or no health benefits to their employees will see costs go up. However, under Just Health Care, the annual employer cost on the average wage of $28,861 will be $874.50.5 In addition, the employer contribution will continue to be tax-exempt making the 3.303percent tax an affordable contribution for all employers.

Income taxes on the wealthy: $161.9 billion
The Labor Party believes that the richest Americans should pay their fair share. Our budget includes an additional 5 percent income tax on taxpayers with average incomes of $183,200. This is income only and does not include unrealized capital gains in stocks, bonds, home sales, etc. The budget also includes a 10 percent income tax on the richest one percent, those with average incomes of $763,200 (not counting stocks, bonds, property).

Tax on stock and bond
transactions: $128.4 billion
Anyone who purchases a stock will pay a transaction tax equal to one half of one percent of the purchase price. For those who invest and hold on to stocks, the tax will be minimal. For example, a $100 stock purchase will be taxed 50 cents. If the stock is for four years and sold for $125, the tax represents only two percent of the gain. However, speculators who buy and sell rapidly (such as day traders) pay more. If the same $100 stock is sold in two months for $101, the tax represents 50 percent of the $1 gain. This will dampen speculation and also provide a healthy revenue stream for Just Health Care.6 See the box below for details.

In 1997, about half of all households owned no stocks, not even in mutual funds or pension plans such as IRAs, 401(k), 403(b) or Keogh plans. The wealthiest 10 percent of households owned 82 percent of all stocks, including those in mutual funds or pension plans. Fully 41 percent of all stock is owned by the richest 1 percent of households.7

Table One: Stocks and Bonds Transaction Fees
(on projected after tax volume)

  Tax Rate Annual Revenue
Stocks .25% each on buyer & seller $36.5 billion
Government Bonds .1% $27.7 billion
Corporate Bonds .1% $14.7 billion
Futures Contracts .02% $13.3 billion
Currency .1% $33.3 billion
Swaps .02% $2.9 billion
Total   $128.4 billion
Source: Center for Economic and Policy Research, 2000

Budget surplus: $100 billion
Economic growth and cuts in social spending are expected to yield a federal budget surplus of between $3.2 and $4.2 trillion between 2001 and 2010 according to the Congressional Budget Office.8 The Democrats and Republicans want to spend the surplus on tax cuts that will mostly benefit corporations and the wealthy. The Labor Party proposes to spend part of the surplus to offset the cost of national health insurance for working people. In addition to the projected surplus, Just Health Care will create additional revenue for the federal government by taxing the employer windfall (see above).9

Corporate tax shelter loophole: $60 billion
According to the Treasury Department, corporations are getting away with murder when it comes to avoiding taxes. While profits have soared over the past few years, corporate taxes have not. For every dollar of profit reported to shareholders, 91 cents were taxable by the Internal Revenue Service in 1990. By 1997, that number fell to 70 cents on the dollar. In 1997 alone, corporations paid $60 billion less in income taxes than they would have if they had paid taxes at the same rate as in 1990. In contrast, individuals paid $80 billion more than in 1990.

An increase in abusive tax shelters — various accounting methods that have no legitimate business purpose and are intended solely to lower a company’s taxes — is responsible for a growing share of the shortfall. Such schemes cost the government at least $10 billion a year (and possibly much more) according to the Treasury Department.10 Closing these loopholes and making corporations pay their fair share will raise $60 billion annually for Just Health Care.

Household: $44.6 billion
Just Health Care eliminates all household contributions to premiums, co-payments, Medicare Part B and all out-of-pocket costs for services not currently covered like dental, vision and prescription drugs. Total household expenditures will drop from $326.7 billion to $44.6 billion annually. The only expenses left for individuals will be over-the-counter drugs such as aspirin, elective cosmetic surgery, etc. This represents an 80 percent reduction in current out-of-pocket expenses.11

Existing non-patient revenues: $30.2 billion
Existing funds raised from donations from individuals and foundations and from hospital gift shops will continue to contribute a small percentage of the total budget.

Total budget: $1.213 trillion

Just Health Financing
1999 Estimates
Just Health Financing

Worker Dislocation
and Just Transition
12

One of the most attractive aspects of national health insurance is its cost savings in the area of administration. Unfortunately, these savings come at the expense of the jobs of workers in health care administration. The Labor Party believes we have an obligation to provide a just transition for these workers. In fact, just transition is integral to the Just Health Care plan.

Just Transition’s goal is to alleviate the financial burden of eliminating health care jobs and to make it easier to find another job at a comparable salary. Every worker who loses his or her job because of the transition to Just Health Care will receive:

  • Full take-home pay and benefits for up to four years, or

  • A wage subsidy for any worker who takes a job that pays less than the old job; and

  • Full tuition for up to four years if the worker chooses to attend school.

