INTRODUCTION

Proponents of “single payer” health care are pushing New Yorkers to take a multi-billion-dollar leap of faith.

Their bill, known as the New York Health Act, would abolish the state’s existing insurance system and commit taxpayers to fully financing the medical care of 20 million people – an open-ended expense of more than $300 billion per year.

To finance this takeover, the bill mandates a massive tax hike – yet fails to specify how much more families and businesses would have to pay. The legislation leaves Albany to figure out those crucial details later, after a costly new entitlement has been written into law.

This ill-defined plan would disrupt the health-care system in unpredictable and potentially harmful ways, as discussed in previous Empire Center reports.ⁱ This analysis focuses on the impact of its unprecedented tax increases, which could not help but ripple into every corner of the state’s economy.

Despite the proposal’s blank spots, some of its tax consequences can be foreseen:

• The necessary tax hike would likely be the largest ever enacted by any state.
• New York’s tax burden, already high, would become an extreme outlier.
• Some people might save money, but others would pay substantially more.
• The incentives for tax migration would balloon to unprecedented levels.
• Even a small amount of migration would decimate the tax base.
• Health funding would become more vulnerable to booms and busts.
• Rising medical costs would create pressure for further tax hikes.

A tax increase on this scale assures that single-payer would not only reshape the health system, but also disrupt the larger economy in unpredictable ways – creating a risk of harms that could outweigh any potential benefits.

Switching to a fully government-run, taxpayer-financed health plan would be a profound step no other state has successfully taken. It would affect both the physical health and economic well-being of every New Yorker.

It should be unthinkable that lawmakers would enact single-payer without clearly stating what it would cost and where the money would come from.

BACKGROUND

The New York Health Actⁱⁱ aims to establish a single, taxpayer-financed health plan to cover every resident of New York State. It would replace all existing forms of coverage, including private, employer-sponsored insurance and government-operated plans such as Medicare and Medicaid.

Sponsored in the Assembly by the long-time chairman of the Health Committee, Richard Gottfried, D-Manhattan, the bill has passed that house five times: in 1992, when it was first introduced, and each year from 2015 to 2018.

The act was carried in the Senate by Health Chairman Gustavo Rivera, D-Bronx. It has never come to a vote in that chamber, but 33 of 63 senators are listed as cosponsors.

The proposed statewide health plan’s budget would start with what the government already spends on health coverage through Medicare, Medicaid and similar programs. The state would either take direct control of that money – which would require extensive and unprecedented cooperation from Washington – or the new plan would operate as “wraparound” coverage to supplement those programs.

The state would then need substantial additional funds to a) replace private insurance premiums currently paid by employers and individuals, b) expand coverage to about 1 million New Yorkers who are currently uninsured, and c) eliminate consumers’ out-of-pocket costs such as copayments and deductibles.

To raise that money, the legislation calls for two new taxes: a tax on payroll income (with an 80-20 split between employers and employees) and a tax on income from non-payroll sources, such as businesses and investments. Both levies would be “progressively graduated,” with higher amounts of income taxed at higher rates, and both would exempt the first $25,000 of income.

However, the legislation does not specify the rates or income brackets for either of the new taxes, leaving those details to be hammered out by the governor and Legislature a year after the plan is enacted into law.

Also unclear is the amount of revenue these taxes would need to raise – because the bill does not make clear how much health-care providers would be paid for their services. That complex and politically dicey task is also postponed until after the law is on the books.

In the absence of hard facts, the debate over the New York Health Act has revolved around speculation, as various commentators have developed wide-ranging projections of the tax impact based on disparate estimates of the plan’s cost.

At the low end, an economics professor from the University of Massachusetts at Amherst (and an avowed supporter of single-payer) predicted in 2015 that the New York Health Act would dramatically reduce the state’s overall health spending by avoiding administrative costs and negotiating deep discounts on drugs.ⁱⁱⁱ

Still, he found the state would need $92 billion in additional annual revenue, nearly doubling the state’s total tax burden.

