No Con Economics

Advocates for a single payer health insurance plan, such as the Physicians for a National Health Program, have been making their case for decades. According to a just published survey by Merritt Hawkins , 56 percent of physicians now somewhat or strongly support a single payer system in the United States. Furthermore, in recent months, respected authorities such as New York Times columnists Thomas Friedman and Nicholas Kristof, as well as Nobel economist Angus Deaton, have joined the group of advocates. Friedman devotes only one paragraph of his most recent 453 page book (Thank You for Being Late) to his argument, which consists of stating that it works for Canada, Australia, and Sweden. In one sentence in his July 27, 2017 New York Times op-ed contribution, Kristof opines that our inability to have universal coverage means that “we urgently need a single-payer universal health care system along the lines of Medicare for all.” In a March 6th speech to the National Association of Business Economists,  Deaton argues that “he favors a single-payer health system only because our current part-private and part-public system is exquisitely designed to give opportunities for rent-seeking*.”
In this posting, I seek to address the concerns that underlay the above statements regarding our national health policy rather than analyze single payer per se. Clearly, many people (including doctors quoted in the above survey) are frustrated with the inability of the United States to design and implement a coherent and cost-effective set of policies and programs that meet what some call the “triple aim”: improving the health care experience, improving the health of the population, and reducing the cost of health care. In a previous posting , I argued that a shared value bi-partisan solution with the following principles exists:
1. People should have reasonable access to both affordable insurance and medical care.
2. Insurance policies should not exclude enrollees due to any pre-existing conditions.
3. Medical care expenditure growth should be brought closer to the growth rate in the economy (the $ value of the gross domestic product.)
4. A competitive non-group health insurance market should be made viable.
5. People should be able to choose a health plan that matches their preferences and budget given “appropriate” public funding support.
Advocates of single payer insurance do not value the fourth and fifth points; however, a broad political consensus necessary for a sustainable solution in the United States believes that competition and choice are important principles. In a February 27, 2017 Viewpoint in JAMA, Regina Herzlinger and her co-authors argue that many countries including Germany, Singapore, and Switzerland have achieved universal coverage as well as improved population health and patient satisfaction without implementing a single insurance plan for all approach.

To satisfy the above five principles,  three ingredients are essential (but not necessarily sufficient) for health plans to best serve diverse populations such as exist in various parts of the US: 1) a competitive, community-rated, non-group insurance market with one set of rules including no opportunity for competitors to select the people with the health risks they want, 2) mandatory purchase with default enrollment and payment for those who do not actively select and pay for a plan, and  3) appropriate subsidies for those who lack the ability to pay the designated premiums and co-pays.

If simplicity were the primary objective, single payer wins hands down. In contrast with the American system, which does not limit health care expenditures, all single payer systems explicitly impose constraints on payouts to providers. To bring American costs of care somewhat in line with other advanced countries (in terms of share of income) reduced expenditures would need to come from a variety of places including physician income. The most recent comparison of physician fees across high income countries (which was published in 2011 in Health Affairs) indicates that payments per physician in the United States on average were about 50% higher than in other countries for primary care doctors and roughly double for orthopedists. Canada’s single payer (at the provincial level) system caps the income physicians can make at roughly the averages noted in the previous sentence.  Perhaps physicians who support a single payer approach haven’t thought through the consequences of such constraints.

There exist a variety of ways to meet the shared values objectives identified above. All payer systems (such as those in Germany and Switzerland) and well structured competition are two primary examples. Polar solutions including those posited in the American Health Care Act (passed by the House of Representative in April 2017) and its variants proposed by Senate Republicans as well as single payer plans along the lines of traditional Medicare do not; thus, they do not offer a sustainable solution to our complex health care needs.

*Rent-seeking has nothing to do with contracts to use a particular facility at a fixed price for a set time period. Wikipedia provides the following definition: in economics and in public-choice theory, rent-seeking involves seeking to increase one’s share of existing wealth without creating new wealth. Rent-seeking results in reduced economic efficiency through poor allocation of resources, reduced actual wealth-creation, lost government revenue, increased income inequality, and (potentially) national decline. Go here  for examples.