Single payer health care: a quack cure

by | Sep 11, 2018 | Markets, Economy, & Government | 6 comments

The American left, which now dominates the Democratic Party, thinks it has a sure-fire winner in its advocacy of a single-payer system for America. Under single-payer, government becomes the sole source of reimbursement for health care services. Federal bureaucrats with the advice of “experts” would set reimbursement rates for health care services, as well as establish “appropriate” procedures for access to treatments, especially those that are expensive.

The Canadian model

The model for the leftists’ vision for American health care is the Canadian single-payer system known as Medicare, which covers all Canadian citizens. For covered services purchase of private insurance is prohibited, as are co-payments. Canadian Medicare does not cover prescription drugs, vision care, dentistry, rehabilitative service, and home health care.

Some policy analysts argue that the quality of Canadian health care is superior based on certain aggregate measures of health status such as life expectancy and infant mortality. Cross-country health status comparisons, however, are useless as a measure of the relative effectiveness of various health care systems. Accurate apples-to-apples comparisons are not just difficult, but impossible. They do not take into account procedures that significantly affect quality-of-life but have negligible impact on gross heath status statistics, e.g., joint replacements, various procedures for improving vision and hearing , or advanced but expensive procedures for heart and brain problems. Also, it is not possible to make reliable adjustments for factors that have a huge impact on a population’s health — behavior, diet, culture — but are minimally influenced by the quality of a nation’s health care. In Canada, for example, the Inuit people have a life expectancy 15 years shorter than non-indigenous Canadians.

Would Americans want to live under a single-payer system such as Canada’s? If they understood its inevitable long-term impact, clearly not. Treatment delays can result in avoidable death and disability, as well as lost wages. At the very least they prolong suffering. Even to Canadians waiting times for care have become unacceptably long. In Canada rationing, which is unavoidable in any system, is done by time rather than cost. A few statistics tell the tale. In 2017:

    • Over a million (out of a population of 36 million) patients were forced to wait for necessary medical treatments;
    • According to the Fraser Institute, the queue for various procedures was:

— Ophthalmology: 173,000 patients
— General surgery: 91,000 patients
— Urology: 40,000.

In the United States, there already is a single payer system, namely the Veterans Administration. Ask a veteran or a member of his family how well that is working for them.

Inherent Defects of a Single Payer System

All single payer systems have inherent, unfixable structural defects that doom them to a downward spiral of degradation of quality per dollar spent and less availability of good care on a timely basis:
• Power is centralized in the hands of government workers who have no incentive to help patients get the best possible quality of care at a reasonable cost.
• All single payer systems increase demand for health services and reduce supply. This guarantees shortages and dissatisfaction.
• Since doctors and hospitals are paid by government, they will become increasingly less focused on patients and families. Whose bread you eat, his song you sing.
• Under single payer, there is a strong incentive to get patients out of the office as soon as possible.
• Huge amounts of time are wasted in “box checking” to keep the compliance bureaucrats and accounting clerks happy. Neither contributes to good health care.
• The extent of control by government bureaucrats necessarily must always grow. If they control reimbursement rates, utilization of services will rise. Therefore, they have to control utilization. To control utilization, government needs to how much and what kind of care doctors can provide without having to get advance permission. Patients and doctors would now have another party to deal with who has no knowledge or incentive to do anything but apply stringent control procedures.
• Incentives to innovate under single payer always wilt.
• The wealthy and well connected will, as usual, find ways to circumvent the system to get what they need, while everyone else will just have to get in line.

A Better Way

To understand the likely impact of a public policy, it is necessary to answer two questions: ‘
1. Who gets to control the flow of money?
2. What are the incentives of the main actors?

The leftists with their single payer dream would have the money controlled by Congress (presumably good progressive senators and congressmen), government workers, and various health policy “experts”. Note that none of these entities has personal “skin in the game”, i.e. they suffer nothing if they make a mess. They therefore have minimal incentive to focus on what actually works. Elected officials and bureaucrats are masters of scapegoating and evading personal responsibility.

In order for a health care delivery system to provide the best possible outcomes in a pleasing, caring manner at reasonable costs:
1. The flow of money should be controlled by patients and their families, but they should be incented to be conscious of cost as well as quality.
2. Health care providers (doctors, hospitals, nurses, technicians, etc.) should be focused exclusively on doing the best they can for patients and there should be strong incentives to innovate because ultimately, the only way to get improved care for everyone is through continuous innovation .
3. Every American regardless of ability to pay should have access to decent care, if not “presidential level” care. The latter is unaffordable, even for the United States.