At the high end, the Foundation for Research on Equal Opportunity in 2017 projected single-payer would require $226 billion in new revenues – more than tripling the tax burden.^iv

In 2018, the New York State Health Foundation commissioned an analysis by the non-partisan RAND Corporation which estimated the size of the necessary tax hike at $139 billion, which at the time was the equivalent of a 156 percent increase in the state’s total collections. RAND estimated the cost would increase to $157 billion if the plan added coverage for long-term care, a change the act’s sponsors made in 2019.^v

Based on their cost estimates, the report’s authors also developed a tax schedule consistent with the bill’s requirements that would raise the necessary amount of revenue (see figures 1 and 2).

Source: RAND Corp. *Non-payroll tax adjusted for cost of long-term care

RAND based its analysis on several optimistic assumptions, including that the federal government would grant New York unprecedented waivers of various laws and regulations, that high-income residents would not move away or otherwise avoid higher taxes, and that the state would operate the plan “efficiently.” If any of these assumptions prove mistaken – which seems likely – the state’s actual costs would be higher, perhaps significantly so.

Another caveat is that some of RAND’s projections are out of date. The year after it was published, the plan’s sponsors amended the bill in two major ways – adding long-term care as a fully covered benefit and exempting incomes below $25,000 from the new taxes. RAND had provided alternative tax rates for each of these scenarios separately, but not together.

Still, RAND’s estimates and projected tax rates remain the most thoroughly documented and widely cited. In the absence of a more in-depth study, this analysis relies on the RAND findings as a baseline for discussion, recognizing that the actual costs and tax effects of single-payer could be substantially larger.

Sources: Tax Foundation, RAND Corp.

FINDINGS

The tax hike would be of historic proportions.

In both absolute and relative terms, the tax hike necessary to finance the New York Health Act would far outstrip anything previously attempted in state history.

RAND’s estimate of the first-year cost, at $157 billion, would represent a 133 percent increase in total tax receipts compare to the status quo. In other words, a state with some of the heaviest taxes in the country would be much more than doubling what it collects from individuals and businesses in a single stroke.

The scale would be unprecedented even by federal standards. The biggest tax increase ever enacted by Washington – levied in 1942 as the U.S. geared up for World War II – was worth just over 5 percent of the nation’s gross domestic product.^vi By comparison, the $157 billion hike projected by RAND would equate to 8.4 percent of the state’s gross domestic product.^vii

New York’s tax burden, already high, would become an extreme outlier.

The tax hike as estimated by RAND would equate to about $7,800 for every resident of the state.

That would push New York’s per capita state-and-local tax burden – already the highest in the U.S. – from 82 percent higher than the national average to 226 percent higher (see Figure 3).^viii

Source: Tax Foundation, with Empire Center analysis

Some families and businesses would save money; others would pay more.

The New York Health Act would replace the insurance premiums that individuals and businesses currently pay with a progressively graduated tax structure. This would generally redistribute the costs of health care from lower-income to higher-income New Yorkers, causing some people to save money and others to pay more. The ratio of winners to losers would depend on details, such as rates and brackets, that the bill does not specify.

Under the scenario envisioned by RAND, about 65 percent of residents would save money compared to what they currently pay, 4 percent would pay about the same and 31 percent would face higher costs than the status quo.^ix

Using its optimistic assumptions, RAND estimated that overall health spending would dip by about 2 percent.^x This means that most of the projected tax savings would be the result of cost-shifting. Almost every dollar saved by one family would be an extra dollar paid by someone else.

Businesses, too, would be divided into winners and losers. Those that don’t currently provide health benefits would have to pay 80 percent of the payroll tax, a significant new expense. Employers that do offer benefits would see their costs rise or decline depending on their particular mix of higher and lower salaries. Lower-paying chain stores and fast-food enterprises would be more likely to save money. Higher-paying employers – medical practices, law firms, investment companies, high-tech start-ups – would tend to pay more.

Again, there’s no way of knowing exactly which families and businesses would win or lose without more detail on how the plan and its tax system would work.

The incentives for tax migration would balloon.

