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Is a Single Payer the Answer to Healthcare's Ills?

By Dr. David C. Pate, News and Community
September 8, 2015

I am often asked this question. To even begin to examine it, we need to think first about terminology and concepts.

When people propose a single-payer solution, they usually mean replacing the commercial insurance market of multiple payers (e.g., the insurance companies with which we are familiar) with a single government health plan, which also means replacing the multiple government health programs (e.g., Medicare, Medicaid, Tricare, and the VA System) with the same national health plan.

People often point to the government-sponsored health programs of other industrialized nations with which the U.S. is compared, but even in most of those countries, the government is not the only payer. Private systems of health care have emerged in many of those countries for those who can afford to pay more for faster access to care or access to private physicians and hospitals, and in some of those countries, a market for purchasing private insurance has evolved.

Those enamored with the idea of a single-payer system most often support universal coverage, which is typical of those countries with a single-payer system, but “single payer” and “universal coverage” are not equivalent terms.

Universal coverage means that all the people of that country have insurance coverage. A country, therefore, could theoretically offer universal coverage without the government being the only payer and in fact, the Affordable Care Act was an attempt at moving health care in that direction, even though it was built around using insurance exchanges and premised upon there being multiple competing insurance plans on the exchanges. The uninsured rate in the United States has plummeted since the ACA was enacted, according to a Gallup survey. Still, the uninsured rate for the first quarter of 2015 was 11.9 percent.

The United States is, to my knowledge, the only industrialized and economically developed country that does not provide universal coverage to its citizens. Some speculate that this is one of the reasons health outcomes for the U.S. are, on whole, inferior to those achieved by the other countries with which the U.S. is compared.

However, it’s far from clear, given the many differences between world healthcare delivery systems and the fact that the U.S. generally performs poorly on social determinants of health relative to those same countries.


In favor of universal health care

One of the biggest reasons for universal health care is the concept that health care is a right and therefore, every American should be assured of the availability of healthcare services, regardless of their ability to pay. 

I have previously looked at the many difficult questions that would have to be answered in order to implement universal health care, let alone determining how we would pay for it. See Health Care: Right or Privilege?

One of the biggest reasons for a single-payer system is to reduce the administrative costs associated with all of the myriad billing rules and forms of the many governmental and private insurance companies that the typical healthcare provider must deal with. 

Many point to the lower administrative costs of a program such as Medicare (about 3 percent of dollars spent) compared with those of private insurance companies (averaging about 17 percent of the premium dollar), but it depends upon how those numbers are calculated. If they are calculated on a per-beneficiary basis, the private insurance companies would have the lowest administrative costs. 

Further, it is argued that the private healthcare system is more efficient because those extra administrative costs go to programs designed to control utilization that reduces the total costs of care relative to the Medicare program. 

Another argument for a single-payer system is that the multitude of payers and the movement of patients in and out of different programs (as employers change health plans, as low income people with inconsistent work move in and out of the Medicaid program, as employees move and change jobs, etc.) has actually contributed to the fragmentation of health care and a system that is best suited for treatment of episodes of acute care rather than management of chronic illness and disease management, which is where the most potential cost savings may be found.

The arguments in opposition

Universal coverage will obviously cost more. If the U.S. were to decide to cover the currently nearly 38 million uninsured people, it would have to raise significant tax revenue in order to do so. Some uninsured choose to be uninsured and might be able to afford insurance, but for many if not most, the financial burden to provide for the insurance coverage would fall to the federal and state governments. 

Healthcare costs are expected to grow as we deal with the future consequences of the current epidemic of childhood obesity. And if costs are to be covered by increasing taxes, and those taxes, like those that support the Medicare program, are predominantly derived from payroll taxes, we will also have to determine how sufficient tax revenue can be generated to account for the wave of Baby Boomers that are aging and incurring medical costs, but will no longer be contributing to that tax base, without negatively impacting the competitiveness of American companies and overburdening individuals. It seems an even more overwhelming challenge when one considers that the U.S. government cannot even afford the unfunded liabilities accruing now in the Medicare program.

Inevitably, single-payer systems resort to global budgets to try to control costs. This leads to a degree of rationing of services, or at least longer waits for certain procedures, that Americans are not used to and may not tolerate. 

It is also for this reason that single-payer systems inevitably spawn a private insurance/provider network for those who can afford to pay and want quicker access to care, access to particular private facilities that offer more amenities, and access to providers of their choice. So while "single payer" may describe the predominant delivery system, in almost every case, these are really two-tiered systems.

