Single Payer Healthcare

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SINGLE PAYER HEALTHCARE 2

Over the past decade, the debate on healthcare reforms has been the most pertinent issue

in the United States and has sent the nation into a political gridlock. After the institution of

universal health coverage as a development goal by the World Health Organization in 2010 and

later adopted by the United Nations General Assembly as a 2030 Sustainable Development Goal,

nations across the globe are restructuring their healthcare systems to realize these goals. One area

of the healthcare system that has remained troublesome to restructure is the source of funding for

the system. The selection of a source of funding that not only provides quality healthcare service

but also eases the financial burden of the financier has proven to be quite the challenging task.

Hitherto, two types of funding are currently in use; the single payer system and the multi payer

system. The single payer system, where there is only one financier, is not employed in the United

States. In spite of the milestones that other nations have been able to achieve under the single

payer, the system remains plagued by numerous challenges that threaten its existence in the

decades to come. This paper employs an economic paradigm of thought to offer solutions to the

challenges facing the single payer system and analyze its practicability in the United States.

Overview of the Single Payer System.

As stated earlier on, the single payer healthcare system draws its funds from one source.

This source may either be the federal government, state government or the private sector. If the

private sector is the source of funding, then employers get to pay for the healthcare services

received by their employees. However, the single payer systems is mostly used by governments

to achieve universal healthcare, ease the financial burden associated with healthcare for its

citizens and improve healthcare services provided within their jurisdictions (Montgomery, 2017).

Healthcare is a critical component of a nation and having a single payer system sponsored by the

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government allows the government discretion to exercise control and define its healthcare

objectives.

The institution of a single healthcare system calls for the establishment of a single pool of

health risk for the entire population. The system also has predetermined rules, the prices of

drugs, irreducible minimum for the services rendered and reimbursement rates (Hsiao, Cheng &

Yip, 2016).Single payer healthcare systems provide general medical services including maternity

and fertility services. Healthcare systems in other nations such as Taiwan may provide

specialized care including dental and optical services. Cosmetic surgery is a service that most

single payer systems do not cover.

It is interesting to note that, the definition of single payer healthcare is limited to the

source of funding and not the healthcare provider. Patients under the single-payer healthcare

system may seek for healthcare services in either private or public healthcare facilities. The

system may also be managed publicly by a governmental department or by a public-owned

entity. The United Kingdom, Canada, Taiwan and Australia are examples of nations with true

single payer healthcare systems. In the United States, Medicare and Veterans Health

Administration are examples of single payer systems (Montgomery, 2017).

Economic Analysis of the Single Payer System

Interest in the single payer healthcare system increased significantly during the 2016

Presidential Elections. Democratic candidate Bernie Sanders put forward a single payer-based

healthcare system, Medicare for All, which sought to repeal Obamacare. As politics would have

it, many Democrats including presidential candidate hopeful Hillary Clinton, were opposed to

this proposal. Sainato (2016) notes that most of the concerns that were raised by the Democrats

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had no factual economic evidence to back them up and were only predicated on political

pragmatism. Sainato, however, adds that the single payer system does have issues and any

presidential candidate hoping to bring it to Americans should address these issues first (2016).

Some of the major challenges related to the single payer system include crowding out,

government intervention, scarcity of resources and cost reduction.

Crowding out of Private Healthcare Insurers.

President Obama, when enacting the Obamacare, was hopeful that the Act would bring

sanity to the widely unregulated healthcare system, offer a range of healthcare services and

promote healthy competition between the public and the private sector. Professor Harrington of

the Wharton School of the University of Pennsylvania is however of a different opinion.

Harrington asserts that the public and the private sector cannot engage in a “healthy

competition.” Harrington observes that when the public and the private sector are engaged in a

competition in a given economic industry, the public sector is most likely to flourish while its

private counterpart perish, an economic phenomenon termed as “crowding out” (2009).

Harrington notes that the Affordable Care Act will lead to crowding out of the private

sector from the healthcare insurance industry and leave the government as the only player

consequently resulting into a single payer system (2009). This notion is shared by the America's

Health Insurance Plans (AHIP) American Medical Association and American Hospital

Association (Healthaffairs.org, 2009). Supporters of a government healthcare plan insist that

such a plan would significantly reduce administrative costs. While this may be true, the

administrative costs incurred by the private sector end up saving money in the long run. Private

insurers incur administrative costs in the form of establishing and sustaining provider networks,

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scrutinizing payments for wastages and fraud (Herrick, 2017). It is important to note that the

private sector will incur a dollar in administrative costs if it results in savings of at least a dollar.

Economic literature does not offer any assurance that a public plan will have similar incentives.

