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Single Payer Healthcare: Why There's No Simple Answer

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"Every once in a while, a new technology, an old problem, and a big idea turn into an innovation."

-Dean Kamen

No matter where you stand on Segway, this is an eloquent way to put innovation into words. And, if I may add the icing on the cake, timing the innovation is as important to its survival as its context. Segway failed for lack of context, no clear market segment, and no support from regulations. Today’s subject is not a product but a solution. It shouldn’t face a lack of regulation since it’s deeply rooted in politics. Healthcare - a politician’s nightmare is “ripe for disruption” like we explained in our previous article.

 

But would it matter to switch from today’s complex US hybrid healthcare system to a single-payer or a “Medicare for All” like the one recently advocated for by third of the “House of Democrats”? Let’s dive into the subject.

In the USA, it’s no secret that healthcare is costly, non-universal, with skyrocketing expenses year in year out. It’s also a headache for both political spectrums to come up with a fix to the growing number of uninsured Americans. And we are talking about some 27 million people according to a congressional budget office study published in March 2016.

 

Being the only industrialized country in the world with no universal coverage, a single-payer system has long been suggested to fix the accessibility and affordability problems.

Advocates for such a system argument that it’s the best way to improve access to healthcare and reduce expenses. In fact, a single-payer system would grant health insurance to everyone. Hence, cost savings might be achieved through a reduction in administrative expenses coupled with an emphasis on preventive medicine and a proper adoption of IT.

That being said, others predict that such a system might backlash leading to increased bureaucracy with multiple inefficiencies. As far as preventive care goes, a wider access doesn’t grant that everybody will benefit from it willingly. Last but not least, involving governments in healthcare will trouble the market dynamics based upon competition, personal initiative and innovation: the pillars of the US free market and drivers of its economy.

Let’s dissect the above and see where it leads.

Administrative Expenditures

Having a single-payer system is a way to reduce the number of “nodes” involved in the healthcare administrative chain. One system will be overly charged with a task that is now so complex to track, which is an obvious optimization. But, from an expenditures perspective, is it possible to compare private and government-run insurance programs? Let’s look for answers in the Medicare, a single-payer national health insurance program for elderly Americans, administered by the Centers for Medicaid and Medicare Services of the federal government.

Let’s consider the cost of administering a private insurance plan. This typically includes the expense of collecting premium dollars, which applies to Medicare. The premium—how much we currently pay for a given health insurance coverage each month—helps cover the costs of the medications and care we receive. It also helps to improve health care quality and affordability for all Americans.

Here is where a typical premium dollar goes:

Where does a Premium Dollar Go?

Sources: AHIP, Distribution of spending among administrative categories and taxes based on analysis by Milliman, Inc.

Obviously, the system has evolved enough to leave little room for improvement. In the even of a single-payer, one should keep in mind that the expense is performed by a separate government agency (i.e., the Internal Revenue Service). Furthermore, many states tax premiums paid to private insurers while also taxing their profits.

Furthermore, we need to bare in mind the claims & appeals side of single-payer systems. Currently, Medicare spends approximately twice as much on claims than most private insurers (older patients consume more services), and administrative expense is expressed as a percent of claims paid.

Thus, estimates of the administrative cost savings under a single-payer system do not account for the expense of administering a greatly expanded Medicare-like program or the price of collecting new employer and individual taxes.

Is over-attention to administrative costs distracting us from the real problems here? What about the real cost of healthcare under a single-payer program?

The Case for Innovation & Overall Healthcare Quality

By all metrics, the USA is far ahead of competition when it comes to total impact in medical research and innovation. Below is a world map of clinical trials making that point loud and clear.

 

 

Number of clinical trials worldwide. Source: ClinicalTrials.gov

Despite the millions left behind with the current healthcare system, the truth is, private healthcare clearly unleashes the potential of innovation. This propelled the USA to a worldwide leading position in this field. And it’s the only country on the Top #10’s list not to provide universal health coverage to its citizens.

Advocates of the current system use this as a strong argument to stick to the way things are. In fact, allowing government - rather than the free markets - to manipulate the price tag on healthcare can be a dangerous proposition for patients and providers alike.

This actually has a direct impact on healthcare innovation. Without demystifying the impact of funding and private initiative on innovation, the current system led to substantial investment on innovation. In fact, U.S. health IT investment was $2.8 billion in 2013; in 2017, it totaled a whopping $7.1 billion according to Healthcare Growth Partners .

A central authority with decreased reimbursement may lead to lower investments in healthcare technologies as well as research and development budgets allocated to new therapies and clinical trials.

So where to draw the line? Or should we just jump in the water and see how things turn? Let’s look at potential winners and losers first.

While various stakeholders continue to debate the merits of a single-payer system, the politics shouldn’t be underestimated. The subject is deeply rooted in politics. The lenses Americans from different backgrounds acquire as part of their cultural heritage impact their opinion on healthcare. Single-payer systems tend appeal to a liberal crowd. Private healthcare goes hand in hand with a conservative, free-market view of America.

And sure enough, countries that share a lot with the USA like Australia, Canada and Great Britain fair well with universal healthcare. But they also seem to be dealing better with subjects like gun control and organized crime less with innovation and public policy. There seems to be only one way to figure out the impact of a single-payer system: gradually applying as an innovation (alongside technology) and letting in scale while keeping in mind that Segway-like failures do happen despite huge investment and exposure.

 

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