Single Payer 101

Kao-Ping Chua Jack Rutledge Fellow, 2005-2006 American Medical Student Association

Outline
I. Financing health care and single payer financing
II. What does single payer look like?

III. The argument for single payer

IV. The advantages of single payer to different groups of people V. The potential disadvantages of single payer

The Financing of Healthcare

Two essential functions

Collection of funds

Reimbursement of providers

Single payer is way of FINANCING HEALTH CARE

Financing healthcare in the U.S.

Individuals / Businesses
Direct or Out-of-Pocket Payments

Health Service Providers

Taxes

Medicare, Medicaid, etc. Provider Payments

Premiums

Government [payer]
Public employees premiums

Private Insurers [payers]

|------Collection of funds-------||---------Reimbursement--------|

Single payer financing: simplified

Individuals / Businesses
Direct or Out-of-Pocket Payments

Health Service Providers

Taxes

National health insurance program

Government [payer]

|------Collection of funds-------||---------Reimbursement--------|

Single payer financing: reality

Individuals / Businesses
Direct or Out-of-Pocket Payments

Health Service Providers

Taxes

National health insurance program

Premiums

Government [payer]

Provider Payments

Private insurers (noncovered services)

|------Collection of funds-------||---------Reimbursement--------|

Single payer specifies FINANCING, not DELIVERY

Financing U.K. (socialized medicine) U.S.
Mostly public Delivery Mostly public

Public and private Mostly public

Mostly private Public and private

Single payer

Single payer vs. universal health care

Single payer is a way of achieving universal health care, but universal health care is not necessarily single payer

What does single payer look like?

Eligibility/benefits: all residents of U.S. enrolled; all medically necessary care covered
Financing: Current sources of government funding and adding new taxes (offset by premiums)

What does single payer look like?

Hospitals: Global budget for operating expenses Physicians: remain in private practice.
Reimbursement schemes: fee-for-service, salary

Medications/supplies: formulary and bulk negotiation

The argument for single payer

Philosophical argument

Economic argument

Philosophical argument: is for-profit health care acceptable?

U.S.: market-based system

2000-2004:
Profits for top 17 U.S. health insurance companies rose 114% (compared to 5% for S&P 500) Health insurance premiums rose 60%, 6 million more uninsured

Philosophical question

How much should the profit motive be involved with health care?

Depends on whether universality in access is important

Economic argument
Administrative simplification

Cost control mechanisms

Economic argument: administrative simplification

Source: Kenneth Thorpe, 1992.

Single payer and administrative costs

Woolhandler: $294.3 billion per year spent on administrative costs in U.S.

31% of U.S. health expenditures, vs. 16.7% for Canada.

Conclusion: Single-payer system in America would save on administrative costs

Caveats

Important question is not whether administrative costs are high, but WHICH administrative costs are too high

Caveats

Canadas system doesnt DO the same administrative functions as the U.S.

If we adopted single payer, our system would DO different administrative functions than Canada

Stillsingle payer would decrease MANY costs

Source: Kenneth Thorpe, 1992.

The best economic argument?

Administrative costs have really been the rallying cry for many single payer advocates, but they are not the best economic argument for single payer.
WHY? Administrative costs are not a primary driver of health care costs.

Reducing unnecessary administrative costs will generate a one-time savings it wont do much to slow health expenditure growth.

A better economic argument: cost controls

Central take-home point:
When you have a fragmented, noncentrally coordinated system in which all the payers play by different rules, its very difficult to institute effective systemic cost controls.

You can institute cost controls in some areas, but not others.

Cost controls in centrally administered systems

Limits on use of ineffective technology

Bulk purchasing Screen for fraudulent billing (e.g. Taiwan) Improvements in quality that save money:
Increased primary care Electronic medical records

STRONG (and therefore controversial) cost controls

Global budgeting Price controls Supply controls Reimbursement caps for providers Expenditure targets

STRONG (and therefore controversial) cost controls

Other countries have all used these cost control mechanisms with great success.
But there is always the danger of being too aggressive about controlling costs.

Caveat, again

None of these cost controls are inherent to single payer systems The point is that policy makers have the OPTION of instituting cost controls And whether that OPTION is exercised depends on public opinion!

Advantages of single payer to

Patients:
Improved health

Free choice of provider

Portability of coverage

Advantages of single payer to

Physicians
Restoration of clinical autonomy

Lower malpractice premiums

Improved patient care Simplified billing

Advantages of single payer to

Businesses
Decreased health care costs (for most)

Level the playing field

Improved global competitiveness

Potential disadvantages

Threat of underfunding by hostile government Strength of special interests that would seek to undermine the system Potential imbalance between quality controlling expenditure growth

Potential disadvantages

Transition from current system will be difficult

Important tradeoffs: will America make them?

You cant give every health care intervention to every person
Less choice in insurance plan More government control for less private control

Conclusion: How do you evaluate a system?

Every system has disadvantages, no matter what. Based on your values, you can select which disadvantages are outweighed by the advantages.
If you value universality and equity, single payer is a wonderful option, despite its potential disadvantages.