Regardless of the details, any large-scale, progressively structured state-imposed tax would increase the incentive for higher-income New Yorkers and higher-wage businesses to move to lower-tax states.

Under RAND’s scenario, a self-employed surgeon with taxable income of $600,000 would owe a single-payer tax of more than $130,000. That’s about five times more than the premium for family coverage in the status quo.

If RAND’s hypothetical single-payer taxes were combined with existing income taxes, the top marginal rate for higher-income New Yorkers would jump to 36 percent statewide – or 39 percent for those subject to New York City’s income tax. Those rates are six times higher than the average among the 42 states that have any income tax and almost three times higher than the second-highest rate, in California (see Figure 4).

Several of New York’s economic competitors – Florida, Texas and the state of Washington – have no income tax.

For wealthy individuals, the cost of staying in New York would become extreme. A financier with taxable income of, say, $100 million annually would stand to save tens of millions in taxes each year by moving anywhere else.

Sources: Tax Foundation, with Empire Center analysis

Of course, lawmakers could try to mitigate the risk of tax flight by choosing a flatter rate structure than the one envisioned by RAND. But that would shift costs toward middle-income New Yorkers – and reduce the number who would save money compared to the status quo.

Even a small amount of migration would decimate the tax base.

The RAND study did not attempt to forecast how many high-income residents would leave the state in response to a tax hike of this scale. It did, however, lay out the potential consequences – and found that “even a small degree of out-migration could substantially erode the non-payroll tax base, particularly if migration were concentrated among the wealthiest filers.”^xi

If the top one-half of 1 percent of tax filers left the state, RAND estimated that the state’s health plan would lose $33.5 billion of its annual revenue. To make up for that loss from a diminished income base, single-payer tax rates would have to more than quadruple – to a high of 88.4 percent for the top bracket.

Here is how the RAND study summarized the situation:

On the one hand, this progressive tax schedule reduces average health care payments for much of the population and could dramatically reduce costs for some groups, such as poor individuals who are currently enrolled in [employer-sponsored insurance]. On the other hand, the viability of this tax schedule depends on the assumption that few high-income people find ways to avoid taxation, such as by migrating out of the state or taking advantage of tax shelters or loopholes. If only a small percentage of the highest-income residents found ways to avoid taxes, such as through migration, the schedule would need to be reworked, potentially increasing the burden on middle- and lower-income residents.^xii

Health funding would be subject to booms and busts.

Under the New York Health Act, funding for health care would become heavily dependent on tax payments from wealthier New Yorkers, which fluctuate widely because their income largely consists of capital gains and bonuses that rise and fall with the stock market.

Between 2007 and 2009, for example, the Great Recession caused incomes above $1 million per year to plunge by 47 percent, while incomes below $1 million dropped by just 3 percent.^xiii Under RAND’s tax schedule, the loss of income at the high end would have reduced single-payer revenue by tens of billions of dollars.

In such a scenario, lawmakers would face a choice between further raising taxes, cutting funding for medical care or a combination of both in the middle of economic hardship.

Premium-based health insurance, by contrast, is relatively recession-proof.

Rising medical costs would create pressure for further tax hikes.

Even in a growing economy, medical spending typically increases faster than inflation and often outstrips the growth rate of the overall economy and the state’s tax revenues.

In the context of Medicaid, the difficulty of containing costs has triggered budget crises even in flush times. Two years ago, for example, Medicaid threatened to overrun its budget by several billion dollars, leading lawmakers to make cuts to the program in early 2020, just as the pandemic was taking hold.

A statewide single-payer system could be expected to face the same budget-balancing challenge on a far larger scale – potentially involving recurring deficits in the tens of billions of dollars.

Even if state officials kept the system’s cost growth tightly in check, they would still face pressure to find more revenue – meaning the first single-payer tax hike might not be the last.

The RAND study assumed that single-payer would contain the growth of health spending compared to the status quo. Yet the authors still projected that the new payroll tax rates would have to be increased by 10 percent within the first decade.^xiv

CONCLUSION

Since the nationwide implementation of the Affordable Care Act in 2014, New York’s uninsured population has dropped to a historic low of about 5 percent or 1 million people. The remaining coverage gap is small enough that it could be closed with relatively a modest and affordable expansion of existing programs.

