Single-Payer Health Care Saves Money

July 9, 2017

Single-Payer Health Care Saves Money

Cornell University Economics Professor Robert H. Frank wrote Why Single-Payer Health Care Saves Money recently. He offers a simple thesis: single-payer saves money.

Yes, taxes will increase. However, individual insurance premiums go away, as do most out-of-pocket expenses. Professor Frank estimates a 30% aggregate health care cost reduction. From where? Lower administrative costs. No advertising expenses. And the government can make more favorable deals with providers and pharma.

B-b-but, Medicare’s crashing. Not true, in fact. More to the point, though, Medicare self-selects older, sicker people. A pool which includes everybody captures the tens of millions of healthy people whose health care costs are minimal.

Without doubt, single-payer presents challenges. Daniel Kahneman, psychologist, Nobel laureate (Economics), a father of behavioral economics, and Really Smart Guy, talks about theory-induced blindness, or the challenges attendant to finding flaws in an adopted theory. No system works perfectly, we will always find unintended consequences, and Professor Frank offers an op-ed piece, not a bill which Congress can take up tomorrow.* Lots more work to be done here, including serious contra thinking.

Leaving aside potential problems, even saying Single-Payer brings to mind two big challenges. First, we live in an anti-government miasma. “Government bad. Taxes worse. And don’t mess with my Medicare.”

Professor Frank takes on the likely tax increase directly, when he observes:

By analogy, suppose that your state’s government took over road maintenance from the county governments within it, in the process reducing total maintenance costs by 30 percent. Your state taxes would obviously have to go up under this arrangement.

But if roads would be as well maintained as before, would that be a reason to oppose the move? Clearly not, since the resulting cost savings would reduce your county taxes by more than your state taxes went up. Likewise, it makes no sense to oppose single-payer on the grounds that it would require additional tax revenue. In each case, the resulting gains in efficiency would leave you with greater effective purchasing power than before.

Seven years ago, in the thick of the Affordable Care Act debate, I ask a public official why no one was focused on total consumer cost, as opposed to the governmental share of health care payments. I got a blank stare.

From which pocket payments come does matter. Single-payer forces wealthier people—people who pay taxes at higher marginal rates—to pick up a greater share of total cost. On the other hand, our present system makes working people pay for Medicare, while people with investment income pay a much smaller share of their income. But, 30% of almost 20% of our economy, saved? Win, win, maybe?

How payments get shared represents the flip side of the second big challenge: taking 30% of 20% of our economy away hurts, and it hurts powerful interests. Think about health insurers. Now, don’t, because they’re gone. Physicians. Get ready for pay cuts, for if Dr. — thought Aetna was a tough customer, she’s really gonna hate the federal government. Pharma. Really, really ugly. Hospitals. Likely winners, for even if they get paid less, they have no more uncompensated care.

And what does the last paragraph really tell us? We have a health care delivery system which puts people … last. On a macro level, we pay insurers to figure out how not to pay for services. We burden primary care providers and reward specialists. And we still have too many task-based incentives, as opposed to outcome-based rewards. As for pharma, the Bush Administration law which added a drug benefit for Medicare recipients prevents the federal government from negotiating prices with Big Pharma. Putting us Big Pharma first.

Professor Frank’s ideas ought to resonate. Sadly, though, a majority of the Senate and House advocates for market-based health care, whatever that means. (Ask an R Senator or Representative, and get ready for platitudes.) We also lack competent people in the Congressional majorities and at the White House, able to be creative and deal with big challenges. So, merrily we’ll roll along, “full of sound and fury, signifying nothing,” while regular people worry about their health care needs.

*One reader noted an additional single-payer benefit, in that it “places small businesses and the self-employed on a more level playing ground with larger businesses.” In addition, such a plan makes American corporations more competitive, for most foreign countries have some form of single-payer insurance.

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