No system is perfect, and all require trade-offs, but there is one program that meets these tests better than what Canada offers or what we have in the United States today. The technical term for it is a negative income-related refundable tax credit. In broad outline, it would work as follows:

• Every American paying income tax would get a tax credit applicable against any state-licensed insurance plan or one offered by an employer that itself provided insurance for medical and surgical expenses. The size of the credit would be inversely related to income; higher income people would get a smaller credit.
• Low income people would be eligible to receive from government a voucher entitling them to buy a state-licensed health insurance plan. That, too, would be income related.
• Besides vigorously policing for fraud, government’s role would be limited to making sure eligible low-income people got what they needed to buy a health care plan in the form of either a tax credit or a government- provided payment.

This program puts power where it belongs: namely, in the hands of patients and their families. It induces competition to create a wide diversity of health plans that cater to the wide variety of people’s needs, and it stimulates competition to provide superior value for the dollar.

Certain technical issues must be addressed. The most important pertain to risk adjustments to accommodate people with pre-existing conditions, and to scope of plan coverage. Practical solutions to these issues, based on common sense trade-offs, are readily available.

A negative refundable tax credit plan for health care coverage could be applied initially to those who can’t afford to purchase health care coverage on their own. Since the plan is compatible with what most Americans are familiar with — employment-based group insurance — immediate, wholesale changes in how health care is paid for and delivered would not be necessary.

Why isn’t the refundable tax credit idea better known and more popular?

Politicians in general and the loudest voices in academe, the media, the Democratic Party, and the entertainment industry don’t like the idea. By returning power back to the people, it would diminish their power and prestige. God forbid that the American people would come to rely more on free markets than the government-enforced dictates of their “betters”.

6 Comments

  1. My frustration with our current Health plan has been the long wait time in physicians offices due to number of patients. Additionally once in the doctor’s treatment room, doctors spend a minimum of time with the patient due to the fact that they need to meet a quote of patients per day. I question the thoroughness of the exams. My husband has solved this problem by contracting with a concierge physician, which of course costs a bit of money. I have not as yet. On one occasion, after waiting in the waiting room for over an hour, I left, making my displeasure known to front desk. I have heard this concern regarding wait time from many of my friends. Would your suggestions above rectify this situation.

    Reply
    • “Whose bread I eat, his song I sing.” The negative refundable tax credit plan I described transfers power toward patients and their families and encourages competition among health plans to assure the delivery of the best possible health care value for the dollar. If physicians and staff are not attentive to patients, the health plans lose business because their customers are unhappy with the service they receive. The core idea is to empower the patient and her family to the greatest extent possible, and to encourage careful shopping among plans. A single payer system by contrast centralizes power in the hands of bureaucrats whose main interest will be cost containment and minimizing the nuisance of complaints from patients. The key to any plan is to get the incentive structure right.

      Reply
  2. Good read Sam. This is definitely one of Americas biggest issue, that and closing our borders.

    I see the issue as three-fold.

    1) Preventive:
    Create incentives for people to change their lifestyle (ie. working out, getting regular physicals, maintaining a healthy diet, not smoking) many of which a lot of corporations are doing now. Understandably, it’s hard to manage except through primary physicians and annual physicals (blood-work, body-fat analysis, vision screening)

    2) Emergency or chronic disease
    I love the idea of the voucher and the wealthier paying more. It makes too much sense! Why should Warren Buffet need to rely on medicare.
    This could all be managed via tax returns….no return…no health care. If you are on disability, you pay very little…or nothing.

    3) What incentives are there for the physicians to provide best in care? With the free market system, maybe a doctor is ranked based on his reviews 100 patients 100 scores of ten out of ten, He gets more patients (up to a certain level, not overload) and his insurance goes down and the portion paid to him for services rendered, goes up. Doctors would then be healing machines!!! or paying for top reviews….hopefully not.

    Reply
    • Colby,

      With health plans free to innovate, I would not be surprised to see plans develop that offered discounts to people who by objective measures had improved their health and fitness. There is no reason health plans couldn’t offer discounts for improvement just the way auto insurers offer discounts for a good driving record. As you know so well, the single best way for people to improve their health is to look after themselves. The key is to encourage plan innovation; over time a process of competition and experimentation would reveal what works best.

