Health Care Cost Monitor
The Hastings Center
Aug. 27, 2009
One of the biggest arguments against a public choice option is that it would lead to a single payer system. Many critics frame this as a frightening prospect, a radical intrusion of government into health care. But many doctors and others regard a single payer system as the best way — perhaps the only way — to control health care costs well enough to provide coverage for all. Advantages include saving hundreds of billions of dollars and helping to reduce regional inequities in available medical services. David Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H., cofounders of Physicians for a National Health Program, answered questions about the single payer system and why they think it is superior to a public choice option.
Why do you support a single payer health care system?
We support nonprofit, single-payer national health insurance because it would greatly improve access to medical care; ameliorate the dire financial consequences of illness; realize large savings on bureaucracy that would make a transition to universal, comprehensive coverage affordable; establish a framework for restraining the growth of medical costs in the long run; and address the regressive nature of current U.S. health care financing.
Health reform must cover the uninsured, but also address the cost crisis for insured Americans. Illness and medical bills contributed to almost two-thirds of all personal bankruptcies in 2007, a 50 percent increase since 2001.
Covering the 50 million uninsured and upgrading coverage for the tens of millions who are underinsured will cost hundreds of billions each year. A single-payer reform would make this affordable through vast savings on bureaucracy and profits.
As we’ve shown, administration consumes 31 percent of health spending in the United States, nearly double what Canada spends. If we cut our bureaucratic costs to Canadian levels, we’d save nearly $400 billion annually — more than enough to cover the uninsured and to eliminate copayments and deductibles for all Americans.
Altogether, U.S. hospitals could save about $120 billion annually on bureaucracy under a single payer system. And doctors in the U.S. could save about $95 billion each year, which they now waste fighting with insurance companies and filling out useless paperwork.
Single payer national health insurance would also facilitate (though not ensure) rational health planning, a proven cost control strategy. Today’s market-driven capital allocation mechanism has resulted in an expensive surplus of high-tech facilities in many regions, which inevitably leads to unnecessary and even dangerous tests and interventions. Meanwhile investments in underserved communities and underprovided services (e.g., public health and mental health) lag.
National health insurance would establish explicit capital allocation mechanisms, separating operating and capital funds, allowing restraints on the supply of medical resources that are keys to long-term cost containment.
In sum, a single-payer national health insurance would make universal, comprehensive coverage affordable by diverting hundreds of billions of dollars from bureaucracy to patient care, and sustainable by enabling rational health planning. Lesser reforms cannot realize such savings. While reforms that maintain a major role for private insurers may seem politically expedient, they are economically and medically nonsensical.
The term “single payer” is normally used to characterize tax-based, national health insurance systems (Canada, the United Kingdom, and Sweden). Do you think they are better than the social insurance systems (France, Holland, Switzerland)?
A single payer national health insurance has several advantages over social insurance systems — particularly those with multiple insurers. First, national health insurance is administratively far simpler and less expensive.
From the providers’ point of view, multiple payers result in sharply increased administrative costs — as we found several years ago when we studied the administrative costs of Germany’s social insurance system for the Office of Technology Assessment. Moreover, as Hans Maarse’s recent post here illustrates, the diffusion of responsibility for financing care to multiple payers makes cost control far more complex.
We are also concerned that the flat tax financing used for many social insurance programs (e.g., Medicare’s payroll tax) is less healthy than a system based on an income tax or other progressive levy, and that an employment-based system is ill suited to the current economic situation in the U.S.
Moreover, the transition from our current health financing system to a functional social insurance system would be no easier than a transition to national health insurance.
Instituting a reasonably stable social insurance system (we would not include the still unfolding experiment in the Netherlands in this category) would require a complete recasting of our insurance firms — changing their ownership, control, and regulatory frameworks. Similarly, regulation of health facilities would have to be completely revamped. It’s far simpler to establish a national health insurance payment system than to conjure up a completely revamped set of insurers and regulations for a social insurance system.
Do you consider a public choice plan designed to compete with the private insurers to be a reasonable compromise?
Unfortunately, adding a public plan option as a patch to the current private insurance system cannot correct its flaws. As long as multiple private plans coexist with the public plan, hospitals and doctors would have to maintain their costly billing and internal cost tracking apparatus. Indeed, we estimate that even if half of all privately insured Americans switched to a public plan with overhead at Medicare’s level, the administrative savings would amount to only 9 percent of the savings possible under single payer.
There’s no evidence that competition from a public plan would restrain costs, as Daniel Callahan has argued here. A public plan might cut private insurers’ profits, which is why they hate it. But their profits account for only 3 percent of the money squandered on bureaucracy.
Far more goes for marketing (to attract healthy, profitable members). And tens of billions are spent on the armies of insurance administrators who fight over payment and their counterparts at hospitals and doctors offices. All of these would be retained with a public plan option.
Unfortunately, competition in health insurance involves a race to the bottom. Insurers compete by not paying for care: by denying payment and shifting costs onto patients or other payers. These bad behaviors confer a decisive competitive advantage.
A public plan option would either emulate them — becoming a clone of private insurance — or go under. A kinder, gentler public plan option would quickly fail in the marketplace, saddled with the sickest, most expensive patients, whose high costs would drive premiums to uncompetitive levels.
Eight decades of experience teach that private insurers cannot control costs or provide families with the coverage they need. A government-run clone of private insurers cannot fix these flaws.
David Himmelstein, M.D., is an associate professor of medicine at Harvard. His research focuses on problems in access to care, administrative waste, and the advantages of a national health program. Steffie Woolhandler, M.D., M.P.H., is a professor of medicine at Harvard and codirector of the Harvard Medical School General Internal Medicine Fellowship program. She was previously a Robert Wood Johnson Foundation health policy fellow at the Institute of Medicine and the U.S. Congress.