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Devon Herrick, PhD, is a health economist and former hospital accountant. He has researched and written about health economics for many years.
Our policy analyst explains why he believes single payer Medicare-for-all is a pipe dream.
I recently spoke at a health conference in Europe and my fellow panelists-physicians working in Hungary, Sweden, Canada, and the United States-were all proponents of single-payer health insurance. Indeed, it is increasingly in vogue for American public intellectuals to assert single-payer should replace Obamacare.
Vermont Sen. Bernie Sanders famously campaigned on replacing Obamacare with a single-payer system similar to Medicare for All. Charlie Munger, the Republican billionaire vice chair of Berkshire Hathaway made headlines recently when he reported favoring Medicare-for-All because he believes our healthcare system puts American manufacturing at a competitive disadvantage. Donald Trump has even flirted with single-payer, at various times praising Canadian, Australian, and Scottish socialized health systems. A bill recently passed the California Senate Health Committee, which seeks to establish a state-run single-payer health plan in the state. In the past several years both Colorado and Vermont have debated and ultimately rejected single-payer initiatives.
Single-payer health insurance is the ultimate government control of the healthcare system. Purportedly, single-payer would provide universal coverage without the hassle of enrolling in health insurance every year. Absent the marketing expense, executive salaries, administrative tasks, and profits, health coverage would supposedly become less expensive. Absent the need to bill numerous insurers, hospitals could (at least in theory) fire the bean counters and pass on the savings to the government insurer.
Most Americans who favor single-payer health coverage do not really understand how it works. Two physicians I spoke with like their respective systems in Canada and Sweden, but complained of too much rationing and excessive bureaucracy. Yet, it should not surprise anyone that single-payer systems are bureaucratic and use rationing. By definition, a single-payer is a monopsony-the only purchaser of a good or service.
A pipe dream?
If you are the only payer, you can dictate the prices you are willing to pay-and limit the services you are willing to reimburse. You can also dictate the bureaucratic rules for payment.
Scarce resources must always be rationed in some manner. Economic theory suggests a monopsony should set provider fees low enough that a sufficient number of providers exit the market, creating a slight shortage of services. This results in what is known as rationing by waiting. Some services or treatments may take months to receive.
Price controls are commonly used to limit the cost of drugs and supplies in single-payer systems like in Canada, Britain, Australia, and New Zealand. Doctors, medical device makers and drug companies would all face a squeeze on fees and prices. Setting hospital fees at or slightly below what Medicare pays today (about 71% of private insurers’ fees) would significantly lower expenditures. Many single-payer health systems calculate fixed global budgets for each hospital, refusing to reimburse piecemeal for patient volume.
The caveat: It is doubtful politicians would have the resolve to follow the single-payer playbook in the face of the powerful healthcare lobby. Indeed, buying power is not the same as bargaining power.
Real price concessions result from bargaining power. Bargaining power only exists when one party possesses the will to walk away from a deal and deprive the other of its business. In other words, unless a Medicare-for-all system is willing to deny Americans access to some services, drugs or hospitals, then prices won’t fall.
Absent any of these preconditions a single-payer healthcare system would cost more than the current system due to the additional utilization from the uninsured and care that’s free at the point of service. In other words, single-payer is a pipe dream. It is not some magical concept that rains down savings like manna from Heaven.