This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.
The single-payer debate we should be having
By Matthew Yglesias
Vox, January 15, 2016
Bernie Sanders’s argument in favor of single-payer health care is pretty simple.
“The United States is the only major nation in the industrialized world that does not guarantee health care as a right to its people,” Sanders said at a 2015 rally of the National Nurses Union, one of the leading advocacy groups in favor of moving to a Medicare-for-all approach. “Meanwhile, we spend far more per capita on health care with worse results than other countries. It is time that we bring about a fundamental transformation of the American health care system.”
Hillary Clinton’s campaign has sought to counter the appeal of this proposition with a questionable line of attack, arguing that the election of a Democratic president on a Medicare-for-all platform would somehow help Republicans unwind the existing Affordable Care Act and other aspects of insurance provision.
Alternately, she has (accurately) noted that a universal Medicare system would require higher taxes — only to be met with the counter that a universal Medicare system would involve less overall spending.
On this, too, Sanders is right. Medicare manages to finance patients’ health care at dramatically lower per-person rates — just as foreign countries do — so if Medicare covered everyone, total spending would decline even as some of it was shifted to the tax side of the ledger.
The real issue is something else entirely. Single-payer systems save money by squeezing health care providers — doctors, hospitals, and ultimately everyone who works for them — which would be very difficult to accomplish ex post facto. If the political consensus did exist for enacting large, across-the-board cuts in doctors’ fees and hospital charges, then there would be no need to shift to a single-payer system in order to accomplish the cuts. In the absence of such a consensus, the switch to single-payer actually wouldn’t save money, and the costs would become exorbitant.
Medicare works because it pays providers less
Why would a government-run system be more efficient?
Well, here’s the answer: Foreign single-payer systems pay doctors less. They also pay pharmaceutical companies less. They pay less for medical devices, too.
It turns out that Medicare uses this trick, too, offering doctors only about 80 percent of what private insurance plans pay them.
But to the average health care provider, the Medicare patient market is just too big to ditch. Doctors — and hospitals and everyone else — take what they get and are glad for it.
A single-payer structure is neither necessary nor sufficient
The thing about saving money by having a single health care payer squeeze providers on reimbursement rates is that adopting a single-payer structure is neither necessary nor sufficient to achieve the gains. In other words, if the American political system wanted to cut doctors’ payments, we could do that without moving to a single-payer system. Conversely, adopting a single-payer system does not on its own lead to low reimbursement rates — that’s a separate decision that the political system would have to make.
The truth is that there are two entirely separate questions: Who pays health insurance claims, and what prices does the government set? It’s true that shifting from a multi-payer to a single-payer system streamlines some elements of payment administration, but the overwhelming preponderance of the cost savings in a Medicare-for-all plan comes from the lower reimbursement rates.
To get single-payer, liberals have to be more honest with themselves
But if they ever want to get such a bill passed, liberals are going to have to start being more honest with themselves about what their vision entails — a sharp 20 percent cut in doctors’ pay rates, alongside comparable cuts for other kinds of health care providers.
Right now, Sanders and other single-payer proponents’ main strategy for dealing with this problem is to talk around it. Medicare is extremely popular, so “Medicare for all” is a popular slogan, and that’s what they talk about. But you can’t get major policy change enacted on this basis. At some point, to get the savings of their dreams liberals are going to need to win a straightforward argument over the merits of cutting doctors’ pay.
But in my experience, relatively few rank-and-file single-payer proponents are even aware that stingy reimbursements is how single-payer controls costs — in part because essentially none of the movement’s leaders ever say it publicly.
Matthew Yglesias tells us that “the overwhelming preponderance of the cost savings in a Medicare-for-all plan comes from the lower reimbursement rates,” thus “adopting a single-payer structure is neither necessary nor sufficient to achieve the gains.” He then criticizes single-payer proponents for not stating this publicly. What Matt does not seem to understand about PNHP is that we are meticulous with our facts, so we would never state something that is so misleading as to be untrue.
A well-designed single payer system includes multiple features that contain health care spending. The most important is the administrative efficiency. Under the Affordable Care Act, the private insurance industry is allowed to keep 15 to 20 percent of the premiums for administrative services and profits. The administrative costs for Medicare are about two percent, and that includes costs of other government programs that support Medicare. Adopting an improved Medicare for all would eliminate much of the excess administrative waste of the private insurers.
On the provider side, our highly inefficient multi-payer system also places a tremendous administrative burden on physicians, hospitals and other providers. In fact, administrative work consumes about one-sixth of U.S. physicians’ time (while eroding their morale, precipitating burnout). U.S. physician practices spend nearly four times as much money interacting with health plans and payers as do their Canadian counterparts.
Administrative costs consume about 31 percent of total U.S. health care spending. That is about twice that of Canada – 16.7 percent. Much of that difference is due to the financing systems – single payer in Canada and a dysfunctional multi-payer system in the U.S. – and thus most of that portion would be recoverable if we switched to single payer.
Yglesias says that we would have to reduce physician payments by 20 percent to achieve the spending goals of a single payer system. But when Canada changed to single payer, not only were physicians’ incomes not harmed, they remain among the top earners in the country.
There are several other policies of a single payer system that control spending. Hospitals are placed on global budgets – a process that works well as demonstrated by public services such as our fire departments. Excess capacity in the delivery system drives up spending, but that can be controlled by regional planning and capital budgets. The prices of pharmaceuticals and medical supplies can be negotiated just as the VA Health system already does so quite successfully. A single payer system incentivizes primary care which has been shown to spend health dollars more efficiently.
The United States and Canada followed the same trajectory in health care inflation until they adopted the Canada Health Act, providing a single payer system in each province. Since then health care inflation has been less in Canada than in the U.S. Likewise, adopting single payer in the U.S. would truly bend the cost curve, putting us on a more sustainable trajectory. Merely cutting prices 20 percent would continue us on a parallel inflationary trajectory.
Of course, there are some other advantages of single payer, besides the cost savings, which would not be achieved merely by cutting prices 20 percent – like truly universal coverage, free choice of physicians and hospitals, removal of financial barriers to care, and better access through capital planning.
We know what we know, but we don’t know what we don’t know. Although Hillary Clinton finds it politically expedient to leave out crucial facts in her critique of single payer, I would assume that Matt Yglesias, as a journalist of high integrity (and for whom I have great respect), would welcome a more thorough understanding of PNHP’s single payer model. We hope he reads this. Then we can have that debate that we should be having.
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