Politics & Policy

The Single-Payer Mirage

(Photo: Zoom-zoom/Reuters)
It provides no escape from the painful tradeoffs involved in purchasing health care.

On May 16, New York’s state assembly passed legislation that would make the state government the sole payer for hospital and physician services. The state senate is only a few votes short of following suit, and California is considering similar legislation. Amid all the trouble reforming health care in Washington, some seem to be asking: Can’t the government just purchase medical services for everyone, and get a good deal in the process?

Unfortunately, a single-payer system provides no escape from the painful tradeoffs involved in purchasing health care. While it may be possible for the government to reduce health-care spending by limiting access to care, single-payer is just as likely to make it easier for providers to inflate costs by eliminating competition.

The bill under consideration by the New York legislature generously leaves the task of finding a way to pay for its proposed system to the governor. No thorough assessment of the likely cost has yet been undertaken, with proponents citing fantastical claims that increasing coverage could actually save money. A single-payer system for California was estimated to cost more than double the existing state budget, while a similar proposal for Vermont collapsed when it became clear that hospitals and physicians would not suddenly be able to deliver more services for less money.

Single-payer advocates have enthusiastically cited polls showing Americans supporting the expansion of Medicare to cover all Americans. Yet Medicare is not a single-payer system for the 86 percent of its beneficiaries that opt for some form of private or supplemental coverage. Most individuals seeking full coverage outside the multi-payer Medicare Advantage option must purchase supplemental private Medigap plans, which required an average additional premium of $2,196 in 2010.

The dysfunction in the individual market for health insurance is the result of imposing expensive service mandates without considering the likely tradeoffs. The Affordable Care Act required insurers to cover the costliest chronic-care needs but did not make appropriate provisions to compensate plans for doing so. The vogue for single-payer health care derives from the same impulse.

The reality is that you get what you pay for. Drive reimbursements for doctors and hospitals below market rates and there will not be enough providers to serve all patients. Providers who stay will be assured of customers and can let quality slip. A system of fixed pricing ossifies payment silos, encourages hasty clinical interactions, and inhibits innovations in the structure of care delivery.

Regulated pricing by a single payer is presented as a remedy to the inflation of costs by hospitals, drug companies, and physicians — but these inflated costs are often the deliberate product of policy. Hospitals are shielded from competition by policymakers so that they may charge private insurers inflated amounts to pay for uncompensated care. Lower these rates by statute, and a new source of revenues to fund treatment for the uninsured must be found. Although politicians routinely promise to cut the cost of prescription drugs by “negotiating” with manufacturers, this is always ultimately a proposal to undermine patent rights, and hence a threat to the revenues on which any future drug development relies.

The reality is that you get what you pay for.

While it is not possible for the government to get more than it pays for, it is certainly possible for it to pay too much for what it gets. When policymakers set prices in the presence of a multitude of lobbyists scattering fears about diminished access to care, payments will frequently exceed the levels that competition would yield. Very few physicians are currently unwilling to accept Medicare patients, which suggests that the program’s payment terms (fees, claims reviews, and tax implications) are highly attractive for providers relative to those offered by other payers. Indeed, as providers have a veto over every major Medicare-payment change, reforms tend only to inflate the advantages they enjoy.

For laboratory services, where government intervention has not deliberately sought to inflate the prices that private insurers must pay providers, Medicare routinely pays 18 to 30 percent more for the exact same products. Single-payer advocates claim that eliminating private insurers reduces administrative costs. It does this only by letting fraud, waste, and abuse go unchecked. In 2016, 11 percent of claims associated with the single-payer part of Medicare were improperly paid, at a cost of $1,422 per beneficiary.

Having a single payer doesn’t remove tradeoffs from health care; it just places them out of patients’ sight. When many countries established single-payer health care soon after World War II, very few of the expensive procedures that characterize modern health care existed, and so it was simple to cover everything. As costly new drugs and surgical procedures have been invented, in nations where care is available only through a single payer, these have frequently been left unavailable to patients, who often don’t know what they’re missing.

In the United States, a vigorously competitive provider marketplace drives patient expectations to make this method of cost control unrealistic. As a result, it has proven impossible for even a very liberal state like Vermont to afford establishing a comprehensive single-payer entitlement. Equivalent plans for New York and California are likely to experience a similar fate.

Chris Pope is a senior fellow at the Manhattan Institute.

Chris Pope — Chris Pope is a senior fellow at the Manhattan Institute.

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