How Many Workers
Will Lose Their Jobs?
An estimated 27 percent of all health care delivery workers were employed in administrative jobs in 1997 compared to 18.4 percent in Canada. Administrative jobs include managers, clerical and financial workers in hospitals, nursing homes and doctor’s offices. In addition, the thousands of private insurance companies employ 1,667 workers per one million residents compared to 145 per million residents in Canada.

Table Two: Job Dislocation Under Just Health Care
(1997 figures)
13
Job Type   Current
 Jobs
  Just Health
Care Jobs
  Jobs
Lost
Health managers & related 1,079,410 735,598 343,812
Administrative support (non-financial)   1,766,460   1,203,810   562,650
Administrative Support (financial)   360,737   245,836   114,901
Health Insurance Industry   266,720   39,150   227,570
Total Job Loss   1,248,934

How Much Will a
Just Transition Cost?
To provide four years of full pay and benefits or wage subsidies to the nearly 1.25 million workers dislocated will cost an estimated $150 billion.14 If 50 percent of the workers also opted for tuition costs for two years @$15,000 per year, the tuition cost would be $18 billion. The total Just Transition will cost approximately $168 billion. In reality, these figures could be much lower if a large number of workers return to work quickly and if the transition works to move them to newly created jobs to provide health care for the previously uninsured and to offer new services such as long-term care. But by budgeting generously, these workers will have a number of options available to them.

The GI Bill of Rights: Example
of a Successful Just Transition
In 1944, faced with the possibility of mass unemployment when millions of U.S. veterans returned from World War II, Congress passed the GI Bill of Rights. The idea was simple: pay returning veterans a living wage to go to school, redefining "work" while the economy made the transition from war to civilian production. The GI Bill of Rights provided government funds for education including tuition, lab fees, books, health insurance and supplies. In addition to tuition, students received up to $1,440 per year for living expenses. A 1988 congressional analysis15 of the program showed it to be a major success: for every dollar the government invested, the return was $6.90. According to the report, about 40 percent of those who took advantage would not otherwise have attended college. The additional education led to higher wages for the GIs and more taxes for the government.

How Will We Pay
for Just Transition?
Just Health Care imposes a 3.3 percent payroll tax on all employers. Employers currently paying for part or all of their employees’ health care (an estimated $224.5 billion), would be poised to reap a significant windfall. With the 3.303 percent payroll tax, total health care costs will be only $126.7 billion – a savings of $97.81 billion per year.16

The windfall could, of course, be captured for health spending or retained by employers giving workers leverage in bargaining for higher wages or to allow investors to recoup some of the surcharges they will pay in income taxes, stock and bond transaction fees and the closing of corporate tax shelter loopholes.

Just Health Care proposes instead to fund the Just Transition for health industry workers by capturing a share of the employer windfall over the first three years of the new system. In other words, employers that currently pay for health insurance will continue to pay all or part of the higher rate for the first three years.

In the first year, all of the windfall profits will go to the Just Transition fund. In the second year, half will go to the fund with employers keeping the other half and in the third year, 25 percent will go to the fund and 75 percent kept by employers. In the fourth and subsequent years, employers will keep 100 percent of the windfall, paying only the 3.3 percent payroll tax each year.

Table Three:
Allocation of Windfall to Fund Just Transition
  Just Transition Employers
Year One $98 billion 100% $0 0%
Year Two $49 billion 50% $49 billion 50%
Year Three $24.5 billion 25% 73.5 billion 75%
Year Four $0 0% $98 billion 100%
Total $171.5 billion $171.5 billion

What Will Workers Pay
Under Just Health Care?

In 1997 the average household in the United States spent $1,841 on health care – premiums, co-payments, doctor and hospital bills, prescription drugs and medical supplies – a $700 increase from 1987.17 As health care costs escalated in the past two decades, employers increasingly shifted health costs to employees. In 1980, only a quarter of employees who obtained their medical insurance through their employer were required to contribute for single coverage and just under half had to pay for family coverage. By 1995, two-thirds of full-time employees with employer-based medical insurance contributed to the cost of single coverage and 80 percent contributed to the cost of family coverage.18 Under Just Health Care, income taxes will increase only for those taxpayers with average incomes of $183,200 and above. Workers will enjoy a lifetime of quality health care while paying less. By eliminating premiums, co-payments, deductibles and most out-of-pocket costs, 95 percent of taxpayers will save money under Just Health Care.

Notes
(Click on the footnote number to return to text.)

1U.S. Bureau of the Census Statistical Abstract of the United States 1996. Washington, DC: U.S. Government Printing Office, 1996.

