Single Payer 101 Kao-Ping Chua Jack Rutledge Fellow, 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 Two essential functions –Collection of funds –Reimbursement of providers Single payer is way of FINANCING HEALTH CARE Single payer is way of FINANCING HEALTH CARE

Financing healthcare in the U.S. Individuals / Businesses Government [payer] Health Service Providers Private Insurers [payers] Direct or Out-of-Pocket Payments Medicare, Medicaid, etc. Taxes Premiums Public employees’ premiums Provider Payments |------Collection of funds || Reimbursement |

Single payer financing: simplified Individuals / Businesses Government [payer] Health Service Providers Direct or Out-of-Pocket Payments National health insurance program Taxes |------Collection of funds || Reimbursement |

Single payer financing: reality Individuals / Businesses Government [payer] Health Service Providers Direct or Out-of-Pocket Payments National health insurance program Taxes |------Collection of funds || Reimbursement | Private insurers (non- covered services) Premiums Provider Payments

Single payer specifies FINANCING, not DELIVERY FinancingDelivery U.K. (socialized medicine) Mostly public U.S. Public and private Mostly private Single payer Mostly public Public and private

“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 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) 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 Hospitals: Global budget for operating expenses Physicians: remain in private practice. Physicians: remain in private practice. –Reimbursement schemes: fee-for-service, salary Medications/supplies: formulary and bulk negotiation Medications/supplies: formulary and bulk negotiation

The argument for single payer Philosophical argument Philosophical argument Economic argument Economic argument

Philosophical argument: is for-profit health care acceptable? U.S.: market-based system U.S.: market-based system : : –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? How much should the profit motive be involved with health care? Depends on whether universality in access is important 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. 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 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 Important question is not whether administrative costs are high, but WHICH administrative costs are too high

Caveats Canada’s system doesn’t DO the same administrative functions as the U.S. Canada’s system doesn’t DO the same administrative functions as the U.S. If we adopted single payer, our system would DO different administrative functions than Canada If we adopted single payer, our system would DO different administrative functions than Canada

Still…single 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 won’t do much to slow health expenditure growth.

A better economic argument: cost controls Central take-home point: When you have a fragmented, non- centrally coordinated system in which all the payers play by different rules, it’s 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 Limits on use of ineffective technology Bulk purchasing Bulk purchasing Screen for fraudulent billing (e.g. Taiwan) Screen for fraudulent billing (e.g. Taiwan) Improvements in quality that save money: Improvements in quality that save money: –Increased primary care –Electronic medical records

STRONG (and therefore controversial) cost controls Global budgeting Global budgeting Price controls Price controls Supply controls Supply controls Reimbursement caps for providers Reimbursement caps for providers Expenditure targets 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. 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 None of these cost controls are inherent to single payer systems The point is that policy makers have the OPTION of instituting cost controls… The point is that policy makers have the OPTION of instituting cost controls… And whether that OPTION is exercised depends on public opinion! And whether that OPTION is exercised depends on public opinion!

Advantages of single payer to… Patients: Patients: –Improved health –Free choice of provider –Portability of coverage

Advantages of single payer to… Physicians Physicians –Restoration of clinical autonomy –Lower malpractice premiums –Improved patient care –Simplified billing

Advantages of single payer to… Businesses Businesses –Decreased health care costs (for most) –Level the playing field –Improved global competitiveness

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

Potential disadvantages Transition from current system will be difficult Transition from current system will be difficult Important tradeoffs: will America make them? Important tradeoffs: will America make them? –You can’t 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. 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. If you value universality and equity, single payer is a wonderful option, despite its potential disadvantages.