21 January 2007

In Defense of Single Payer

I promised myself that I wouldn't do this, but GruntDoc threw the bait out there and I just can't help myself.

Before I launch into this, a couple of quick comments: First, I am not necessarily endorsing single payer as a national health plan. I do think it is probably one of, if not the, best systems possible for a nation-wide health funding system, but it does have drawbacks, as I will make clear, and is not itself a panacea. More importantly, it is a politically moribund proposal and I prefer to focus my thoughts on the possible rather than the ideal. Second, in more direct response to the irascible texan, a single-payer system such as the proposed "Medicare for All" National Health Insurance (NHI), is not at all equivalent to the UK's National Health System, which is a true socialized system in which the government owns/employs the hospitals and health care providers, nor is it comparable to any fully-governmentally-operated public institution such as the public schools. What it is, is essentially the same health care delivery system we have today, but publicly financed by expanding the federal Medicare program to cover all Americans.

In the United States, in 2005, health care cost $2.0 Trillion dollars, or about 16% of GDP. About 45% of health care dollars come directly from the government, and the balance comes from the private sector, mostly from employer-financed insurance plans. This is itself anomalous, as most other industrialized countries' governments contribute 70% or more to the cost of health care; the US is unique as the only OEDC country without some sort of nationalized health system. Hospitals, doctors and insurance companies are independent and often for-profit. The result is a highly commercialized, highly fragmented delivery system. The governmental payers (Medicare and Medicaid, mostly) are quite efficient; Medicare has been reported to have administrative costs as low as 3%, a number which has been disputed, but is in any case much lower than the 15-25% of private health care dollars which go to administrative costs. That is an enormous amount of money coming out of citizen's premiums, somewhere from $110-250 Billion, which goes towards non-productive purposes such as corporate profits, exorbitant CEO compensation, marketing, brokers and other middlemen, attempts to deny payments, etc. Recapturing even a small fraction of this administrative waste would provide enough savings to cover all 46 million uninsured Americans, at no increase in cost to consumers. Additional savings to the system would result from the streamlining of processes from the providers' side: no longer would doctors and hospital administrators have to waste valuable time negotiating reimbursement with the myriad health plans in their areas, complying with the arcane rules of dozens of different health plans, appealing denials of care, and billing and trying to collect from hundreds of different payers. The coding and billing requirements for an expanded Medicare are no more difficult to comply with than the current system, and greatly simplified in that it would be the only plan providers would have to interface with.

It is critical to understand that a single-payer expansion of Medicare would retain the status of doctors and hospitals as private, institutions with an intact profit incentive. While the medical market would be publicly funded, it would remain a private health care delivery system. All players would still be motivated to continue to seek efficiencies, reduce costs and increase profits, to innovate and find new ways to deliver care. This plan does not change at all how medical research would be conducted or funded, nor would the innovators in medical technology be impacted -- you get a new drug or medical device approved, then it will get paid for, just as it is today. Patients would still be free to choose their doctors and government would not intrude into the medical decision-making process, as it does not today.

National Health Insurance would improve America's competitiveness in the global market. It is paid for by a modest tax (or premium, if you prefer the term), and no longer represents an increasingly unsustainable burden on employers. GM annually is responsible for over $7 Billion in health care costs for its employees, compared to Toyota, which has been reported as paying, per car built, about 10% the amount that GM pays. It makes no sense for a car maker to run a health plan on the side; Medicare for all would allow America's businesses to cut their costs and focus their efforts on the core competencies of their businesses. It is true that if a national health insurance plan were enacted, some of the money currently contributed by employers to their private health plans would need to be redirected into payroll, to prevent the change from representing a huge pay cut for American workers. However, employers would likely be only too happy to make this change if it takes the risk and uncertainty of future cost increases off of their backs. NHI would also increase the flexibility of the work force, as individuals would be less reluctant to change jobs or start their own businesses, knowing that their health care was secure and no longer dependent on their employers. The Medicaid program, which is woefully underfunded, byzantine in its various forms, difficult to access, and a huge burden on states' budgets, would be eliminated and folded into the NHI.