Equality in the level of reimbursement to hospitals and doctors between public and

private insurers will also lead to crowding out. To counter this eventuality, economists are

suggesting that the public insurer should pay Medicare rates with a small markup (Porter &

Teisberg, 2006). However, since Medicare reimbursements already have a significant cost-

shifting to private insurers, any increase in Medicare reimbursements, including or excluding a

markup will shift more costs to private insurers thereby hastening the latter’s exit from the

insurance industry (Porter & Teisberg, 2006).

Harrington adds that healthcare reforms are also expected to limit the operations of

private insurers and finally kick them out of the insurance business (2009). Policymakers are

fixated on ensuring that the premiums paid by an individual do not define their health status and

coverage. As such, private insurers will be forced to take on all applicants regardless of their age

and medical history. This will impose a huge challenge on designing medical covers and

marketing or even the transfer of funds across insurers to level profitability (Krahn, 2016).

Government can even impose other constraints and surcharges to bar private insurers from

offering incentivized option.

Government Intervention

Another economic challenge that is linked to the single payer system is government

intervention. As we have previously established, the single payer system is usually funded by

government and direct government participation in the economy results in offsetting the market

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forces of demand and supply and triggering periods of economic distress (Kronenfeld, Parmet &

Zezza, 2012). With the United States being a widely capitalistic economy, the introduction of

government-backed healthcare plans are unknown and might undermine the capitalistic

principles on which the economy operates. Proposers of the single payer system are of the

opinion that government intervention in the healthcare industry was facilitated by the fact that

the sector has over the years remained widely unregulated and that the government will correct

the market failures that have continued to characterize the sector and promote the welfare of its

citizens.

Herrick affirms that the single payer coverage is the epitome of control by the

government over the healthcare system (2017). The system will significantly reduce the cost of

healthcare especially the premiums paid by the policy holders. However, as many federal

operations, the systems will be described by rationing and unnecessary bureaucracy. These two

attributes were observed by doctors and healthcare managers in Canada and Sweden; nations

with single payer healthcare system (Herrick, 2017).

Establishing a single payer system will also require the healthcare industry to be a

monopsony market i.e., where there is only one buyer of a good or a service. To establish a

monopsony market, other insurers have to be pushed out (crowding out). Crowding out, in this

case, is usually achieved by the insurer setting very low prices that other insurers cannot compete

with forcing the latter to close shop (Herrick, 2017). When other insurers exit the market, a

shortage of insurance services is experienced i.e., rationing by waiting, this might result into a

healthcare crisis if the public insurer left in the industry does not have the capacity to serve the

entire market (Herrick, 2017).

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The significant bargaining power wielded by a monopsony might not only choke out

competition but also disrupt the entire healthcare industry. With the government being the

dominant player in the industry, it can influence the level of reimbursement to hospitals and

doctors, the prices of drugs and healthcare devices (Healthaffairs,org, 2009). Similar price

controls mechanisms have been witnessed in Canada, Australia, Britain and New Zealand

(2017). The equilibrium of an effective market is set by the forces of demand and supply and

with the forces of demand out-powering those of supply, the equilibrium of the market is likely

to tip in favor of the government and to the detriment of hospitals, doctors, pharmaceutical

companies and device manufacturers.

Scarcity of Resources

Scarcity of resources is the foundation of economics, the basic tenet of this field of study.

Most economic policies are enacted to with one goal in mind; addressing the issue of scarcity of

resources. The single payer healthcare system is an example of such a policy. Money is a scarce

commodity. It is supposed to be used sparingly and get the most out of every dollar. This is the

principle on which the single payer system operates.

Literature on healthcare systems shows that countries and other jurisdictions with a single

payer system spend significantly lower on healthcare than countries that employ the multipayer

system. In a study conducted by the Political Economy Research Institute of the University of

Massachusetts at Amherst found out that the single payer healthcare system proposed by the

Californian state government would reduce health costs incurred by Californians by 18% and cut

the state’s healthcare budget by 8%. Currently, the high healthcare budget is as a result of the

high deductibles and significant out-of-pocket expenses. Pollin et al. assert that the Healthy

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California Act, which serves as the framework for the single payer system, will restructure the

healthcare system in California in the critical areas i.e., administration, pricing of pharmaceutical

drugs and devices and the fee structure for healthcare providers (2017). Pollin et al. (2017)

believe that changes in these three areas will result in a total saving of up to 13%. Pollin et al.

(2017) note that reducing the level of inefficiency that has for a long time been associated with

the provision of healthcare services will also reduce costs and make the single payer system a

success. Towards this extent, Pollin et al. identify four issues with service delivery that need to

be addressed: (i) uncalled for services, (ii) poorly delivered services, (iii) missed opportunities to

improve service delivery and (iv) fraud. Improving on these areas will further cut down

healthcare costs by 5% (2017). Pollin et al. assume that if the Healthy California Act is instituted

and the recommendations they have put forward implemented, California can provide universal

healthcare coverage to its citizens at subsidized rates (2017). As a result, California’s 2017

healthcare budget under the Healthy California Act will be $331 billion compared to $404.1

billion under the current system.

