How CBO Analyzes Proposals for a Single-Payer Health Care System

Posted by
Phill Swagel
December 10, 2020

Establishing a single-payer health care system in the United States would be a major undertaking, which would involve substantially changing the sources and extent of health insurance coverage, payment rates for providers, and financing methods for health care. In a 2019 report, CBO described some of the key considerations for designing a single-payer system. Such a system is one of several approaches to achieving near-universal health insurance coverage that CBO compared in a report published earlier this year.

Today, CBO published a technical description of the methods it developed to analyze the federal budgetary costs of proposals for single-payer health care systems that would be based on Medicare’s fee-for-service program. Five illustrative options for such a system show how differences in providers’ payment rates, patients’ cost sharing, and the system’s coverage of long-term services and supports would affect the federal budget in 2030 and other outcomes. In future analyses, CBO will examine the macroeconomic effects of stylized ways to finance a single-payer system and the macroeconomic effects of a single-payer system itself.

Effects on the Health Care Sector

CBO projects that federal subsidies for health care would be $1.5 trillion to $3.0 trillion higher in 2030 under the illustrative single-payer options than they would be in that year under current law. (The current subsidies include federal spending on health care programs plus forgone revenues from tax preferences for health benefits.) As a result, the share of total U.S. health care spending financed by the federal government would be larger than under current law. The single-payer options would change total national health expenditures (NHE) in 2030 by amounts ranging from a decrease of $0.7 trillion to an increase of $0.3 trillion. Lower payment rates for providers and reductions in payers’ administrative spending are the most important factors tending to reduce NHE, and greater use of health care is the most important factor tending to increase NHE.

Under the design specifications for a single-payer system that CBO analyzed, health insurance coverage would be nearly universal, and total out-of-pocket spending on health care would be lower—both of which would increase the demand for health care. The supply of health care would rise because there would be fewer restrictions on patients’ use of care and on providers’ billing, providers would spend less money and time on administrative activities, and they would provide more services in response to the increase in demand. The amount of care that people use would rise, and in that sense, overall access to care would be greater. The increase in demand for health care would exceed the increase in supply, resulting in more unmet demand compared with the amount under current law, CBO projects. (Those effects on overall access to care and unmet demand would occur simultaneously because people would use more care and would have used even more if it were supplied.) The increase in unmet demand would correspond to greater congestion in the health care system—including delays and forgone care—particularly under the illustrative options that include lower cost sharing and lower payment rates.

Effects on the Economy

Because the single-payer options that CBO examined would greatly increase federal subsidies for health care, the government would need to implement new financing mechanisms—such as raising existing taxes or introducing new ones, reducing certain spending, or issuing federal debt. As an example, if the government required employers to make contributions toward the cost of health insurance under a single-payer system that would be similar to their contributions under current law, it would have to impose new taxes.

In a paper to be published early in 2021, which will provide economic analysis outside the scope of today’s publication, CBO will assess how various highly stylized ways to finance a large increase in federal spending would affect the economy. For instance, increases in income taxes would reduce incentives to work and to invest in productive capital (such as equipment), thus holding down future economic growth.

In addition to its financing mechanisms, a single-payer system itself would affect the U.S. economy in multiple ways. In another paper, to be published in the spring of 2021, CBO will assess the macroeconomic effects of single-payer systems that are based on Medicare’s fee-for-service program—including their effects on private saving, the capital stock of the economy, and long-term output—separately from the effects of financing mechanisms.

Phillip L. Swagel is CBO’s Director.