A Facebook friend, Lyman Momeny, sent me a link to an article about single payer asking for my response. Below is the entire article, published in the Federalist, with my comments in response contained in parentheses.
WHY SINGLE PAYER WILL ONLY MAKE HEALTH CARE MORE EXPENSIVE
by Scott Ehrlich
Scott Ehrlich is the COO of DTC Perspectives and the host of the upcoming health policy radio show “Debating Health.”
The arguments for single-payer are full of ridiculous extrapolations, economically illiterate assumptions, and pie in the sky dreams of abundant providers to treat millions of patients. (The arguments for the status quo in health care business as usual in the US ignore the reality that what we have is unsustainable. The entire projected federal debt many decades on into the future is unfunded obligations under federal health programs. The percentage of the GDP devoted to health care increases dramatically with each passing year. US taxpayers currently pay the world’s highest taxes to support health care programs and get less care, poorer quality care, and remarkably inefficiently financed care. What is economically illiterate and ridiculous in extrapolation is to assume that what the US has been doing in health care is what we should continue to do.)
Why do single-payer health care supporters treat it like an unassailable good? Even if you can point to a place like Denmark, with 5 million people and little ethnic diversity, why do people think we can transport that into a country of 330 million ethnically diverse individuals with the same results? After all, we couldn’t even get Americans to buy into the infinitely easier metric system, but they are going to enjoy higher taxes to pay for rationed health care? (No one is arguing for socialized medicine in the US, such as is the case in Denmark. Because the US is the world’s largest economy, by far, does that mean we have nothing to learn from smaller countries, just because of size differential, or diversity? How is comparing the non-use of the metric system in the US to adopting a different approach in health care delivery anything other than a ridiculous extrapolation?)
I recently debated a very accomplished doctor and single-payer supporter. Single-payer is more efficient because it doesn’t have to take into account profits, she said. It reduces administrative costs, there’s less waste, fraud, and abuse, and therefore even conservatives would be stupid not to jump on this opportunity. (This is a caricature of the arguments in favor of single payer. I doubt the accomplished doctor actually made these arguments, at least as they have been straw man characterized by Mr. Ehrlich. See below.)
Again, if this were true, then of course we should do it. After all, if I can get anything with the same levels of access at the same quality for a lower price, even Ronald Reagan would be jumping on the single-payer bandwagon. But what was proposed sounded a lot like what President Obama stated before the Affordable Care Act went into law about keeping your doctor, insurance plan, and saving money. None of it was true with the ACA, and none would be true with single-payer. (Another straw man argument, what Mr. Obama said in his effort to gain support for the ACA is in no way to be used as a characterization of what single payer can offer. Stop with the name dropping and really address the issues.)
Single-Payer Would Reduce Provider Compensation
To truly save money with single-payer, we’d need to pay providers much less. With the huge costs in becoming a doctor, there needs to be a large potential salary to cover those costs. My discussion partner said if we eliminated the huge costs of going to medical school, doctors would then be happy to take smaller salaries, since they could still net higher without loans. Without getting into what subsidizing undergraduate education has done to education costs into this country, she ignores another important part about training to be a doctor that cannot be subsidized away: time. (It is not essential to the single payer argument to insist that medical school should be subsidized. Nor is it the case that physician salaries are necessarily less in single payer countries than they are in the US. There has been an ongoing attack on physician income perpetrated by the health insurance industry for many years in the US. Doctors would have the opportunity to negotiate income with a single payer in a publicly accountable fashion, not true of the secretive negotiations which now characterize the medical industrial complex.)
People who train to be doctors are smart and therefore can usually earn a lot of money in a lot of professions. Every single one of those professions requires less time to be able to start earning a living than becoming a doctor. Even without the financial cost of becoming a doctor, the huge opportunity cost of going to medical school, residency, etc. would leave you way behind in earnings compared to going into other professions. (This is true. I realized early in my medical training that I could have spent a lot less time training and been able to earn a lot more money had I chosen to go to law school or get an MBA. People who choose medicine must do so for reasons other than income potential. That is already the case and therefore should not be used as an argument against single payer.)
