June 29, 2009

Is Single Payer The Answer? (updated)

Most people think of Single Payer as a way to accomplish: a) dependable insurance, b) universal coverage, and c) savings of costs that private insurance companies incur without contributing to health care.

But of all health care issues, the most decisive for us all in the long run is cost.

Universal care can't be sustained if costs continue to rise. Rising costs help tip otherwise viable businesses into failure (GM's biggest handicap pre-bankruptcy), or force shifting the costs onto workers. We are seeing medical costs bankrupt more and more families, as the primary cause -- and most had insurance.

If costs are controlled, the general economy will function better. To thrive, the U.S. economy must compete successfully in world markets. This requires business expenses here in the U.S. are not far higher than our competitors pay, and that workers and technology remain top rate. But the ability of the nation to support education and research depends on available resources. If health care takes more and more of available resources, the national outlook dims.

The cost issue is central.

So the way Single Payer might reduce costs is the most convincing and important aspect of Single Payer (for thoughts on how to make a Public Option less expensive see here). I mean that without cost benefits, Single Payer would not have 2/3rds of its popular support.

The total costs of private health insurance administration, marketing, and profits together add up to roughly 12% of all health care spending in the U.S. (Update: Wendell Potter says here that private insurers are paying out in claims on average at roughly about 80% of revenues, implying the average sum of administration, marketing and profits run closer to 20%.)

That's significant. But even going to Single Payer and saving that 12% (or up to 20%) would not be enough to solve our problems here.

This is because health costs have spiraled much higher than only 12% or 20% upwards over the last decade, becoming far out of line with GDP. We don't get more for all this extra spending. (This NPR piece points out why high cost areas are high cost.)

The challenge is that a one-time reduction in overhead costs would not by itself stop the long-term upward spiral of health care costs due to natural and technological factors described here.

But...without clearly understanding or vocalizing it, many supporters of Single Payer instinctively sense a further outcome.

We correctly sense something more than only saving administrative costs private insurers incur in their work to limit payouts and pad their profits. (Here is a new NYTimes real-life story showing a common situation -- tricky policies).

One unspoken aspect of Single Payer is that if a Single Payer sets the rates, they have near-monopoly power, and most providers would just have to accept the rates they set.

So when the majority (or future majority) of Americans ask for Single Payer, they are really asking that health care costs be controlled, regulated. Set by government.

Then the sharp upward spiral in costs from unregulated fee-for-service health care would become instead a struggle between private providers and the Single Payer over whether to reimburse for ever-expanding treatments.

To which the Single Payer would reasonably respond by specifying more precise treatment paths, and requiring those paths be followed, to control costs. (This is "comparative" or "evidence-based" care, or one way to make a Public Option cost effective.) Or...without such fundamental change it would only a matter of years until we arrive into a new cost crisis (see 2nd comment below) -- leading to more profound reform: into pay-for-outcome (performance) or closely-similar incentive reforms such as those at the Mayo clinic.

All of this would work -- this highly regulated, controlled health care.

It's a feasible outcome.


This may be needed, if the key, proposed reform of Pay-for-Performance cannot be enacted.

Pay-for-Performance would naturally control rising costs, in the ways described in the post just before this one.

But if the current efforts for Pay-for-Performance are shot down by the industry lobbies, or weakened into ineffectiveness, so that costs continue to spiral upward, then it is reasonable to expect and anticipate the arrival of Single Payer.

Single Payer is the logical next step -- this is what more and more of the body politic will decide.

Most people will say "if you can't reform 'em, then you have to beat 'em."

This will happen as costs continue to spiral upwards without real reform.


Which is best -- Pay-for-Performance or Single Payer?

While Single Payer controls costs, it doesn't by itself encourage rapid innovation.

Pay for Performance encourages innovation, because the reward is proportional to the effectiveness of the treatment, and innovation could increase efficiency and thus the profitability of treatment. Finally, this innovation will also reduce public costs progressively over time for most health conditions since competition in providing new treatments leads to lower costs. First, if current treatments are effective (such as certain chemotherapies, antivirals, artificial joints, etc.), then a new treatment/technology must hit below the current price point to begin with to be of interest to providers under Pay-for-Performance; second, new treatments tend to become more cost-efficient with time, eventually lowering the insurance costs.

