StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Single-Payer Health Debate We Should Have Had

27 Feb 2010
Posted by Bruce Bartlett

 There’s been a bit of a debate going on in the blogosphere lately about whether the Democrats should have proposed a more limited health reform plan in the first place. Such a plan might have gotten some Republican support or at least led to less intense Republican opposition and both improved the health system and given the Democrats a badly needed victory. The plan they proposed instead was too big to pass, so the thinking goes.

 
As a purely political matter, I think this analysis is wrong. The real problem, in my view, is not that the Democrats’ ambitions were too large, but rather that they were too small. In particular, I think they erred by not making the case for a single-payer system in the first place. Had they done so, the plan they eventually developed would have appeared to have been a modest alternative.
 
I say this not because I favor a single-payer health system—although I don’t fear such a system particularly, either. Rather, it’s because I understand political dynamics—you often have to ask for twice what you want in politics in order to end up with half of what you need at the end of the day. The great mistake that administrations of both parties often make is to put forward plans that have no bargaining chips or fallback positions built into them. The various trade-offs inherent in any major policy initiative were made within the administration rather than between Congress and the administration. This meant that the administration’s initial proposal was really its bottom line position; it had nothing to negotiate with and once the inevitable compromises started, the logic and integrity of the proposal quickly collapsed.
 
Also, I think administrations are sometimes unclear in their own minds about what precisely they are trying to accomplish. In terms of health reform, Barack Obama’s main campaign promise was to “bend the curve;” i.e., cut the growth rate of total health spending to a sustainable level. But this cannot be done without abolishing or at least severely scaling-back the tax exclusion for health insurance—a sacred cow only slightly less sacred than the mortgage interest deduction. Unfortunately, John McCain made this the centerpiece of his health reform plan during the campaign. In order to score some cheap political points, Obama opposed it. So when the time came for him to propose a health reform plan of his own, the central element that needed to be there for the plan to reduce costs was off the table.
 
Without some way of scaling back private health spending through the tax code, the only real alternative is essentially a single-payer system such as they have in virtually every other major country. I think a strong case could have been made for such a system on cost control grounds alone. Yes, this would have meant rationing, but it wouldn’t necessarily have meant that health outcomes would be worse. The people of France, Switzerland and Germany are not less healthy than Americans. (I don’t have space to do a detailed international comparison of health outcomes, but I would note that infant mortality is a pretty basic measure of a national health system’s quality and according to this CDC study practically every major country has significantly lower infant mortality rates than we do.)
 
Yet every major country spends very significantly less of its national output on health than we do. As Table 1 shows, we spend five percent of GDP more than the country with the second-highest level of health spending as a share of GDP. Five percent of GDP is about $700 billion that Americans could be spending on new homes, cars and clothing, nice restaurants, paying off bills or anything else they can imagine. Instead, that money went to doctors, hospitals, pharmacists and insurance companies. If we only spent as much as Japan—a country known for having an excellent health system and a healthy population—we would have eight percent of GDP, about $1 trillion, to spend on anything we like.
 
Table 1. Total Health Expenditures as a Share of GDP, 2007 (latest available)
 
Country
Percent
U.S.
16.0
France
11.0
Switzerland
10.8
Germany
10.4
Belgium
10.2
Canada
10.1
Austria
10.1
Portugal
9.9
Netherlands
9.8
Denmark
9.8
Greece
9.6
Iceland
9.3
New Zealand
9.2
Sweden
9.1
Norway
8.9
OECD Average
8.9
Italy
8.7
Australia
8.7
Spain
8.5
U.K.
8.4
Finland
8.2
Japan
8.1
Slovak Rep.
7.7
Ireland
7.6
Hungary
7.4
Luxembourg
7.3
Korea
6.8
Czech Rep.
6.8
Poland
6.4
Mexico
5.9
Turkey
5.7
Source: OECD
 
Of course, many will assume that we can’t afford a single payer system without vastly increasing government spending. What they probably don’t realize is that we are already spending a vast amount on health through government as it is for programs like Medicare and Medicaid. As Table 2 shows, only eight other countries have government spending on health greater than we have, and most of those spend only a trivial amount more.
 