2Current Population Survey. Washington, DC: U.S. Census Bureau, 1999.

3The estimates for 1999 are derived by taking 1992 data in Cathy A. Cowan and Bradley R. Braden "Business, Households and Government: Health Care Spending 1995" Health Care Financing Review (Spring 1997) Vol. 18. No. 3, p. 196 and inflating by the overall rise of health care expenditures as cited in National Health Expenditures, by Source of Funds and Type of Expenditure: Selected Calendar Years 1993-1998 (Table 3) Health Care Financing Administration, Office of the Actuary, National Health Statistics Group (http://www.hcfa.gov/stats/nhe-oact/tables/t3.htm).

4David U. Himmelstin, MD and Steffie Woolhandler, MD, MPH and the Writing Committee of the Working Group on Program Design "A National Health Program for the United States: A Physician’s Proposal" New England Journal of Medicine 320:102-108 January 12, 1989. Steffie Woolhandler, MD, MPH and David U. Himmelstein, MD, "The Deteriorating Administrative Efficiency of the U.S. Health Care System," New England Journal of Medicine 1991; 324:1253-8. Steffie Woolhandler, MD, MPH, David U. Himmelstein, MD and James P. Lewontin, "Administrative Costs in U.S. Hospitals," New England Journal of Medicine 1993; 329: 400-3. Unpublished updates by the authors.

5Average wage for 1998. National Average Wage Index, Social Security Administration, October 19, 1999 (http://www.ssa.gov).

6Dean Baker. Taxing Financial Speculation: Shifting the Tax Burden From Wages to Wagers. Washington, DC: Center for Economic and Policy Research, February 2000.

7"The Bull Market: Is the Stock Boom a Bust for Workers?" Paycheck Economics. Vol. 1, No. 2. Washington, DC: Economic Policy Institute, May 1999, p. 3.

8"The Budget and Economic Outlook: Fiscal Years 2001-2010" Washington, DC: Congressional Budget Office, January 2000 (corrected 2/1/00) (http://www.cbo.gov/).

9Because the employer windfall goes to pay for Just Transition in the first three years of implementation, additional tax revenues will take effect fully only after the transition period.

10David Cay Johnston. "Corporations’ Taxes Are Falling Even as Individuals’ Burden Rises." New York Times, February 20, 2000 and David Cay Johnston. "U.S. Takes Aim at Tax Shelters for Companies." New York Times, February 29, 2000.

11Edith Rasell and Kainan Tang. Paying for Health Care: Affordability and Equity in Proposals for Health Care Reform Working Paper No. 111. Washington, DC: Economic Policy Institute, December 1994, p. 27.

12Les Leopold. "The Case for Making Workers Whole: No Net Loss" Workshop on the Transition to Virtual Elimination: Dioxins and Furans as a Case Study March 30-31, 1995 International Joint Commission. New York: Labor Institute, 1995.

13David Himmelstein and Steffie Woolhandler. "Who Administers? Who Cares? The Medical Care Workforce in the U.S. and Canada" American Journal of Public Health 1996 Vol. 86 pp: 172-178 and updates by the authors. Unpublished analysis of 1998 Current Population Survey by David Himmelstein and Steffie Woolhandler.

14Analysts at the Labor Institute and the Center for National Health Program Studies arrived at these estimates via two separate methods, generating nearly identical results. Method one multiplies the job dislocation estimates by the average wage for each category. A second method uses data developed through studies of mass layoffs during the 1980s which look at income lost to workers due to unemployment and to taking jobs at lower wages (Louis Jacobson, Robert LaRonde, Daniel Sullivan. The Costs of Worker Dislocation. Kalamazoo, MI: W.E. Upjohn Institute, 1993, pp. 137-171).

15A Cost-Benefit Analysis of Government Investment in Post-Secondary Education Under the World War II GI Bill. Washington, DC: Subcommittee on Education and Health of the Joint Economic Committee, December 14, 1988.

16Total wages of $4.5772 trillion (public and private) as reported by the Economic Report of the President: Transmitted to the Congress February 2000. Washington, DC: U.S. Government Printing Office, 2000 (Table B-26, 1999 4th quarter projections).

17"What the Nation Spends on Health Care: A Regional Comparison" Issues in Labor Statistics. Washington, DC: U.S. Department of Labor, Bureau of Labor Statistics, July 1999. (http://stats.bls.gov/opub/ils/pdf/opbils18.pdf).

18"Employee Medical Care Contributions on the Rise" Issues in Labor Statistics. Washington, DC: U.S. Department of Labor, Bureau of Labor Statistics, April 1998 (http://stats.bls.gov/opub/ils/pdf/opbils18.pdf).

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