But there is nothing intrinsic in Single Payer that would prevent combining these two ideas.

A Single Payer that would only Pay for Performance would be a fearsomely effective health care cost improvement machine.

Either one of these two reforms would be very potent by itself.


  1. The spiraling costs should reach a point of people being unable to pay then it would naturally correct itself, and that is what many think should happen. It would be nice if we lived in an economic system or world where we didn't have to worry because it always would adjust itself and we would all live very happy self-indulgent lives. I think that we have to work at it to make the life we want for ourselves or for the world to be what we want it to be. In this self correcting economy; many would die and many would get sick before prices would lower. Disease would spread even to the rich who would be able to afford private doctors and stay away from sick pheasants. This diseased country would find itself especially vulnerable to our enemies. We might find that we are all connected and that we need each other to be healthy.... but, it would be too late. Still, healthcare prices would have hit bottom at this time.

    I do like your ideas. I don't know if they would work, but I can see it in at least a limited to specific procedures, scenario. I agree that the current system has brought single payer on itself. Just like any system brings revolution on itself (by oppressing the people).

  2. Thomas, I think that even with a continued upward cost spiral the health industry could keep us bound a while on this current path. The method would be to simply squeeze out all the possible money from more and more patients (people losing their homes, etc.) There's a long way that could run, although clearly more and more of the population would opt out of the escalating insurance premiums and arrive (occasionally) into the current emergency care situation (where taxpayers and the insured pay for free emergency care, or supplement the meager insurance). But this would cause the general economy to have more trouble, since we need to export more and continue to innovate well, and thus need to avoid spiraling higher expenses than competitors have overseas.

    The slow motion train wreck could be prolonged for years.

    The pay-for-performance idea is liked by many doctors it appears from interviews, and it's even pro-"market", so that it could gain very broad political support.

    Ultimately I bet we end up with a combination of a) "best practices" (aka "evidence-based", aka "effective" care), b) some kind of pay-for-outcome (performance) incentives, c) more preventative care, d) more insured people or even universal....and maybe e) Public Option (as a means for the universal inclusion and pre-existing conditions, etc.). But....it's too soon to say what we will get. I think the public debate matters, and is happening now.

    For instance, is there a way to fairly require all insurers to accept pre-existing conditions in proportion, or level that playing field re pre-existing? I think so, and am thinking on it. This question is increasingly prominent, and would come up in a Public Option situation.

  3. I'm reading this as I'm undergoing treatment through Kaiser Permanente for two different, minor (I hope) conditions. As far as I can tell, the "low cost" areas of the country are where a medical model similar to Kaiser (and the Mayo Clinics) is practiced: care is coordinated through a primary care physician who calls in specialists as needed; all the specialists, and the PCP, can see all the records, prescriptions, etc. online as needed. My doctor always goes for the low-impact, low cost solution first; and I agree with that. I've had people tell me "Kaiser is in serious financial trouble", but as a patient I don't see that.

    I think it's also important that doctors at Kaiser (and, I think, at the Mayo Clinics) are not paid per procedure. They're paid a salary. I don't know how their performance is evaluated. But the biggest obstacle to "pay for performance" as I see it is developing a method of evaluating "performance" that everybody can agree on. Solve that and you're a long way down the road to selling the solution as a whole.

  4. hedera, I agree that setting the fees paid for various conditions is central. Currently, this is done by negotiation between insurers and providers. There are several ways a public plan could set rates (payments to providers).

    One advantage of a public plan is that it can offer a set fee for treating a condition under a pay-for-outcome (performance). Then providers can choose whether to sign up and accept that level of payment. Also, since the public plan can be a building block -- supplemental private insurance would allow various wider options of treatments/providers -- then it isn't necessary for the public plan to guess much. The public plan could actually hold a public auction!

    The auction would offer certain rates, gradually bidding up, until it hits a rate where a sufficient number of providers sign up for that rate for that treatment. Or the other way -- let providers bid rates and the public plan will accept bids at a certain level that has a sufficient number of providers. This can work if the public plan is specifying the treatments for specific conditions. So it's a bidding to provide service. Providers bidding low still get the chosen final bid level, and thus gain an extra above their bid.

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  6. hedera, regarding evaluating performance -- see the nearby post: New Way to Lower Health Care Costs