Table 2. Public Health Expenditures as a Share of GDP, 2007 (latest available)
 
Country
Percent
France
8.7
Denmark
8.2
Germany
8.0
Austria
7.7
Iceland
7.7
Norway
7.5
Belgium
7.4
Sweden
7.4
U.S.
7.3
New Zealand
7.3
Netherlands
7.3
Canada
7.1
Portugal
7.1
U.K.
6.9
Italy
6.7
Japan
6.6
Luxembourg
6.6
OECD Average
6.4
Switzerland
6.4
Spain
6.1
Finland
6.1
Ireland
6.1
Australia
5.9
Greece
5.8
Czech Rep.
5.8
Slovak Rep.
5.2
Hungary
5.2
Poland
4.6
Turkey
4.1
Korea
3.7
Mexico
2.7
Source: OECD
 
Moreover, I believe these data substantially understate the total amount of health spending that flows through government because I don’t think they account for the revenue loss associated with tax expenditures for health insurance and care. These are very substantial, as shown in Table 3.
 
Table 3. Federal Corporate and Individual Tax Expenditures for Health, 2010
 
Tax Expenditure
Billions of Dollars
Exclusion of employer contributions for medical insurance premiums and medical care
 
 
159.9*
Self-employed medical insurance premiums
 
5.2
Medical Savings Accounts/Health Savings Accounts
 
2.0
Deductibility of medical expenses
9.1
Exclusion of interest on hospital construction bonds
 
2.4
Deductibility of charitable contributions (health)
 
4.3
Tax credit for orphan drug research
0.3
Special Blue Cross/Blue Shield deduction
 
0.9
Misc.
0.3
Total revenue loss
184.4
* Largest of all tax expenditures
Source: OMB
 
If the tax expenditures for health were included in overall health spending, then public expenditures in the U.S. would be at least 1.3 percent of GDP higher and private spending would be concomitantly lower (to avoid double counting). (Keep in mind that to the extent that state and local governments also exempt health expenditures from taxation, the total tax expenditure would be a couple of tenths of GDP higher.) If that were the case, we would be spending as much as France does.**
 
To wrap up a post that has already gone on much too long, what I am trying to show is that for no more than we are already spending on health through the government we could have a single-payer system no worse that those that exist in almost every other major country. My point is that this is an option that the administration should have at least floated and on which we should have had a national debate. I don’t think Americans would have embraced such an option, but as I said at the beginning it would have clarified the debate by focusing on the overall cost of our health care system—which I believe is far too great for what we get in return—and made reforms such as those that the Democrats have put forward seem modest by comparison. That would have improved their political chances of success.
 
 
** I don’t know to what extent other countries also have tax expenditures for health that are not included in the figures for total health spending. However, a new OECD study suggests that they are small or nonexistent. Of seven countries studied (Canada, Germany, Korea, the Netherlands, Spain, the U.K. and U.S.), four had no tax expenditures for health at all and the two others that have them have revenue losses as a share of GDP less than a third of ours. See Tax Expenditures in OECD Countries (Paris: Organization for Economic Cooperation and Development, 2010), p. 224.
 
Note: Republican Rep. John Shadegg apparently agrees.

Bruce, As is probably the

Bruce,

As is probably the case with the foregone Democratic negotiation strategy for healthcare that you discuss (starting by advocating single payer, then negotiating a more moderate approach), sometimes stating a more extreme position upfront can make it more (not less) difficult to get to agreement on a more moderate alternative, most notably if the other party suspects that allowing that more modest alternative would provide a stepping stone toward the unacceptable, more extreme point.

For example, suppose you are a nation that would like (ideally) to have both nuclear energy production and nuclear weapons, but you recognize that opposition to your developing nuclear weapons and the actions of those opponents would end up making it either impossible or undesirable to develop nuclear weapons, and you’d be content with just having nuclear energy if your choices are, in effect, either that or nothing. And those opponents of your having nuclear energy would NOT oppose your having nuclear energy per se BUT they fear that if you develop the technology and materials for that purpose, from that point you will be capable of rapidly developing nuclear weapons and it will be more difficult to stop you from doing so.

