Short Analysis of Single Payer as a Cost Control Mechanism

Overview

During the current healthcare debates that continue to occupy the majority of media attention in this country, many solutions have been tossed around.  The NEJM panel discusses cost control and the need to balance it with achieving an ultimate goal of universal coverage.  Many cost control ideas are tossed around in the discussion, with varying impacts considered.   One in particular, is the framework of a Single-Payer system.  While the NEJM round table gives a broad overview, this analysis will drill down further.

Single-Payer (SP for further reference) is a financing approach that is similar in structure to Medicare.  As the name implies, there is one institution that collects health care fees from individuals and purchasers.  It also pays out all health care cost reimbursements to providers and suppliers.  Of the four actors of health care (purchasers, insurers, providers and suppliers), the missing participant is private insurers.   Instead, there is only one main government insurer system at a federal or state level.  SP was not included in the current healthcare debate, eliminated in the very beginning of the process.

Implications

 

Overall implications include a fundamental shift to the paradigm of how health care is integrated into our society.  In terms of premium costs to the individual, “the billing of health care services will vary relative to income as opposed to fixed premiums that are not related to income”.(4) Employers would no longer have to negotiate with private insurers for different types of care for employees, freeing up their administrative burdens.  Health coverage would carry on with individuals regardless of shifts or changes in employment.  Access would be available to all citizens, which arguably would promote more use of general practitioners and preventive care.  Improved health of the population is implied, which could yield further cost savings within the system by reducing the amount of preventable long-term chronic illness and system expense.  As well, it is argued to reduce the current reliance on emergency room usage by the uninsured, which would potentially free up ERs to focus better on their primary mission, emergencies.(4)

How does SP affect the general aims of health care?  The following six questions are useful here.  Is it safe?  Is it effective? Is it patient-centered?  Is it timely?  Is it efficient?  Is it equitable? SP would not have a bearing on safety.  However, you can answer the other questions.  SP is argued to be effective because it would remove private insurance red tape from the process.  It would also centralize the payment system, creating one way in for payments and one way out for disbursements.  This would eliminate multiple insurance company networks and contracts to have to keep up with, as well as create more efficiencies in provider structure, as it would ostensibly remove all complex billing structures that are currently in place.  One uniform system of billing and payment would exist.  Purchasers would also understand more clearly about where their premiums were going and how the providers were being paid.

SP is more system-centered than patient-centered, although there are latent benefits to the patient.  It is argued that SP benefits the purchasers the most as it would eliminate premiums, co-pays, and deductibles.  In fact, it would completely remove private insurers from the mix.  Everyone would have access based on need, not cost.  In place of private insurers, a single insurer at the government level would determine rates, and those rates would be recouped by a health care payroll tax.  However, it may also benefit the providers in that it would be global in payment structure, allowing providers to better allocate budgets.

Timeliness is a negative factor for SP.  Many think that opening up access in a universal way such as SP would flood the system, causing longer wait times and slower access overall.  There are countries that employ the SP system, one of which is Canada, and timeliness has become a concern.  For example, many Canadians interviewed complain of long lines and extended wait times for access to basic health care needs.

SP is argued across the board as equitable.  “All Americans would receive comprehensive medical benefits under SP. Coverage would include all medically necessary services, including rehabilitative, long-term, and home care; mental health care, prescription drugs, and medical supplies; and preventive and public health measures.” (2) Access would also be much more equitable.  For example, no longer would health care coverage be a bargaining chip in wage or job negotiations.

How does the concept of SP coverage affect the four actors of health care?  Many argue that SP would reduce administrative costs and waste, allowing for extra money to help with health care funding in general.   The influence of private insurance on doctors in terms of how many patients or how much time spent with patients might be reduced.  Monetary incentive would be removed from clinical decision making.  Their incomes would be derived from fee-for-service, salaried positions within a health care facility, or salary through capitation within a group practice.  Also, massive bureaucracies of hospitals would be eliminated by eliminated complex billing structures and arrangements and moving to a global payment structure. (2) Opponents contend that there would be more bureaucratic cost by involving the government in the process.  However, this may be more of a political contention than a factual one.

The only close comparison to SP would be Medicare.  Medicare is a SP system for those over age 65.  By extrapolating from the Medicare structure, one might be able to assume possible significant savings.  Focus is on two areas of savings – administrative costs and supply costs.  It is argued that SP eliminates a lot of administrative layers and waste.  As well, SP allows the single entity (the government) to negotiate for much better bulk rates on pharmaceuticals, medical supplies, provider rates, and more, lowering the cost on the front-end for individuals.  More importantly, the structure itself tends to allow for greater financial flexibility for savings.   In sum, the overall structure of “single payer greatly facilitates cost control because of its centralized administration.”(3)