Now imagine taking away some of the top-end salaries one can strive for and suddenly going into the medical profession would be a way to spend a lot of time in school for a very high-stress job earning a modest salary. While some would endeavor to do so for noble reasons, many others, especially at the top of their class, would instead seek careers in engineering, finance, technology, and other areas that can earn them either more lucrative salaries or commensurate salaries with less training or better working conditions. Not only would this result in fewer doctors, it would result in especially fewer highly intelligent and capable doctors. (Health care systems have this challenge world wide, including in the US. Compensation in terms of salary for doctors must always be considered by society as a priority. Single payer systems have the advantage of allowing society at large to have impact on how doctors are paid.)
Those who pursue medical training will also be more likely to pursue areas that aren’t covered by single-payer, such as dentistry, plastic surgery, and the like, where people cash pay and one’s income isn’t limited by statute. My opponent asserted that fewer specialists is a desirable thing and, since they aren’t making as much money, they will be much happier. (The mix between primary care doctors and specialists is out of kilter in the US. We have too many specialists and not enough primary care doctors. Single payer systems are much more able to effect how medical training produces doctors. Dentists should be included in the overall single payer health system, since dental disease is not somehow without effect on the remainder of the body. Plastic surgery undertaken merely for cosmetic reasons is not health care and will not be paid for by a single payer system. It isn’t paid for by health insurance now, either.)
Hammering Insurance Company Profits
So if paying doctors less is not an option, and the argument holds for nurses and nurse practitioners, we can still take money from those evil insurance companies to save money through single-payer, right? Well, maybe, but to what extent? My sparring partner used figures from Bernie Sanders’ single-payer plan, which is estimated to cost taxpayers $32 trillion over a decade. She assured me this was a relative bargain compared to the $49 trillion we are estimated to otherwise spend on health expenses over this time period. (What we otherwise would pay without single payer health system reform is a legitimate consideration in this debate. We are spending $1 trillion too much each year in the US on health care. This must stop or the opportunity costs of devoting a larger and larger share of GDP on health care will kill the American economy. No one in the single payer movement characterizes health insurers as evil. That is Mr. Ehrlich’s choice of words intended to belittle and befuddle the single payer argument. Health insurance, however, is manifestly the most expensive and wasteful way to finance health care ever invented. It is well documented that the health insurance business model wastes more than $400 billion per year in the US health care system. The health insurance business model has only ever survived in the US because of government prop-ups, bail outs, and corporate welfare, beginning 75 years ago with the enormous tax credits given to employers for purchasing health benefits for employees. Any libertarian worth his/her salt should desire to eliminate this corporate dependency on government largesse.)
This immediately got my math nerd hat on. According to her, we’d save $17 trillion over ten years, or $1.7 trillion a year, simply by eliminating evil insurance companies, which would obviously be great if true. So let’s go with this argument and ignore that the $49 trillion includes all health costs, including things that wouldn’t be covered in single-payer such as plastic surgery, Lasik, cosmetic dentistry—things that, while not medically necessary, are a fairly large component of health spending. (Ironically, by being freed from third-payer pricing opacity and having to compete on price because they aren’t covered by insurance or government programs, such treatments have become magnitudes cheaper over the last decade). (The first parentheses are Mr. Ehrlich’s, these are my comments-Dr. Jarvis–As I said above, dentistry is care that is medically necessary and would be covered in a single payer system, as would all medically necessary care. The cheapest safe and effective intervention would be selected by the single payer for inclusion in the benefit package. Mr. Ehrlich is correct that cosmetic surgery is traded in the market place like any commodity. Medically necessary health care is not a commodity and market forces can not create efficiency in health care delivery. This is due to the lack of the informed buyer who can ‘beware’ with health care delivery. People who need health care are patients, not shoppers. They can not look out for themselves in a marketplace. They are injured, or ill, and unable to be informed about what they should buy. To pretend otherwise is to engage in the silliness of vapid extrapolations, economic illiteracy, and pie in the sky dreams. The assumption that market forces will save us from high health care costs is the single most important recurring mistake in American health policy.)
