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Because of the potential for huge losses in jobs and payroll, the State of Maryland should think long and hard before establishing a universal health care system according to a report by the Beacon Hill Institute. Universal health care has emerged as a major issue in Maryland with proponents citing both a need to expand coverage to all citizens at cost savings not realized by the current system.
However, proponents seem unwilling to consider the costs that implementation of universal health care might inflict on the state's economy. Yet, such costs are an inevitable, if unwanted, byproduct of the sweeping increases in tax rates or employer costs that its implementation would necessitate.
The devil, as usual is in the details, and the details about how universal health care would be implemented remain unclear. Nevertheless, it is likely that the system would take one of four forms: 1) expanding Medicaid 2) creating a pool for the uninsured, 3) establishing a play or pay or multi-payer systmer, or 4) establishing a single-payer system.
Applying its State Tax Analysis Modeling Program (Maryland-STAMP) to Maryland, BHI found that all four approaches would incur major costs. Maryland-STAMP shows how each method of implementing universal health care would affect employment, payroll, tax revenues and the capital stock, which is the stock of factories, office buildings, machine tools, computers and other forms of private fixed non-residential capital.
The loss in jobs and payroll depends on whether a particular system would be financed mainly from business payrolls or mainly from taxes and on how far-reaching any plan might be.
All four health care systems would require the state to raise additional tax revenues, ranging from $565 million for the multi-payer System to nearly $12 billion for the single-payer System in 2002.
Given the magnitude of the revenues involved, the state would ultimately have to turn to the personal income tax to defray its portion of the costs of providing universal health care. This is owed to the unreliability – and to a degree, the unpopularity – of other revenue sources for funding a large program such as universal health care.
The required increase in the personal income tax rate would exert negative “dynamic” effects on the state economy. In order to raise the new revenue needed to fund a single-payer system, for example, the state would have to raise the average effective personal income tax rate by 233%, from the projected 2002 effective rate of 5.01% to 16.69%. The shrinkage in payroll brought about by this increase in the tax rate would in and of itself cause the state to incur a revenue loss of $746 million. The state would therefore have to increase tax rates enough to raise $12 billion in revenues, after adjusting for this “dynamic” revenue loss.
Health insurance costs would change under the multi-payer system and the single-payer system. Under the former, employers would incur $1.14 billion in additional health insurance costs as they extended coverage to currently uninsured employees.
Under the single-payer system employers would save $7,7 billion in health insurance costs. This would, in turn, induce employers to engage in $14.9 billion in new capital spending. The negative effects on jobs and payroll would, however, be much larger. See table nearby.
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This page was updated on 9/9/02 4:40 PM
