Economic Effects of Five Illustrative Single-Payer Health Care Systems: Working Paper 2022-02

By Jaeger Nelson.

This paper builds on previous studies published by the Congressional Budget Office about single-payer health care systems. It uses a general-equilibrium, overlapping-generations model to analyze the economic and distributional implications of five illustrative single-payer health care systems. The systems vary by their payment rates to providers, degree of cost sharing, and inclusion of benefits for long-term services and supports (LTSS). The economic effects of financing a single-payer system are beyond the scope of this paper. However, the results can be paired with some of CBO's previously published estimates of the economic effects of financing a large and permanent increase in government spending.

We analyze six channels through which a single-payer system would affect the economy:

• The composition of workers’ labor compensation would change because employers would no longer provide health care benefits and would pass along the savings to employees, increasing their taxable wages.
• Households’ health insurance premiums would be eliminated, and their out-of-pocket (OOP) health care costs would decline.
• Administrative expenses in the health care sector would decline, freeing up productive resources for other sectors and ultimately increasing economywide productivity.
• Reduced payment rates to providers would increase productivity and efficiency in providing health care; however, some of the reduction in payment rates would be passed through to workers’ wages in the health care sector and throughout the supply chain.
• Longevity and labor productivity would increase as people’s health outcomes improved.
• LTSS benefits would further reduce OOP spending, provide payments for care that is currently unpaid, increase wages among workers providing care, and allow some unpaid caregivers to increase their hours worked at their primary occupation.

In this analysis, we found that economic output would be between 0.3 percent lower and 1.8 percent higher than the benchmark economy 10 years after the single-payer system was implemented, without incorporating the effects of financing the system. Under a single-payer system, workers would choose to work fewer hours, on average, despite higher wages because the reduction in health insurance premiums and OOP expenses would generate a positive wealth effect that allowed households to spend their time on activities other than paid work and maintain the same standard of living. If the system was financed with an income or payroll tax, gross domestic product (GDP) would be between approximately 1.0 percent and 10 percent lower by 2030, depending on the specification of the single-payer system and the details of the financing policy.

Moreover, that wealth effect would boosts households’ disposable income, which they could then split between increased saving and nonhealth consumption. Although hours worked per capita would decline, the effect on GDP would be offset under most policy specifications by an increase in economywide productivity, an increase in the size of the labor force, an increase in the average worker’s labor productivity, and a rise in the capital stock. Additionally, we found that average private nonhealth consumption per capita would rise by about 11.5 percent by 2030. The average rise in nonhealth consumption is larger than it would be if the effects of financing the system were included in the analysis. The effects of a single-payer health care system on nonhealth consumption would be felt differently by people of different ages and incomes. The percentage increase in lifetime nonhealth consumption would be largest among younger and lower-income households after the system was implemented. If the system was financed with an income or payroll tax, nonhealth consumption per capita would be between approximately 3 percent higher and 7 percent lower by 2030, depending on the specification of the single-payer system and the details of the financing policy.