      How to assure that people who are chronically ill or disabled get good care regardless of income is difficult; the best bet is to encourage treatment specialization. Once again, a well designed market will handle that problem way better than a “one size fits all” government program. For example, it would be doable to identify people who require ongoing care and to provide them with income related fixed vouchers for that particular type of treatment.

      Physician rankings by the patients are a good idea in principle. Policy “experts” fret that this approach would cause doctors to avoid the hard cases with a poor prognosis. I disagree. Patients and families are not stupid, contrary to the elitists’ perspective. They know that the right standard is whether the doc did the best she could under the circumstances. As you know from your own experience, the review process can be gamed, but people learn; markets adapt. That process of constant learning and adaptation is the key to why a market based approach based on continuous feedback from users (customers, patients & their families) in the long run will lead to the best results for the most people.

      Reply
  3. Congratulations on tackling such a difficult and complex subject on your blog, Sam.

    I am curious to know how your proposed solution would address these systemic problems in the American health care system as it stands today:

    – Adequate affordable coverage for people with pre-existing medical conditions. Pre-Obama care insurance plans were free to deny coverage entirely for any and all pre-existing medical conditions, or make the insurance rates so high that they effectively denied coverage simply because the coverage was not affordable.

    – How would you stop / prevent price-gouging practices and exorbitant costs for life-saving necessary medications? (See: https://www.cnn.com/2016/08/23/health/epipen-price-mylan-prescription-drugs-increase/index.html)

    – How would you ensure that health care insurance premium rate increases stayed in line with cost of living increases? As you well know, health insurance premiums have, over the past 10 years at least, far outpaced average annual increases in wages, while at the same time decreasing benefits coverage and increasing out of pocket costs like deductibles and co-insurance rates (see: http://time.com/money/4970511/why-your-health-care-costs-are-out-of-control-in-one-graph/

    – The growing freelance economy and rising trends in self employment mean that more and more American workers are and will be shouldering the entire cost of health insurance on their own and paying far higher premiums for plans that offer inferior coverage and benefits compared to employer based health insurance plans. See: https://nypost.com/2018/03/25/self-employment-is-a-rising-trend-in-the-american-workforce/

    How would your solution address the seemingly intractable and insolvable problem that the U.S.spends way far more on health care per person than do most countries with free, universal health care — and that US health care costs as a share of the national GDP is so much higher than any other developed nation in the world?

    Why is it that the U.S. health care system leads the world in health care spending yet ranks last among 11 high-income countries in health care quality and outcomes? Why is it that Americans as a whole are sicker and more likely to die of preventable conditions than those in other wealthy countries?

    “The overall level of health spending in the United States is so high that public (i.e. government) spending on health per capita is still greater than in all other OECD [Organization for Economic Cooperation and Development] countries, except Norway and the Netherlands,” according to a recent OECD report, which covers most of the developed world.

    See: https://www.theatlantic.com/international/archive/2012/06/heres-a-map-of-the-countries-that-provide-universal-health-care-americas-still-not-on-it/259153/

    https://www.commonwealthfund.org/publications/journal-article/2018/mar/health-care-spending-united-states-and-other-high-income

    Reply
    • In the original post, I argued essentially argued that well designed health insurance and health provider markets would enable universal access to good, timely care, encourage cost consciousness, and stimulate innovation better than various schemes based on heavy government regulation. Yvonne fairly and trenchantly raises critically important issues that I did not explicitly address. My responses are below. The process of reason and evidence-based debate may not lead to agreement, but it will lead to great clarity as to each party’s core assumptions and inferences.

      Re: price gouging practices and exorbitant costs of life saving medications

      Some literally life-saving drugs cost tens of thousands of dollars per patient per year, and are beyond the reach of many families. Their high cost does not necessary mean, however, that the manufacturer is earning windfall profits. While the variable cost of an expensive drug may be a small fraction of the total cost, the cost of research and development for a drug that will be needed for a tiny population can be as much as for a “blockbuster” drug intended for a large population. One successful drug has to pay for the cost of spending on a multitude of expensive failures. For example, the average cost to develop a new drug today is about $2.6 billion. https://www.policymed.com/2014/12/a-tough-road-cost-to-develop-one-new-drug-is-26-billion-approval-rate-for-drugs-entering-clinical-de.html What appears to be price gouging when the variable cost of a drug is compared to its price turns out not to be when the full cost of drug development is considered.
      These economic facts of life are of no comfort to a patient (as well as his family) who will not survive or who will experience awful suffering if the drug is not available. Under an income-related refundable tax credit system, health insurers would have the incentive to tailor plans to smaller groups, and health insurance subsidies could be targeted to patients with life-threatening pre-existing conditions. In effect, the subsidy would be for health care, not just health insurance. Individuals and families by being part of a health care pool would not be faced with the horrible choice of bankruptcy or nothing. Clearly, regulations would be required to assure that competition among health plans rewarded those who provided the best health care for the dollar rather than those who were adept at “cherry picking” healthy patients. Setting rules for the basis of competition in health care insurance and provider markets to assure the right kind of competition among health plans is vastly more effective than replacing markets with government regulation. Under the latter regime, what seems to happen is that while there is universal access to care in principle, in practice the rationing is indirect in the form not just of treatment delay but lack of availability at all, except for people who can afford to get all the care they need on their own.