While a single payer system would reduce some administrative costs related to healthcare providers dealing with multiple payers with different coverage, billing, and payment rules, a single-payer system would almost certainly be a government program, which means significantly increased regulatory burden and a constantly shifting set of rules and regulations as Congress enacts new laws to address the cost and quality issues that arise, the political lobbying of various stakeholders with many divergent interests, and as the federal agency charged with administering this huge program issues new rules to implement the laws passed by Congress.

 

What have the states done?

Vermont

In 2011, Vermont enacted a law that would have created the first statewide, single payer, universal health coverage. Under the law, all Vermont businesses would be subject to an 11.5 percent payroll tax and individuals would pay a sliding-scale income tax capped at 9.5 percent of their income. State residents would be automatically enrolled in the state’s health plan, with everyone receiving the same benefits.

In December of 2014, Gov. Peter Shumlin announced that the plan was too expensive, and that moving ahead would damage the state economy, especially during this period of slow recovery. 

Lessons learned: Universal health care is costly and requires a significant tax on businesses and individuals; and downturns in the economy put great pressure to cut back on subsidized healthcare programs.

Maryland

Maryland has the only all-payer hospital rate-setting system in the country. It is not a single payer, nor is there universal health coverage for the people of Maryland. However, since all hospitals are paid the same regardless of the payer, governmental or private, it is still indicative of a single-payer system, though in the microcosm of hospitals only. This all-payer model goes back to 1971. 

The cost of a hospital admission has declined from 26 percent above the national average in 1976 to 2 percent below the national average in 2007, according to a 2009 article in Health Affairs by Robert Murray. According to an article in the New England Journal of Medicine by Rajkumar et al, the result has been the elimination of cost-shifting (increasing the price to paying patients and businesses to help subsidize the care of non-paying patients) and a spreading of the costs associated with teaching programs and uncompensated care. 

The initial program predictably led to overutilization through increased hospitalizations, and Maryland has realized the need to transition payments from fee-for-service to pay-for-value. The state is now tying payment to the per capita total hospital cost growth and value-based measures of care management, rather than continuing to make payments per admission. 

Has this all-payer approach to hospital rate setting resulted in low insurance premiums? According to the Kaiser Family Foundation website, Maryland ranked fourth (compared with Idaho at eighth; lower is better) for average monthly premium per person enrolled in the individual market and came in at number 28 (compared with Idaho at third; again, lower is better) for average family premium per enrolled employee for employer-based health insurance. It’s worth noting that Idaho has neither a single-payer model or universal healthcare coverage, and has not expanded Medicaid coverage under the ACA.

Lessons learned: Healthcare providers will react to the incentives provided and it is important not to just put cost controls in place without incentives for quality and efficiency; and taking a rate-setting approach to only one type of provider service (in this case, hospitals), has not resulted in Maryland having more competitive insurance premiums.

Massachusetts

In 2006, Massachusetts launched healthcare reform that would serve as much of the basis for the ACA in an effort to achieve near universal health coverage, but not through a single-payer system. The result has been a significant reduction in the uninsured and improved access to healthcare services.

But because Massachusetts’ priority was coverage rather than cost containment, according to the Kaiser Family Foundation website per capita spending exceeds the national average by 15 percent and affordability is an issue. Massachusetts has the highest individual market insurance premiums in the country.

Lessons learned: Universal health coverage is expensive; and will not alone control healthcare costs.

 

Conclusion

A single-payer system may bring some cost savings with it relative to provider costs that are incurred today in negotiating with and administering multiple payer contracts all under varying terms and conditions. However, it is not clear that a single payer system is more efficient. 

Further, it is likely that a substantial market in the U.S. would still exist for private insurance and for enhanced access and services, as is already evident in the concierge medicine models and direct primary care practices in existence.

Universal health care is a worthy aspiration but a costly reality, and would be dependent upon new taxes on businesses and individuals. Without the proper cost controls and incentives, universal health care will increase costs and result in even higher healthcare costs than we have today.

I remain convinced, as I said five years ago in objecting to the ACA, that simply adding more people with coverage to an already broken healthcare delivery system will drive costs up, not down. The healthcare spending curve has slowed, but much of this may be attributed to the economic downturn the U.S. experienced and the slow recovery from it, as well as substantial health benefit design changes which now result in extraordinarily high deductibles for individuals and families. We also have to factor in the cost of the subsidies, tax credits, and increased federal share of Medicaid coverage to understand what is happening to total healthcare spending. 

The answer still seems to me to be fundamental change in the care and business models for health care.  We must redesign both to ensure the outcomes we truly want, rather than to simply reward the volume of sick care provided, to make healthcare more effective, safer, and less costly, and then expand coverage.

I know many will disagree with me, and I look forward to the discussion that follows!

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.