Financing universal health insurance: taxes, premiums and the lessons of social insurance

Abstract In a society with strong antitax sentiment and large government deficits, the enactment of universal health insurance is blocked by an impasse over financ-ing. The two chief mechanisms for funding universal health insurance are taxes and insurance premiums. Taxes and premiums are not distinct entities; rather, a spec-trum of financing methods exists with varying tax-like and premium-like features. Premium-like financing tends to be voluntary and earmarked for health care, with coverage contingent upon making payments and payments going to private insurance firms. Tax-like financing, in contrast, tends to be mandatory and not earmarked for health care, with coverage not dependent upon making payments and payments going to governments. Over the past century, most industrialized nations have developed highly popular social insurance programs to cover periods of retirement, disability, unemployment, and payment for medical care. Social insurance constitutes a blend of tax-like and premium-like features, offering lessons that might assist in breaking the current impasse over universal health insurance financing. Universal health insurance commands strong support from the American population. Over 70 percent favor insurance coverage for the entire popu-lation (Blendon and Donelan 1990; Jajich-Toth and Roper 1990), and over 60 percent support government-financed health care (Blendon et al. 1990; Blendon and Donelan 1991). But when people are asked whether they are willing to pay for universal access, public support drops. In a 1990 survey, only 22 percent were will-The authors wish to thank Tom Oliver for his insights into the principles of social insurance, an