Funding Universal Health Care in the Commonwealth of Massachusetts
January 2026 by
Auden Cote-L’Heureux, Master’s student in economics, University of Bonn
and
Gerald Friedman, Professor of Economics, University of Massachusetts Amherst
Funding Universal Health Care in the Commonwealth of Massachusetts explores the expenses and revenue of the single payer health plan that An Act Establishing Medicare for All in Massachusetts (filed in January 2025) would enact, as if it took effect in 2026.
This bill would establish the Massachusetts Health Care Trust to pay health care costs.
Savings and Costs of Expansion
The net effect of a single payer is to lower health care spending by $29.87 billion (23% of current spending) in the first year alone with savings increasing each subsequent year, while saving lives, expanding care, reducing practitioner burnout, and promoting the solvency of community hospitals and health centers.
We calculate current annual health care expenditures at $128.57 billion. Switching to single payer would eliminate $54.53 billion of unnecessary spending (over 42% of current spending) by reducing burdensome billing expenses; administrative waste in the insurance industry; monopolistic pricing of drugs and medical devices and in hospitals; and fraud.
About half of that savings, $24.67 billion, would be used to finance health care improvements: expanding coverage to the uninsured, removing barriers to access, and correcting the underpayment of Medicaid and Medicare services.
Eliminating unnecessary spending: $54.53 billion
Savings used to improve health care: -$24.67 billion
= Savings returned to the economy: $29.87 billion
Of the savings used to improve health care, $11.76 billion will go towards expanding coverage to uninsured individuals and improving the coverage of under-insured individuals. The remaining savings used to improve health care primarily goes towards raising Medicare and Medicaid price rates.
The savings returned to the economy is money that would be spent on health care in the current system. In the first year alone, the proposed Act would bring down total health care costs from $128.57 billion to $98.70 billion in 2026.
Current health care expenditures: $128.57 billion
Savings returned to the economy: -$29.87 billion
= Expenditures under a single payer system: $98.70 billion, about 23% less than current spending.
The gross savings comes from six main sources (Figure ES1). The Act will reduce private insurance’s administrative costs to current Medicare levels, saving about $9.40 billion in insurance administration and $14.35 billion in provider administration, double the amount needed to pay for expanding coverage alone. The Trust will negotiate provider prices. Our methodology assumes the Trust will on average pay 110% of current Medicare rates. Additional savings would result from simplified billing and payment processes, allowing providers to avoid the high administrative burdens associated with private insurance. Though average payment rates would be lower than those currently paid by private insurers, physicians’ incomes are expected to increase due to rates above Medicare and Medicaid levels and higher service use, particularly among individuals who are currently uninsured or under-insured.
Lowering hospital prices to Medicare rates plus 10% would save $15.81 billion dollars in 2026, compelling hospitals to lower inflated managerial salaries and make for-profit hospitals less beholden to shareholders by reducing room for profit making. We also anticipate saving $4.65 billion by reducing physician prices to Medicare rates plus 10%.
Lower pharmaceutical drug prices would provide another area of savings. A single agency negotiating prices for seven million residents, just like the Veterans Administration, should be able to obtain dramatically lower prices. Bringing drug and medical device prices down by about 45% would save $6.25 billion.
Revenue
The Massachusetts Health Care Trust would be financed with existing Federal and State revenue (Medicare, Medicaid, and other programs, totaling $63.09 billion) plus four new taxes that replace and are much lower than current insurance premiums, co-pays, deductibles, and other out-of-pocket payments. This includes the health insurance premiums that are part of auto, homeowners, other property insurance, and Workers Compensation. Each tax has a $20,000 exemption.
- Employers will pay 7.5% of payroll (8% if employing 100 or more).
- Employees will pay a 2.5% tax on wages and salaries. Employers could agree to pay this tax without it being income to employees.
- The self-employed will pay 10% of net income.
- Certain non-payroll income (e.g., capital gains, dividends, and interest) will be taxed at 10%.
These health care taxes raise $46.01 billion. The total amount raised would be $109.1 billion, more than enough to cover the cost of a single payer health care system. This leaves the Trust with a $10.4 billion surplus for contingencies in 2026.
This taxation system also leaves everyone earning less than $500,000 per year able to save a substantial percentage of their yearly income that they would otherwise spend on health care, plus an additional income of about $5,000 in the first year (and increasing in subsequent years) from added productivity due to better health (resulting from a more streamlined system of care) and macroeconomic feedback effects. 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.
Figure ES2 below shows the amount currently wasted in individual health care spending relative to projected individual health care spending after implementation of single payer. Red bars indicate that low-income individuals currently spend more on health care than what they would spend under single payer, and blue bars indicate that high-income individuals’ will spend more on health care than they currently do, due to taxation. The bin labeled “$30,000” includes only individuals earning between $15,000 and $30,000 annually; the bin labeled “$40,000” includes only individuals earning between $30,000 and $40,000, etc.