The drawbacks of a change to a National Health Insurance plan are real, and significant. Most immediately, the hundreds of thousands of jobs extant in the private health insurance industry would be eliminated. Some of these could be assimilated into the administration of the National Health Insurance, but there would be significant upheaval and human cost associated with the transition. Additionally, billions of dollars in market capitalization in the for-profit insurance sector would evaporate, potentially causing disruption in the financial markets. These would, however, be short-term challenges, and more than compensated for in the longer run by the increased efficiency of the NHI. The displaced workers would, unlike displaced workers today, still have health care coverage!

From a physician's perspective, I am less than thrilled by the prospect of Medicare being my only payer. Medicare Part B is not well-funded and under continuous pressure in Congress for further cuts. If all my patients reimbursed at Medicare rates, it would represent a significant reduction in revenue which would not be adequately offset by the reduction in administrative costs. The likelihood of future cuts is very concerning and absent some reworking of the mechanism for physician compensation which appears to provide some guarantee that NHI would maintain provider compensation at its current levels, neither I nor the physicians' lobby would ever get fully behind a NHI.

There are a number of other crises in American health care which are not addressed by an expansion of Medicare. This should not be taken as a defect on the part of the NHI, but simply beyond the scope of the proposal. For example, the progressively escalating costs of health care: increasing amounts of services provided, expensive new technologies, inflated pharmaceutical prices, etc, do not have any mechanism for control in the proposed NHI. However, neither the current system nor any other proposed system include mechanisms to address this problem. Similarly, the alleged undersupply of physicians, the inarguable shortage of primary care physicians, and the relative overcompensation of specialists compared to primary care doctors remain as pressing problems under the proposed NHI.

There are a number of myths about a single-payer system which should be addressed:

Single Payer is equivalent to Socialized Medicine (which is bad).
Untrue. As noted above, the fact that all current players in the health care delivery system -- Doctors, hospitals, industry -- remain private and for-profit differentiates this proposal from other, true, socialized health care systems. It is also worth noting that just about every OEDC country with a socialized health system has lower infant mortality and longer life expectancies than the US. I won't delve into the argument whether socialized medicine is better or worse than our system; however, it is to some degree an open question at this time. However, this plan only creates a National Health Insurance, as opposed to a National Health System.

A National Health Insurance would result in rationing of health care.

Some would argue that in the US now we already have rationing of health care. If you have money, you get care; if not, you don't. Additionally, access to critical health services such as mental health and substance abuse treatment, long-term care, and preventative care are extremely restricted under the current privately-funded system. However, nothing about the NHI proposal requires or implies rationing as a mechanism for controlling costs. Given that the policy-makers in Washington DC would be answerable to angry voters, the viability of any sort of rationing as a political answer is limited, to say the least.

Canada has a similar system and has prolonged wait times for elective care.
True, however this exists for unrelated reasons. For one, physicians in Canada are paid far less than in the US; this has resulted in a large-scale emigration of Canadian-trained physicians to the US. Canada has about 25% fewer doctors per capita than the US, and historically has invested far less in medical technologies, such as CT scanners and MRIs, and Canadians admitted to the hospital stay significantly longer, resulting in limitations on inpatient capacity. Moreover, in the US today, if you do not have insurance, the wait time for elective care is forever. Given the existing medical infrastructure in the US, and absence of any disincentive for further investment, it appears that the ability to deliver care to all comers would be preserved at least as well as it currently exists.

Single Payer would create a huge, complex, government bureaucracy.
As opposed to the simple and user-friendly relationship Americans currently enjoy with their insurance companies? A NHI plan would expand the existing Medicare administration, which is incredibly lean compared to its private-sector rivals, and simpler, since questions of eligibility and enrollment are eliminated under NHI. The massive private bureaucracies that currently exist would cease to be, and administration would become simpler for health care providers and employers.

