V.Government
Spending Under the Single-Payer Model
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Under a single-payer program, a new state-run independent agency would be responsible for financing almost all
acute care services in Maryland. This will have significant implications for health spending by all levels of
government including the state, local governments and the federal government. The impact of a single-payer plan on
government finances is discussed in the following sections:
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State Program Expenditures
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Federal Government Expenditures
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A.State
Program Expenditures
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Table 3
presents our estimates of the sources and uses of funds under the government single-payer program.
Total expenditures under the program would be about $15.6 billion in 2001. This includes the cost of all
benefits payments and the cost of administering the program. The program would be fully funded with the funds
that would have been spent for health care under existing government programs and revenues from dedicated
taxes created to finance the program.
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1.Program
Expenditures
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As discussed above, the program would be designed so that in the first year of the program,
provider payment levels would be equal to the average payment levels for covered services in
the current system (i.e., averaging across Medicare, private insurance, etc.), adjusted to reflect
the unique features of the program. Total benefit payments before adjustments would be $16.1
billion, which reflects the increase in utilization for previously uninsured persons discussed
above. However, payment levels would be adjusted as follows:
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Uncompensated Care Savings - Provider payment levels would be reduced to reflect
the fact that providers will receive payments for services that would have been counted
as uncompensated care under current policy. This adjustment lowers payment levels
per unit of service so that the overall average payments for service remain the same as
under current policy;
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Provider Administration - Payments to providers would be reduced to reflect the
expected reductions in provider administration;
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Managed Care Adjustment - spending levels would be permitted to increase by
$230.2 to reflect an expected increase in utilization of 4.0 percent among persons
currently covered under HMOs;
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Prescription Drug Rebate - We assume that the program would receive the
same percentage rebates from drug manufacturers currently received under
the current Medicaid program, which was 17.7 percent in 1998. This
compares with an estimated average rebate of 8.3 percent for private
insurers.
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Total benefit payments after adjustments would be
$15.2 billion. Also, the payroll tax for state and local
workers would be less than the cost of their current coverage. Consequently, the state and local
governments would save about $93.4 million under the program in the cost of providing coverage to state and
local workers. Total administrative costs would be $408.4 million which is equal to about 2.7 percent of
benefit payments.
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2.Inter-Governmental
Transfer Revenues
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The program would receive funds that
otherwise would have been used to fund health care benefits for
Marylanders. Specifically, funds from Medicaid, Medicare, and various state
and local health programs would be
used to cover program costs. Total funding from these sources would be
$6.0 billion in 1998. These funds include:
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Medicare Funds -- Federal
Medicare program funding for Maryland residents would be
transferred to the Maryland single-payer program. This includes federal
funding for Part-A and the federal
share of funding for Part-B (Medicare beneficiaries would continue to pay the Medicare Part-B premium);
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Federal Share of Medicaid
Funds - The federal share of funding for the Medicaid program
would be transferred to the single- payer program. Includes amounts
for benefits payments, administration
and the federal share of disproportionate share hospital (DSH) payments;
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State Share of Medicaid Funds -
The state share of funding for the Medicaid program is transferred to
the single-payer program;
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Other State Funds -
Current state funding for mental health and various indigent care
programs would be
transferred to the single-payer program; and
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CHAMPUS/Military
- Funding for services provided to Maryland residents covered
under the CHAMPUS program would
be used to fund the program.
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3. Tax Revenues
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The remainder of the program would be financed with new taxes created specifically for the program. In addition,
there would be changes in personal income tax revenues as wage levels adjust in response to the payroll tax
imposed on employers under the program. Total net tax revenues would be about $9.5 billion in 1998. These tax
revenues include:
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Payroll
Tax - The program imposes a payroll tax on employers and employees
in Maryland. The tax rates in
the
first year of the program would be 6.3 percent for employers and 3.2
percent for employees;
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Tobacco
Tax - The tobacco tax would be increased to $1.25 per pack
with comparable increases in tax on
other
tobacco products;
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Alcohol
tax - State taxes on alcoholic beverages, which are currently
among the lowest in the nation, would be
increased
to the national average across states;
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Personal
Income Tax - The plan would impose a personal income tax sufficient
to raise the revenues required
to
cover costs in excess of the funding available from the sources listed
above. We estimate that the amount of
funding
required in the first year of the program would be $474.0 million
which is equal to an increase in
personal
income tax revenues of 10.8 percent. The structure of this additional
tax would be progressive (i.e., the
amount
paid as a percentage of income increases as income rises);
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Wage
Effects of Payroll Tax - Employers are assumed to pass-on
the change in employer health care costs
under
the program as a change in wages resulting in corresponding changes
in state personal income tax
revenues.
The personal income tax created under the program would be adjusted
to compensate for this revenue
loss.
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B.Federal
Health Spending in Maryland
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Under the single-payer plan, all federal funding for health benefits provided to Marylanders would be transferred to
the single-payer program. This includes funding for Medicare, Medicaid and the CHAMPUS/Military programs.
Thus, the transfer of funding to the single-payer plan would have no net impact on federal expenditures.
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Under the assumed tax rates, we estimated that there would still be a net cost to the federal government of about
$161.7 million in 2001 (Table 5). This reflects a loss of federal income tax revenues as employers adjust wage
levels in response to the payroll tax.
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Table 5
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Change in Federal Health Spending in Maryland under the Single Payer Proposal in 2001
(in millions)
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