Why It’s Hard to Calculate the Cost of Single Payer in the United States

by Benjamin Studebaker

Lately there has been some back and forth in the states over the expected cost of single payer healthcare. There is a lot of disagreement over how much single payer will cost because single payer grants the state a monopoly over the healthcare system. This means that the state can dictate how much it is going to pay its doctors, its administrators, its nurses, its drug and equipment manufacturers, and so on. Because the state can dictate the cost of single payer, the true cost of the proposal depends on how much the particular people implementing the proposal intend to spend.

Right now, the United States spends about $3.3 trillion on healthcare, equivalent to nearly 18% of GDP. In Britain, the NHS costs the government around 7% of GDP. This is a big gap–America is spending more than twice as much:

So when we talk about single payer, are we talking about a government healthcare system which has to pay 18% of GDP–$3.3 trillion every year–or are we talking about a system which pays 7% of GDP (about $1.3 trillion)? If we spend 7% of GDP, we’re saving Americans $2 trillion dollars. If we spend 18% of GDP, we don’t save a dime.

The decision about how much to spend is a political decision, and it’s all about how much money we need to offer healthcare professionals to incentivise them to do their jobs well. If we make big cuts and this causes healthcare professionals to leave the profession, the quality of our healthcare would deteriorate alongside the cost.

In Britain, this question about how much to spend on the NHS is negotiated and renegotiated over and over. Some British governments look to save taxpayers money by reducing NHS spending, while other British governments look to improve the quality of the service by raising spending. The NHS used to cost a lot less than it does today, but the government expanded the budget significantly in the 00’s to account for Britain’s ageing population. Beginning in 2010, that government was replaced with a government dedicated to reducing the spending level once again:

Generally, reductions in spending occur slowly because of the political resistance which NHS cuts face, both from the healthcare sector unions and from voters.

Of course, if single payer were introduced in the United States, one of the principal justifications would be cost reduction, and single payer would certainly give the federal government the tools to drastically reduce healthcare spending. The question is how far it would be willing to use those tools. Left wing politicians will tell us they’d be willing to go quite far–the further they are willing to go, the more affordable the proposal looks. But right wing think tanks want to make the proposal look unaffordable, so they will claim that costs will not be reduced much if at all.

The truth is that nobody really knows what percentage of GDP the United States would spend on healthcare if it implemented single payer, because nobody knows what level of spending would be politically acceptable in the United States, because nobody has ever tried to implement single payer before at the federal level. We don’t know what level of spending our healthcare professionals will tolerate, and we don’t know what level of spending (and what level of taxation) our voters will consider acceptable.

Because we don’t know these things, it is a waste of time to try to calculate the exact cost of single payer before these political negotiations take place. All studies which claim to know what would happen are taking you for a ride. At best, we can say that single payer would give the federal government the legal power to lower healthcare costs, but we don’t know to what extent that power would in practice be exercised. Over 10 years, single payer could cost $33 trillion (if we continued spending 18%) or it could cost $13 trillion (if we spent 7%). Most likely we would end up somewhere in the middle. What we can say is that while single payer would involve tax increases, it would almost certainly leave most households with more discretionary income, insofar as the state would use the power single payer gives it to lower per capita healthcare costs some distance. Though the precise distance–and therefore the precise savings–are impossible to know in advance.

That’s about all anybody can tell you about what a national single payer program costs in the United States. The rest is noise.