VII. Household Health Spending
Under a single-payer program, Marylanders would no longer pay health insurance premiums and would face only
minimal copayments for health services. Instead, households would pay taxes on earnings, tobacco, alcohol and
total personal income. In addition, household incomes would be affected by wage adjustments resulting from
increased employer payroll taxes. These changes in the way in which care is financed would substantially alter the
distribution of health care costs across households of various age and income groups.

Our estimates of the impact on household health spending are presented in the following sections:

Impact on Total Household Health Spending;
Impact on Average Household Health Spending;
Distributional Impact on Households; and
Impact on Households by Current Insurance Status.
A.Impact on Total Household Health Spending
We estimate that household health spending would decline by $161.0 million under the single-payer program
(Table 9). This includes the elimination of household premium payments for private health insurance ($2.5 billion);
and reduced household out-of-pocket payments for health services ($2.0 billion). These savings would be offset by
increased tax payments of $3.8 billion. In addition, we estimate a loss of wages to households (after tax offsets) of
about $556.6 million as employers pass on the increased cost of complying with the payroll tax to workers in the
form of reduced wages. The factors affecting household spending include:

Premium Reductions - Because a single-payer plan would eliminate premium payments for services covered
under the program, we estimate a reduction in private insurance premiums of about $2.5 million;
Reduced Out-of-Pocket Spending - Household out-of-pocket spending for health care would be reduced
under a single-payer plan because (1) there is little cost-sharing required (i.e., a $10.00 copayment), and (2) the
program provides a comprehensive benefits package that would provide comprehensive coverage for services
often excluded under existing plans. The reduction in out-of-pocket spending would be $2.0 billion;
Table 9
Impact of the Single Payer Proposal on Households in Maryland in 2001
(in millions)
a/Family out-of-pocket payments for acute care health services will be reduced under the program due to: 1) reduced
patient cost-sharing requirements under the plan and 2) expanded coverage for services often excluded under existing
plans.
b/Employers are assumed to pass-on the cost (savings) resulting from shifting from employer-based insurance to the
payroll tax in the form of changes in wages.
Source: Lewin Group estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).
New Tax Payments - Marylanders would pay several new taxes dedicated to financing the program
including: the employee share of the payroll tax (i.e., 3.2 percent); an increase in tobacco and alcohol
taxes; and an increase in personal income taxes of about 10.8 percent. Total new tax payments by
households would be $3.8 billion;
Wage Effects - As described in the previous section on employer health spending, we estimate that about
88 percent of increased employer costs would be passed-on to employees in the form of reduced wages.
B.Impact on Average Household Health Spending
Overall, we estimate that households would see health spending decrease by an average of about $261 per
family under the single-payer model in 2001 (Table 10). Savings under a single-payer plan would tend to be
greatest for older individuals. For example, families headed by an individual age 65 or older would save about
$2,251 per family (Figure 7). By contrast, average health spending would increase by up to $685 per family
for younger age groups. On average, household savings would be greatest for married couples and individuals
facing high out-of-pocket costs under current policy (Table 11).
Figure 7
Change in Average Family Health Spending by Age of Family Head Under the Maryland
Single-Payer Program in 2001: After Wage Effects
Age of Family Head
Source: Lewin Group Estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).

In general, the single-payer plan would tend to reduce health care costs for lower- and middle-income
families. For example, families with under $100,000 in annual income would, on average, see savings.
However, health spending for families with $150,000 or more in income would increase by about $4,195
per family (Figure 8). This reflects the fact that the bill shifts Marylanders from a premium financed system.
Where premium payments generally do not vary with income to a tax financed system where total health
spending would be in proportion to family earnings. Table 10 shows the change in average family health
spending by age and income.
Figure 8
Change in Average Family Health Spending Per Family Under the Maryland Single-
Payer Program in 2001: After Wage Effects
Source: Lewin Group Estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).
Table 10
Change in Average Family Spending on Health Care in Maryland Under the Single-Payer
Proposal in 2001 by Family Income and Age of Householder: After Wage Effects a/ b/

a/  Excludes institutionalized persons.
b/  Includes changes in premiums, out-of-pocket expenses, taxes earmarked to fund health reform, and after tax wage
     effects.
Source: Lewin Group estimates using the Maryland version of the Health Benefits  Simulation Model (HBSM).
C.Distributional Impacts
The net impact of a single-payer program on individual households would vary depending upon their current
level of health spending, the extent to which they now have health coverage and their income. In general,
households with little or no health coverage and/or high out-of-pocket costs will tend to benefit under the plan.
Conversely, many persons who now have comprehensive coverage would pay more as Maryland shifts to a tax
financed system. Moreover, by shifting to an income related tax to finance health care, higher income persons
would tend to pay more while lower income persons would tend to pay less. Thus, there would be extensive
variability in the net impact on households.

About half of all Maryland families would see a net increase in family health spending of $20 or more while most
of the remaining families would see a reduction of $20 or more (Table 12). Only about 1.5 percent of families
would see a net change in spending of less than $20.

About 26.5 percent of households would see a net increase in health spending of $1,000 or more while about
32.4 percent would see a net reduction in spending of $1,000 or more. Families at the lowest income levels
would tend to have the greatest savings. For example, up to 49.7 percent of families with incomes of less than
$20,000 would see savings of $1,000 or more. By contrast, families in the highest income groups would tend to
see the largest increases in health spending. For example, about 75.7 percent of families with incomes of
$150,000 or more would see an increase in health related costs of $1,000 or more.
Table 11
Change in Average Household Spending on Health Care in Maryland Under the Single-
Payer Proposal in 2001: After Wage Effects a/

a/  Excludes institutionalized persons.
b/  Includes changes in premiums, out-of-pocket expenses, taxes earmarked to fund health reform and after-tax
     wage effects.
Source:Lewin Group estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).
Table 12
Distribution of Families in Maryland by Change in Household Spending under the
Single-Payer Proposal in 2001: After Wage Effects a/

a/   Includes changes in premiums, out-of-pocket expenses, taxes earmarked to fund health reform and after-
     tax wage effects. Excludes institutionalized persons.
Source: Lewin Group estimates using the Maryland version of the Health Benefits Simulation Model (HBSM).
D.Impact on Households by Current Insurance Status
The effects of a single-payer program would vary between currently insured and currently uninsured households.
This is because the currently uninsured pay no premiums and would therefore see no premium savings. For non-
aged households in 2001, we estimate health spending would decrease by about $317 for the currently insured
individuals and families while increasing spending by about $617 per family for the currently uninsured population
(Figure 9).

The net increase in spending for the uninsured reflects the fact that a disproportionate share of the uninsured are
young and comparatively healthy. Consequently, the taxes paid by these individuals tend to be greater than the
amounts of out-of-pocket health spending that would become covered under the program for these individuals.
This would result in a net increase in spending for those who would have been uninsured in the absence of the
program.
Figure 9
Change in Health Spending for Families Headed by an Individual Under Age 65 in
Maryland by Current Insured Status in 2001

a/   Includes uninsured single individuals and families with one or more uninsured members.
8   This estimate is consistent with estimate found in the literature. For example, Gruber and Kreuger, op. cit., find
that about 85 percent of the costs of mandated worker's compensation benefits are shifted to employees in the form of
reduced wages, while Gruber, op. cit., found that virtually all of the employer's cost of mandated maternity benefits are
shifted to the employee.
9  Many persons with employer sponsored coverage for services not covered under the single-payer program may
still be required by the employer to make premium contributions for this supplemental coverage.
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