Finally, there is an implication of major importance to the employment sector of the entire United States.  The immediate effect of implementing SP would be the complete elimination of a large amount of jobs in the realms of the insurers and the providers.  If the shift is gradual, the rest of the economy might be able to absorb these workers with relatively low impact.  However, “significant job loss within a single industry (i.e., health care) may be worse than the loss of the same number of jobs across the economy, as many workers with similar training and backgrounds would be dumped into the job market at the same time.”(5) How would this impact the overall economy, especially given the current economic fragility in the United States?  Further, the providers would endure swift cuts in administrative labor, dumping hospital administrative staff into the open labor market.  Any change to any system will have to take into account the massive impact regarding one of the largest industries in the United States.  To cut clerical and administrative staff alone could account for approximately 3.6 million jobs. (5)

Cost Control

SP reduces administrative waste greatly, and saves money.  How?  The systemic impact of implementation of SP would immediately create one huge risk pool for all Americans.  The current fragmented private insurance system would be eliminated and administration and costs would be centralized.  In terms of waste, the SP system would induce more organization.  SP reduces the amount of administrative needs, oversight and supplemental staffing and bureaucratic staff structures of current private insurance agencies.  Essentially, an entire private industry (except for a small amount of supplemental providers) would be completely eliminated.

You can also use the SP system to centralize and enhance information technology.  Under a centralized administration, it is easier to implement set standards from the top down that apply across the board to all suppliers of medical records.  For example, in the UK, “primary care physicians hold each patient’s lifelong record, which includes a letter regarding every visit to a specialist. Virtually all primary care physicians use electronic medical records, and laboratories now generally download lab results directly into family practitioners’ computer systems.” (1)

The savings also could be used to provide care and insurance to those who currently do not have it.  There is a case to be made for this.   As far back as 2002, the GAO (General Accounting Office) projected “an administrative savings of 10 percent through the elimination of private insurance bills and administrative waste, or $150 billion.”(2) According to the same report, had SP been implemented at the turn of the century, the CBO (Congressional Budget Office) projected, in 2002, that SP would “reduce overall health costs by $225 billion by 2004 despite the expansion of comprehensive care to all Americans.”(2)

Opinion

Out of all of the options tossed around during the brief NEJM roundtable, SP makes the most sense from systemic and financial perspectives.  The obvious benefits of the SP system would be the elimination of annoying insurance companies and high shifting premium costs.  It would also eliminate the confusing process of trying to figure out what is covered and what is not covered.  Pricing would be simplified as well.  It would, on the surface, level the playing field for access to quality care, as long as the patient is informed about whom they are seeing and the standards of practitioners are held high.

But nothing is perfect.  Implementing SP would mean that the cost for insurance would shift to added income taxes as the alternative funding.  Also, with more people able to access the system, the wait time might be more tedious.  Also, if the funding is based on taxpayer contribution, how would it work for the problem of illegal immigration in this country?  Would this factor negate the reduction of emergency room usage in the system? Illegal immigrants may continue to stay in the shadows and make use of emergency room care in order to avoid detection in the system.  No one can predict for certain. If we continue to allow the influx of illegal immigrants to freely access the system, the cost will have to be spread across the taxpayer pool.  As well, citizens who remain unemployed would not be contributing to the money pool.  Would this be fair?  Perhaps not when viewed through an individual lens.   However, when taken in a societal view, the impact may be minor.

From a societal perspective, SP may be the most fair system, but full support will also require politicians to get past their personal perceptions that may or may not be based on outside influence.  It is my opinion that SP was eliminated at the beginning of our current healthcare debate due to the overwhelming financial power and influence of the private insurance lobby.  The private insurance industry would stand to lose completely with a SP system.  Thus it begs the question as to whether or not political representatives are fully acting on behalf of the best interests of the population and their health, versus the interests of lobbies.

Many also imply in the current debates that any type of insurance mandate would be wrong.  This may be true if we allow private insurance to remain in place with no bounds on their price-setting mechanisms.  However, if we have SP, this would make a difference.  Granted, my taxes might go up by mandate. I am fine with this as it means I will at least get full access to something I need in return for my increased contributions. This would be preferable to the current system that requires me to pay for an expensive insurance policy that does not provide full access for the recurring costs.

Even when all of the pros and cons are taken into consideration surrounding the notion of a SP system, I must personally fall on the side of SP.  My inherent nature is to support a system that focuses primarily on providing quality care rather than a system that focuses on being an industry-for-profit.  This appears to be the focus of the current private insurer system.  In light of the fact that SP would eliminate this problem, the concept of SP enjoys my full support.

 

References

  • PERSPECTIVE Roland, Martin Lessons from the U.K. N Engl J Med 2008 359: 2087-b-2092
  • PNHP Physicians For A National Health Program – What Is Single Payer? http://www.pnhp.org/facts/what_is_single_payer.php
  • AMSA American Medical Student Association – Single Payer 101 http://www.amsa.org/AMSA/Libraries/Initiative_Docs/SinglePayer101.sflb.ashx
  • PNHP Physicians For A National Health Program – Assessment of the Cost and Savings under The Health Security Act of 2009  http://www.md.pnhp.org/docs/Assessment_of_the_cost_and_savings_under_The_Health_Security_Act_of_2009_version_without_CA.pdf
  • Samuel Y. Sessions; Allan S. Detsky Employment and US Health Care Reform: Saving Jobs While Cutting Costs JAMA. 2009;301(17):1811-1813.