According to this Weekly Standard article, health insurance profits have doubled from 2008 through 2015. So how much are those greedy monsters now making in aggregate profit? $15 billion. Now that may be $15 billion too high in your eyes, but is it really that lucrative? After all, this article that blasts insurance companies for skyrocketing profits (yet only cites their revenues and never their actual margins) has Aetna and United Healthcare making an estimated $250 billion in revenue in 2015. A $15 billion margin on that number is a 6 percent margin, which is good but not going to have people fighting to buy your stock. And, of course, those two aren’t the entire insurance market, meaning the total revenue for the industry is closer to $400-$500 billion, or a very modest 3 to 4 percent profit margin. (It is not the profits alone that are the heart of wasteful business practices in health insurance, it is the fact that insurers take in a dollar in premiums and then spend something around 75 cents on care. That overhead is 4 to 5 times higher than is truly necessary and in turn induces health care providers to have enormous overhead margins. The for-profit motive is a problem in health care. Leaders of a for-profit company, whether it is a health insurer, hospital, nursing home, or pharmaceutical company, have only one fiduciary duty: Make as much money as possible. These leaders have no real obligations to patients. They are in business to make as many sales as possible, no matter what that may do to patients. The US health care system, because it is faux market and for profit would rather make a sale than actually take care of a patient. This leads to both high costs and poor quality.)
Reducing Administrative Costs
So not only are insurance companies, even under the ACA windfall, not making staggering margins but their aggregate profits are less than 1 percent of the estimated savings from switching to single-payer. Where does the rest come from? Reduced administrative costs is an answer I frequently hear and, yes, collections would be reduced if they can just take it out of your paycheck through the IRS. And if there were no competition then other expenses like marketing could be eliminated. Talent could be consolidated to reduce some redundancy.
But $1.5 trillion? Well, if these companies are making obscene profits, they’d need more revenue than they are spending. And if they are making, at peak, about $500 billion, with a 3 percent margin, that means their expenses are about $485 billion. Even with obscene CEO salaries, marketing departments, billing and collections departments, and the like eliminated, you probably aren’t going to eliminate even $100 billion in expenses, let alone all $485 billion, let alone the $1.5 trillion we can supposedly save. (The savings of $1 trillion or more per year which a single payer system could induce over the current wasteful business practices of American health care delivery are not alone due to reduced administrative costs. As noted above, reducing administrative inefficiency would result in $400 billion or more in savings per year. Another $700 billion per year would come about through improve health care quality. Health care quality costs less? Yes, in health care, better quality care is cheaper. Hard to imagine? For the average American who is steeped in market methods and shopping, it is hard to envision something that is cheaper as it improves. Better health care produces better patient outcomes, including less inappropriate care, fewer patient injuries, and more frequent compliance with optimal clinical interventions, and therefore cheaper care. Simple as that.)
Waste, Fraud, and Abuse
So where else must those savings come from? The good old waste, fraud, and abuse category. Are government health organizations really the vehicle to stamp down waste, fraud, and abuse? After all, Medicaid pays out around 10 percent of its payments in waste, fraud, and abuse. So, somehow a government organization with no competitive incentive to save money that already allows a huge amount of waste in a program that covers about one-quarter of the country is somehow going to manage to cut waste, fraud, and abuse, not as a percent of payments but in the aggregate, when they have to manage four times the consumers? Somehow, I am a bit skeptical. (Competition improves market distribution of goods and services. Health care is not a market commodity and competition is actually adverse to good health care delivery. Cooperation on a regional basis is the best way to deliver trauma care, intensive care services, neonatal services, burn units, cancer care, etc. Cooperation is best arranged through government intervention, on a regional basis. I favor a state based approach to single payer system reform, not federal, for the reason that health care is delivered on a local basis. What works in my home state of Utah likely will differ from New England or other regions in the country.)