The Free Market can solve the problems of the health system better than the government.
If a free market existed, that might be correct. However, the current system creates such huge asymmetries in information that no free market can be said to exist. Consumers are unable to compare prices between different health care providers, and are reluctant to price-shop for medical services in any case. Consumers and employers have limited ability to compare and choose health care plans, especially small businesses and private individuals. Insurers use their size and superior financial resources to coerce hospitals and doctors to accept lower reimbursement. Insurers go to great lengths to identify and discriminate against consumers who may be sicker and less profitable. Pharmaceutical companies abuse patent protections and market forces to inflate the cost of prescription drugs. In a market with so many skewing factors and perverse incentives, free market forces are severely constrained at best.

I'm running out of steam, and have, I suspect, lost the interest of most of my readers. Health policy is so exciting! It's exhausting to think about, let alone try to organize your thoughts and back up your arguments with facts. I hope I have provided plenty of fodder for discussion/argument, so feel free to open fire in the comments. Tomorrow, I will compare this single-payer plan to my preferred solution. And by tomorrow, I mean "the next time I have the energy to undertake such a herculean effort."

11 comments:

Anonymous said...

That's a very well-done exposition, and I'll reply after I've thought about it, which is on a time frame exactly like your "tomorrow".

GruntDoc

PS: Team Irascible is a nice touch; I'm going to make t-shirts.

N=1 said...

This N=1 is thrilled with your essay. Has it been widely circulated to consumer organizations? You took the medicalese, legalese and all of the other dis-ese out and used comprehensible English. Thanks!

Graham said...

Great post. Canada is also starting to improve their waiting times.

Also, if you add in the amount the government pays for the VA, the amount they pay for the FEHBP (Federal Employees Health Benefits Program, which pays the health insurance for govt workers), AND add in the lost tax revenue due to health insurance being deductible, you actually get closed to 60-66% of health dollars being paid for by the government. Paying for NHI, but not getting it.

Josh said...

I'm going to have to respectfully disagree w/ you on this. You chose to ignore all the ills of socialized medicine and replaced it w/ an all too fluffy pep talk.

And my bloggin' heros like GruntDoc and N=1 agree?!? I think I'm alone in this world :)

shadowfax said...

Josh, remember, this is not socialized medicine. That is the HUGE difference between something like this and the NHS. All the stakeholders remain private players with a profit incentive. It is a public-financing scheme for our privately-delivered health care system.

Josh said...

ahhh shadowfox, you're better than that? You don't seriously believe the 2 are different? 2 main points:

1) Not different. Whether I'm on the books as a state employee or just paid by them, they WILL/CAN control the entire scope of my practice.

2) We have a system like you're suggesting (public dollars for a private system) and its called medicare. Last time I checked Docs where dropping it faster than a leper colony. How do you imagine UHC being any different?

3) I object to thought/suggestion that we take over an industry. Make it voluntary if you must, but please DO NOT ban private practice. I WILL not work for the gov't. Of course, if you ban it like Canada, the masses won't realize how crappy their care is.

shadowfax said...

Josh,

The reports of doctors "dropping" medicare en masse are . . . exaggerated. False, if you will. Are there access problems? Damn straight. Are there occasional guys going to cash-only or boutique practices? Sure -- a few. But get real. 98% or more of licensed US physicians are participants in the medicare program. That number is 100% of the hospital-based physicians, by the way. It may not be the happiest marriage in the world, but it is what it is and it ain't going away. So if you are intending to practice in the US and you are not going to be a cosmetic surgeon, you are going to work for the federal government (indirectly) and you'd just better get used to the notion.

But what's the objection again? They'll "Control the scope of your practice?" I guess I don't understand what you mean -- that's a pretty vague statement. Sure, they're going to tell you what you get paid for doing a appendectomy, and they'll tell you how to document it in order to get paid, but they are already doing that and have been for decades. So what is your objection? And please, be specific.

The ONLY real objection to "Medicare For All" from the physician-entrepreneur point of view is the likelihood (certainty) that the government will use its monopsony power to depress physician reimbursement. Compared to the current system, it really will be no different otherwise.

heromd said...