      Re: the gap between health care spending and wages

      For decades, health insurance premiums have grown faster than wages. This should surprise no one. Employer-paid health insurance is subsidized in that employer payments for health insurance are tax free to the employee. Incentives to shop for the best health insurance value are muted. I once was in a meeting in the Roosevelt Room across the hall from the Oval Office where the head of Medicare had convened a meeting of the country’s best health economists, spanning the spectrum from left to right. Asked if there was one policy reform they all could agree on, there was unanimity on one: get rid of the tax free status of employer-paid health insurance which enervates incentives to economize and benefits people employed by large companies at the expense of everyone else.

      It is a fact of life that just like anything else, health care has to be rationed. But many people have treated it like a free good because to them it is. The question is not whether there will be some form of rationing – there will be – but who does it under what incentives and what form it takes. An income-related refundable tax credit plan empowers the ultimate consumer [patients and their families] and stimulates competition among plans. A properly designed competitive market combined with credits / subsidies necessary to assure universal access to health coverage performs better than government control of cost and availability: it delivers what people want at a price sufficient to assure that a service is available but not so much that producers earn windfall returns. There is nothing magic about this. The best discipline over insurers and providers is vigorous competition on grounds that are beneficial to patients: quality of care per dollar spent, timely access, and caring service. The best way to encourage careful spending is encouragement of cost consciousness among all parties. The best way to assure access to good care regardless of income is to use tax credits and vouchers to empower people who otherwise could not afford a health plan. Ironically, the Federal Employees Health Benefits Program (FEHBP) is a model of a well designed program. Employees select from a menu of plans varying in cost and coverage.

      Re: denial of service, reimbursement delays

      A competitive market will cater to a wide variety of preferences. Some people will want comprehensive coverage and will be willing and able to pay for “presidential level” care. Others will want a cheaper plan but good coverage in the event of a need for expensive treatment for a life-threatening ailment. Such a plan would provide limited coverage for non-major illness and a high deductible.
      No matter what level of coverage chosen, everyone wants to get what they are paying for. Nobody wants to be “slow walked” for care that is desperately needed. The key to assuring this is accountability. Which is going to be more responsive to patients: a private health provider in a competitive market, a private provider whose revenues depend on government payment rates, or a public provider of health services (think the Veterans Administration)? Furthermore, redress for denial of care is almost sure to be quicker and easier if one’s counterparty is private rather than an institution that is funded and/or managed by government.

      Re: the disadvantage the self-employed face when seeking health care coverage

      If someone is employed by a company that pays for health insurance coverage, 100% of that payment is tax free to the employee. If someone is self-employed, he or she pays 100% of the cost of coverage out-of-pocket less the allowable tax deduction. For example, a person in a 25% tax bracket would have to pay 75 cents of every dollar spent on health insurance [premium cost x (1- the tax rate)]. This makes no sense. A universally applicable income-related refundable tax credit would sever the link between employment and coverage; the self-employed would no longer be disadvantaged. Everyone would receive either a tax credit or an outright tax-funded payment for health care coverage.

      Good principles produce better outcomes
      The basic theme is that competitive markets serve people better than government controls on prices and utilization. The incentive for both health plan insurers and providers in competitive markets is to improve revenues and profits via continuous improvement in what they offer relative to competition. That pressure to improve is not present in government-controlled systems. Wise government policy would focus on making markets work better, not replacing them.

      Reply

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About The Author

Sam Mitchell is a researcher by trade. For almost four decades, Sam's job has been to invest other people’s money as well as his own. The total amounts involved have been in the billions of dollars.

Sam lives or dies economically according to whether the findings and conclusions from his research are correct.

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