So, can single-payer save us money? Sure. And going to free clinics for all your health care will save you money, going to food banks for all your grocery needs will save you money, and living in Section 8 housing will save you money. But most people, including those who would certainly benefit economically, do not use these services. Why? Because quality is not there. Choice is not there. Convenience is not there. This is the level of all of these that cost-effective single-payer would give us. (US citizens pay $2 trillion each year in taxes for health care, a tax rate higher for health care than is true in any other country. Health care is not and will not ever be a free lunch. We Americans, however, are not getting anything like value from this incredible tax expenditure. Many millions of Americans, payer of the world’s highest taxes for health care, have no health care financing when they need it. How is that anything other than manifestly unfair. Those arguing for continuing business as usual in American health care must explain why it is that they support this massive outlay of tax money with no real return to the American tax payer.)
If your child has a cold and a basic antibiotic will do, then single-payer could save you money (unless you inevitably have to wait at the doctor longer and miss more work, which may reduce or even eliminate the economic benefits). But if you have something more advanced and need to go beyond a general practitioner, then hope you survive your lengthy wait for an appointment. Specialists will be in short supply, necessarily, as my debate opponent suggested. (It is more likely in the US that people are forgoing basic health care needs due to our primary care shortage as this system is currently constructed. People who have trauma get trauma care in the US, regardless of ability to pay. People with diabetes who have no health care financing do not get diabetes care. Single payer reform will create a higher demand for health services, which can be met by releasing the many thousands of people currently employed in useless wasteful bureaucratic health care businesses, such as health insurers. Lengthy waits for appointments are not an inherent aspect of single payer systems. But they are inherently in the business as usual in American health care as it is.)
New, improved, and experimental devices and treatments, developed largely by U.S. companies for the large and lucrative U.S. market, will dry up due to a lack of potential profits for developing such technologies, leading us to make do with mostly the options we have. And if you think at least you are sticking it to those evil wealthy, who now lose their medical advantages, think again. That same wealth that gives them access to the best doctors and treatments in this country will allow them to simply head to one of the multitude of other countries that will be happy to have their patronage and money. (This is pure straw man nonsense. The US is not overrepresented in developing new medical technologies. Other first world nations, all of whom have universal health care supported by taxation at much lower tax rates, are producing new clinical science at a rate proportional to their population. Medical discoveries are not best driven by profit, but rather by careful scientific work. Profit taking distorts what is done in medical research–for instance, we have long since needed new antibiotics. But no research is conducted because blockbuster profitable drugs are not taken in two week dose intervals like antibiotics. Pharmaceutical firms shun antibiotic research and patients everywhere are suffering. The wealthy buy healthcare wherever and whenever they want now, too. That will not be different under single payer. More health care, however, is not necessarily better health care. The ability to buy more care does not mean that care was worth the price.)
As I wrote in another article, health care, like any other product or service, can be cheap, abundant, or high quality. It can even be two of those things. But it can never be all three. That’s also true of single-payer health care. As states like California, New York, and Vermont have found out when they’ve journeyed down that road, high-quality single-payer is bankruptcy expensive. So there is little reason to believe similar quality single-payer health care would be cheaper when trying to deliver it to a larger populace. (Nonsense. Better health care is cheaper, and therefore more readily made universal. Stop showing your ignorance Mr. Ehrlich.)
If we did want to save money on it, it would hardly be the utopia proponents are selling. I’m happy to look for a better way to deliver or pay for U.S. health care. But stop trying to convince me I can get great, readily available care in this country andsave money. It isn’t true in any other product or service run in competitive markets by people trying to make money. It surely won’t work in a government monopoly. And it just makes those advocating for single-payer look ideological, dishonest, and poorly thought out. (No, the ideologues, poor thinkers, and nay sayers, like Mr. Ehrlich-which, by the way, means ‘honest’ in German, who are telling us that our health care woes are unsolvable are the ones indulging in flights of fantasy. Every other first world nation has better quality care at a lower price. Why is that somehow not possible in the US? Continuing to do what has manifestly failed in the US and expect a different result–isn’t that the definition of insanity?)