Now, which approach is more likely to result in your being “allowed” to develop nuclear energy, (1) if you start by proclaiming your intention to develop nuclear weapons and state your very strong commitment to doing so, the clear right you believe you have to doing so, the reason it is in the best interest of the world generally (or at least of the “good guys”), etc., and then, from that starting point, try to convince those opposing powers that you’ll be content with just nuclear energy, or (2) if you try to convince those other parties to allow you to develop nuclear energy and claim no intention to use that capability to develop nuclear weapons. I’d say #2 would work better, wouldn’t you?

Similarly, opponents of the public option in particular (and the Democrats’ healthcare “reform” generally) were concerned (legitimately, in my view) that there was a very substantial chance it would lead to single payer, and they thus saw it as a Trojan Horse. If proponents of the public option had generally taken strategy #1 above, starting by insisting on the need, great superiority, etc., of single payer, it would have further increased the wariness (toward a public option) of opponents of single payer, and made it even harder to achieve a public option and more generally the kind of healthcare “reform” Democrats have been seeking.


tax expenditures

There's also a huge payroll tax expenditure--about $100 billion per year. Some of that is offset by lower social security benefits, but because most of those with employer-sponsored health insurance have comparatively high wages, most of the payroll tax loss is never offset.


Your statement ... I would

Your statement ... I would note that infant mortality is a pretty basic measure of a national health system’s quality... is pure BS. Indeed, the CDC study you refer to clearly indicates that the difference in infant mortality between Europe and the US is primarily due to a much larger incidence of pre-term births in the US. I fear that, like Tom Friedman, you are operating beyond your Peter Principle level of competence.


Pre-term births

And why would the US have a much larger percentage of pre-term births? One could argue it is because of the relatively poor per-capita pre-natal care. Is this not an indictment of the system as a whole? Your comment is much more caustic than it is thoughtful.


infant mortality

Because what 1 country counts as a pre-term birth and death, another country will count as a stillbirth. Infant mortality is the ratio of infants who die compared to the number who are born alive.

http://en.wikipedia.org/wiki/Infant_mortality#Comparing_infant_mortality... goes into some of the problems with comparing across countries with different definitions of infant mortality.

I won't disagree with Bruce's larger point that other countries don't seem to be suffering for their low health care spending. I wish I could buy into a rationed (what I would call "rational") system here in the United States.


The stats

Wow... The US spends more on public healthcare than the UK!

And the UK government owns almost every bit of the healthcare system, under the "socialist" NHS.

Maybe "socialist", publicly owned systems are quite good at delivering cheap and effective healthcare. Maybe that's why Cuba manages to have good doctors, despite a pitiful economy.


One often hears this claim,

One often hears this claim, that "US real per-capita health spending is much higher than in any other country, and yet our average lifespan is no greater. So, we don't get anything for our extra spending."

But that statement might contain a logical error because "longevity" is not the proper measure of what one gets out of health-care spending. "Maintenance costs" are a more apt analogy. Imagine two individuals who buy identical automobiles. One drives sensibly and conducts routine oil changes, while the other drives recklessly, and perform no regular care on the vehicle, crashes often, and occasionally has to spend significant amounts in repairs.

Now, if both cars last 15 years, but the reckless driver spent twice as much on maintenance and repairs as the safe one over that time, it would be ridiculous for him to say, "Well, I spend twice as much as that guy over there, but our cars lasted for the same amount of time, so *I didn't get anything for my extra spending!*"

What he got was 15 years, where his choices at an equivalent level of lifetime spending would have left him with significantly less longevity.

I think the American health-care expenditure example is analogous. We drive our bodies more recklessly on average, of which our obesity rate is a symptom, and a lot of our "extra" spending may be what it medically costs (in any country) to preserve the longevity of people with unhealthy lifestyles.

This was a principle reason I was highly skeptical on the administration's claim to be able to "bend the curve" in health-care outlays through comparative-effectiveness and best-practices research because, after all, "Other countries with state-run plans are able to spend less than we are, so there's no reason our own central planners shouldn't be able to achieve similar results".

But there is a reason - that reason is Americans cost more to keep alive. And if we can't lower those costs or change habits, and we accept collective responsibility for the provision of all medical services - we will quickly go bankrupt.