Financing the healthcare budget under the single payer system has also been a concern.

Most people are of the opinion that since financing the healthcare system has been left at the

discretion of the government, the government is likely to pool funds from other sectors to foot

the healthcare budget (Krahn, 2016). In the long run, other economic sectors and social amenities

are likely to experience deficits. Additionally, people worry that a single payer system being

managed by the government will result into higher taxes and increased deductibles. Pollin et al.

(2017) refute these claims and assert that the single payer system will not increase any tax

burden to the citizen.

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The single payer system will use the existent sources of funds that are currently being

employed. Currently, Medicare and MediCal provide at least 50% of the total healthcare budget

with tax subsidies raising the total tally to around 71%. Pollin et al. estimate that under the currnt

system, California can comfortably raise $ 225 billion leaving a total of $106 billion to be

financed by new sources. Pollin et al propose two taxes: i) a gross receipts tax of 2.3% and ii) a

sales tax of 2.3%. These taxes are in line with California’s tax code and would thus not require

any formulation of new legislations.

The gross receipts taxes will be implemented on all business. The tax will include a $2

million exemption for all business. If a company employees 9 popl or below, the company will

be exempted from the tax. Companies with an average of 19 employees will only pay a third of

the gross income as taxes. The sales tax will also provide exemptions on housing, utility and

food expenditure. Healthy California Act can be used as a benchmark study by other states and

th nation as a tool for structuring the single payer system.

Conclusion

To salvage the private sector from going under and being crowded out, the private

insurers can make reimbursements at a lower level in comparison to the public insurers.

Alternatively, the public insurer can pay the reimbursements on behalf of private insurers. While

this politically feasible, it goes against the cost-cutting tenet of public insurance plans. It would

also call for a complex design and restructuring of bureaucracies to allow for negotiations

between thousands of private insurers. The pessimists are certain that a government healthcare

plan will dwarf and decimate private insurance plans. Optimistically, this challenge presents an

interesting research topic on how the public and private can coexist in the healthcare insurance

sector or is a single payer healthcare system inevitable in the long run?

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Benchmark studies are required to examine how other auxiliary industries to the

healthcare industry thrive in Australia, Canada and the United Kingdom. Primary research,

review of current economic literature and creating empirical models that discuss the relationships

between these industries and the monopsonistic public plan will provide necessary insight to

formulate and establish the American single payer healthcare system.

Finally, the single payer system has shown promising results in other nations such as

Canada and Taiwan. Today, Canada has one of the universal health coverage in the world, a feat

that can be attributed to the effective and efficient Canadian Medicare single payer system. Like

any other system, single payer systems has its bugs that need fixing and once streamlined, the

system will finance quality and cost-friendly healthcare services to the population.

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References

Harrington, S. (2009). The 'Public Plan' Would Be the Only Plan. WSJ. Retrieved from

https://www.wsj.com/articles/SB124502127377113741

Healthaffairs.org. (2009). A Public Health Insurance Plan. Healthaffairs.org. Retrieved from

https://www.healthaffairs.org/do/10.1377/hpb20090619.755576/full/

Herrick, D. (2017). Biggest problems with single-payer ‘Medicare-for-all’. Managed Healthcare

Executive. Retrieved from

http://managedhealthcareexecutive.modernmedicine.com/managed-healthcare-

executive/news/opinion-biggest-problems-single-payer-medicare-all

Hsiao, W., Cheng, S., & Yip, W. (2016). What can be achieved with a Single-payer NHI System:

The Case of Taiwan. Social Science & Medicine.

http://dx.doi.org/10.1016/j.socscimed.2016.12.006

Krahn, H. (2016). Single Payer Heaithcare System: Faults and Fixes. Friesen Press.

Kronenfeld, J., Parmet, W., & Zezza, M. (2012). Debates on U.S. Health Care. Thousand Oaks,

Calif.: SAGE Publications.

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Porter, M., & Teisberg, E. (2006). Redefining Health Care: Creating Value-based Competition

on Results. Boston (Mass.): Harvard Business School Press.

Montgomery, K. (2017). Difference Between Universal Coverage and a Single- Payer System.

Verywell. Retrieved from https://www.verywell.com/difference-between-universal-

coverage-and-single-payer-system-1738546

Sainato, M. (2016). An Economist Breaks Down Single Payer Healthcare. HuffPost. Retrieved

from https://www.huffingtonpost.com/michael-sainato/an-economist-breaks-down-

_b_9018098.html

World Health Organization. (2010). Health Systems Financing: The Path to Universal Coverage.

World Health Organization. Retrieved from http://www.who.int/whr/2010/en/

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