2021: Financial Analysis

Author: Gerald Friedman, Professor of Economics, University of Massachusetts at Amherst

Published: November 2010, UPDATED July 2021

Legislation Analyzed: An Act Establishing Medicare for All in Massachusetts (S.766, 192nd session)

This report analyzes the economic effects of An Act Establishing Medicare for All in Massachusetts, which  would establish a comprehensive, universal health insurance program for all Massachusetts residents. The Act  would replace the current multi-payer system of employer-based insurance, individually acquired insurance, and  federally sponsored programs (e.g., Medicare and Medicaid) with a single billing pipeline, the Massachusetts  Health Care Trust, thereby reducing administrative bloat and monopolistic pricing and dramatically reducing  the cost of health care even while extending and improving the provision of care.

Because health care spending in Massachusetts has risen faster than income, the share of the  Commonwealth’s wages spent on health care and the administration of the health care system has risen  from 9% in 1991 to over 11% in 2019, and increasing into the future. The average cost of an employer provided family plan in Massachusetts has risen to over $21,000, even with an average family deductible  of over $3,100. Because of the rising cost of health insurance and rising copayments and deductibles, growing  numbers of our residents are prevented from receiving needed health care.

The proposed Act would reduce burdensome billing expenses, administrative waste in the insurance industry,  monopolistic pricing of drugs and medical devices and in hospitals, and fraud. Some savings would be used to  finance system improvements but after expanding coverage to the uninsured, removing barriers to access, and  correcting the underpayment of Medicaid services, the Act would save $34 billion in the first year alone.  Furthermore, by reducing the number of people without health care, these improvements would save lives.

Current “System”: $102,365,000,000
Improvements: $6,659,000,000
Single Payer Savings: -$34,115,000,000
Single Payer System: $74,909,000,000

Existing Revenue: $55,700,000,000
New Revenue: $25,898,000,000
Total: $81,598,000,000

The Massachusetts Health Care Trust would be financed with existing Federal revenue and payroll assessments  based on ability to pay and assessments on non-payroll taxable income (e.g., capital gains, dividends and  interest). These would fund health care in Massachusetts while reducing the burden on the sick, the poor, and  the middle class. While the largest savings would go to working households earning less than $75,000,  over 98% of Massachusetts households would spend less on health care under the Act than they do now.

By lowering the burden of health insurance on business and improving workers’ health, the Act would make  businesses in Massachusetts more competitive. Investment would be drawn to Massachusetts to take advantage  of the reduced cost of hiring workers. Separating health insurance from employment would free entrepreneurial  energies, creating thousands of new jobs and raising productivity and income.