Wow, that was a really informative post. Is there any one country that we can look to that has a successful health care program? Canada? Certainly not the UK. Is this an unanswerable question?

Deoxy said...

I couldn't actually bring myself to read it in-depth, as so many obviously silly statements jumped out at me just from scanning over it:

"What it is, is essentially the same health care delivery system we have today, but publicly financed by expanding the federal Medicare program to cover all Americans."

Look at how "public schools" work. Any time the government writes your check, you are a government employee, plain and simple. When there is only a single payer, and PAYER sets all the prices (especially if it's the government). You want to invent a new drug? Good luck getting the government to pay enough to ver your R&D...

"The governmental payers (Medicare and Medicaid, mostly) are quite efficient; Medicare has been reported to have administrative costs as low as 3%, a number which has been disputed, but is in any case much lower than the 15-25% of private health care dollars which go to administrative costs."

If you just PAY everything, well, yeah, it's going to look "efficient" in terms of how much is spent in overhead, but that's because you shovel so much money out the door. The government may spend 45% of the money, but do they provide 45% of the benefit? (Granted, actual bnefit is VERY hard to rate - different procedures may have wildly differing actual costs compared to their benefit, etc.) Also, you leave out the effect of price-controls... if the government only pays X for somthing, will anyone still do it? Well, if half of their patients pay X+Y for it, then yeah, but otherwise, no. (That is the private spending ENABLES the government prices by making up the shortfall).

"get a new drug or medical device approved, then it will get paid for, just as it is today."

No, you will gt paid for it WHATEVER THE GOVERNMENT CHOOSES to pay you for it, unlike the private sector today.

"GM annually is responsible for over $7 Billion in health care costs for its employees, compared to Toyota, which has been reported as paying, per car built, about 10% the amount that GM pays."

Until you correct for the huge pensions and benefits that GM pays for retired workers, that statistic is untterly meaningless.

"If all my patients reimbursed at Medicare rates, it would represent a significant reduction in revenue which would not be adequately offset by the reduction in administrative costs."

And there you go, admitting exactly the problem. Quite simply, no one would go into medicin (and many doctors would just quit) because the COSTS would still be there, but enough money to cover those costs would not.

"Single Payer is equivalent to Socialized Medicine (which is bad)."

TRUE. If someone writes your paycheck, they are your boss. If there is only one payer, that payer is the boss.

"It is also worth noting that just about every OEDC country with a socialized health system has lower infant mortality and longer life expectancies than the US."

I'v refutd this so many times that it's almost not worth doing any more. How on measures those makes WORLDS of difference on the outcome. Inforant mortality is the easy one: EVERY live birth is considered a live birth in the US, even months premature. The countries that we fare poorly against in infant mortality don't count many of those cases as "live births".

"A National Health Insurance would result in rationing of health care."

DUH - there is more healthcare desired than can be provided, so it IS rationed (now too, as you said). But: "However, nothing about the NHI proposal requires or implies rationing as a mechanism for controlling costs." And how many other countries that have this don't ration? Just because they don't mention it upfront (as you noted, it's a politcal non-starter) doesn't mean it isn't invitable under such a scheme.

"For one, physicians in Canada are paid far less than in the US;"

Exactly... and note that they are LEAVING. Same thing would happen here - fewer doctors, longer wait time (and it's not going to be rationed? I hav a bridge for sale...).

"Single Payer would create a huge, complex, government bureaucracy."

IRS. I'll take private, thanks.

There is onee other thing that I like to mention in discussions like this (especially when %GDP comes up): how many new sugical procedures and nw drugs are being discovered in countries with "single payer" (f any flavor)?

These other countries ar just free-loading on the US system; they only work (or make any progress, anyway) when there is a non-single-payer system to do the heavy lifting (price controls on drugs is the perfcet example, but the principle applies elsewhere).