The New York Health Act, by contrast, would fundamentally alter one-fifth of the economy – in ways that cannot help but disrupt the other 80 percent.

The unprecedented nature of the proposal – a single-payer plan operated by one state – makes it inherently difficult to foresee its effects. The picture is further clouded by the design of the New York Health Act, which imposes higher costs on some than others but leaves the parameters undetermined.

This uneven distribution of costs and benefits would probably lead to varying effects on different subsections of the economy.

For example, the state might experience growth among lower-wage employers that stand to save money. At the same time, New York would probably become less competitive when it comes to the higher-wage industries that the state is striving to attract or retain, such as financial services, software development and biotechnology.

Overall, it seems likely that tax hikes on the scale envisioned by RAND would further harm the state’s competitiveness for business development and economic growth.

Another risk that should be considered is the potential loss the loss of doctors and other high-paid health professionals. They would be expected to pay more in taxes while also facing uncertainty about their incomes under a state-imposed reimbursement system. They might well be tempted to take their easily transferrable skills to other states.

Supporters of the New York Health Act are asking the state’s residents to trust that centralized state management of a $300 billion-plus medical system would improve it in every way – making it more accessible, more equitable and less affordable.

Yet its authors have not committed to basic facts about how their plan would work – starting with what they intend to spend, or where they will get the money – nor credibly addressed the economic dangers that would go with a tax hike of the necessary scale.

The future of the state’s health and of its economy are too important to take on faith.

ENDNOTES

ⁱ See, for example: “10 reasons to oppose ‘Albanycare,’” April 29, 2001. “Do No Harm: The case against single-payer in New York,” January 2019, and “The Impact of Single-Payer on New York Hospitals,” co-published with Manhattan Institute, Nov. 13, 2018. https://empirecenter.org/publications/ten-reasons-to-oppose-albanycare/  https://empirecenter.org/wp-content/uploads/2018/11/NY-Single-Payer_Final_.pdf https://empirecenter.org/wp-content/uploads/2019/01/DoNoHarm.pdf 

ⁱⁱ Assembly bill No. 6058 and Senate bill No. 5474 of 2022. https://assembly.state.ny.us/leg/?bn=A06058&term=2021  

ⁱⁱⁱ Gerald Friedman, “Economic Analysis of the New York Health Act,” April 2015. http://www.infoshare.org/main/Economic_Analysis_New_York_Health_Act_-_GFriedman_-_April_2015.pdf  

^iv Avik S.A. Roy, “The Price of Single Payer: A Fiscal and Economic Analysis of the New York Health Act,” Foundation for Research on Equal Opportunity, March 2, 2017. https://freopp.org/how-state-based-single-payer-initiatives-crush-economic-opportunity-604ac9ac17c9  

^v Jodi L. Liu, Chapin White, et al., “An Assessment of the New York Health Act: A Single-Payer Option for New York State,” RAND Corp., Aug. 1, 2018. https://www.rand.org/pubs/research_reports/RR2424.html  

^vi Erica York and Garrett Watson, “Placing Joe Biden’s Tax Increases in Historical Context,” Tax Foundation, Oct. 22, 2020. https://taxfoundation.org/joe-biden-tax-increases-historical-context/  

^vii Based on U.S. Bureau of Economic Analysis data as of the third quarter of 2021. https://www.bea.gov/ddata/gdp/gdp-state  

^viii Data compiled by the Tax Foundation for 2018 fiscal years. https://taxfoundation.org/publications/facts-and-figures  

^ix Liu et al., pp. 89-91. 

^x Ibid, p. ix. 

^xi Ibid., pp. 57-58. 

^xii Ibid., p. 73. 

^xiii Income tax data from the New York State Department of Taxation and Finance. https://www.tax.ny.gov/research/stats/statistics/pit-filers-summary-datasets-beginning-tax-year-2015.htm  

^xiv Liu et al., p. 47.