Our system is in no way perfect, I admit, but comapring spending to other countries whose own systems are parasitic on ours isn't exactly a winning argument.

shadowfax said...

Deoxy,

Wow, I would hate to see an "in-depth" response if that was a superficial response. Clearly, we view things differently, and I won't belabor the point. A couple of minor clarifications/corrections:

Look at how "public schools" work. Any time the government writes your check, you are a government employee, plain and simple. When there is only a single payer, and PAYER sets all the prices (especially if it's the government).

Again, the public school comparison is fallacious. They are 100% owned, funded and operated by the government, with a largely captive customer base. Physicians under "Medicare for all" are free to determine which services they offer, to whom, and how. They can seek out their own efficiencies and develop new services to offer. And prices today are not, by the way, set by individual physicians, but by a committee of the AMA, CMS, and representatives of medical specialties, called the RVU Update Committee. So it's not exactly as if you are free to charge whatever you like for that appendectomy; all docs are governed by the fee schedule, and that would not change. Now maybe you can negotiate a higher rate from the gold-plated private payers out there, but the big payers are not in the business of giving away money to doctors and hew pretty damn close to the medicare fee schedule.

You want to invent a new drug? Good luck getting the government to pay enough to ver your R&D...

Silly objection. They already do. Look at any cancer drug, Zofran, or Nexxium for pete's sake. All of those are covered by medicare when administered in the hospital, and the fact that Medicare Part D plans are paying full price for prescriptions has been very well reported. Whether price controls need to be or will be placed on the pharmaceutical industry is an open question, but one which is entirely separate from universal coverage for medical services.

If you just PAY everything, well, yeah, it's going to look "efficient" in terms of how much is spent in overhead, but that's because you shovel so much money out the door.

No, Medicare actually *is* efficient, as measured by the ratio of dollars spent on administration compared to total funds disbursed. If you choose to look at it another way, in terms of dollars of overhead per person insured, Medicare still outperforms its rivals, despite the fact that medicare patients are older and sicker. Part of this is the economy of scale, and much comes from the fact that Medicare has no CEO to lavish money on, no stockholders to pay a profit to, no need to market its services, and no incentive to scrutinize enrollees for exclusions like pre-existing conditions. It's a leaner operation.

"get a new drug or medical device approved, then it will get paid for, just as it is today."

No, you will gt paid for it WHATEVER THE GOVERNMENT CHOOSES to pay you for it, unlike the private sector today.


See, this is what you just don't get -- the private market will still exist. If you invent a new AICD or hip prosthetic, you can price it at whatever point you like. It will need to compete against the existing market of similar devices. The physicians and hospitals who will choose which device to implant in the patient will need to be convinced that it is worth the excess cost. The government generally pays retail costs (more or less) for the devices, and leans on the providers (usually hospitals) to make cost-effective choices.

"GM annually is responsible for over $7 Billion in health care costs for its employees, compared to Toyota, which has been reported as paying, per car built, about 10% the amount that GM pays."

Until you correct for the huge pensions and benefits that GM pays for retired workers, that statistic is utterly meaningless.


I should have said that GM is responsible for $7 Billion in health care costs for its employees *and retirees*. The $7 Billion figure is for health care costs alone, though, not pensions. And the fact remains that having the government take the cost of health care off of American businesses would enhance their global competitiveness greatly.

Thanks for responding.

Shadowfax

Anonymous said...

I would like to point out that many of the worlds national insurance systems allow people to purchase additional private insurance above and beyond the national coverage level. This would mean that the national reimbursement level would not be the absolute ceiling on reimbursement.

Some nations disallow private plans insuring services covered by the national plan (Canada), some do not (New Zealand - has "socialized" public hospitals however & then private hospitals and FP's & many other docs are private).

As long as everyone pays tax to support a basic level of national coverage I do not think parallel coverage would be the worst thing even if it creates a two tier system - our current system is two tiered.

The national plan would ensure that 100% of citizens are covered at a basic level and so that if you get cancer and lose your job & fancy private insurance coverage you are covered by the national plan.