The truly fundamental question is what is the difference in price between the US and any other country *per procedure*. If an appendectomy costs three times more here - then if we're going to "bend the curve" that money has got to come out of somewhere, the doctor, the equipment, the malpractice lawyers, etc...

I've been patiently waiting for specifics on which fat will be cut, and who will take the hit, from the cost-reductions we would require in these procedures to equal those typical in other single-payer countries. But as of yet, I haven't seen it, so clearly it's too painful or politically dangerous to admit - which means it will turn out to be impossible to actually do (see the "doc fix" Medicare reimbursement fiasco).

I would be willing to support something like single-payer if I didn't believe it would merely accelerate our already speedy trip towards national insolvency.


What the numbers say about the remedy

Health care costs in the US are rising no faster than elsewhere, average for the OECD. The "single payer" nations have costs rising just as fast as ours -- in several cases (France, Britain) a good deal faster.

The level of cost in the US is much higher than in other nations overwhelmingly because, as per Mankiw, the wage level in the US health care industry is far higher than on other nations. (As Mankiw notes, not just for doctors but also for nurses, therapists, the entire industry)

OK, so since the dominating problem is the wage level in the industry, the necessary solution is to significantly reduce the wages of doctors, nurses and other health care workers compared to all the other workers in the economy. Without harmful side effects. Not incurring the pernicious effects of price controls.

Ideas?

Without some way of scaling back private health spending through the tax code, the only real alternative is essentially a single-payer system such as they have in virtually every other major country. I think a strong case could have been made for such a system on cost control grounds alone.

Well, there's hardly any logic in repeating a mantra of "single payer = reduced cost" (though so many do) being that Medicare is a single-payer program with costs hurtling ouy-of-control on course to bankrupt the nation. (Medicaid is a single-payer system too -- but since it is a whole lot worse managed let's stick to Medicare). There has to be some actual *mechanism* in the single-payer system to reduce cost -- one we don't have in our single-payer system's now.

Let's do the sensible thing and *test* any new single-payer cost reduction mechanism with Medicare first, to prove it works, be sure we don't make a big mistake.

How can we reduce the wage level of Medicare's health service providers?

Well, we could create a Sustainable Growth Rate mechanism that caps provider costs, a price control. Wait, tried that, Congress has over-ridden it more than 20 percentage points worth so far. (Obama himself voting to do so as a senator, IIRC.) Doesn't seem to work.

Other ways to reduce the wages of Medicare service providers aren't so obvious. The tax option was the relatively simple, painless way -- yet it was too tough to bear.

It's easy to say, "Yes, this would have meant rationing", but when the unions wouldn't even stand for the "Cadillac tax", do you really think Andy Stern will stand for rationing his union's membership out of wages and jobs? Because that's what "rationing" really means. He and the AMA would be standing unified cheek-to-jowl on this one, I'd bet. Can the Democrats defy Andy?

In short, it's not enough to say: "I'm for single payer to get cost reduction", one has to also say how: "... to reduce wages in the health care industry, and do it by imposing price and wage controls ... by nationalizing hospitals so doctors work for the government ... by [whatever]". Then debate that.


Medical Loss ratio

Are you saying that the medical loss ratio should not be addressed? The last time we had a serious debate on health care in this country was 1993 when the medical loss ratio for the 5 largest health insurance companies stood at 92 (92 cents of every premium dollar went to medical benefits) It now stands at 83. If 9% less premium dollars are going to benefits, is this not a huge wage increase for the insurance industry? Given the trend, why would we expect the industry to create improved efficiencies, especially since the most effect way to maximize their profits is to continue withdrawing benefits per dollar.


there's hardly any logic in

there's hardly any logic in repeating a mantra of "single payer = reduced cost" (though so many do) being that Medicare is a single-payer program with costs hurtling ouy-of-control on course to bankrupt the nation"

The salient difference, of course, is that Medicare is a single payer program in a multi-payer system -- meaning there are rather hard limits on its ability to be a price setter, as opposed to a price taker. It's not hurtling towards bankruptcy; it's being dragged in that direction by an out-of-control private system.

Barlett is just being an honest conservative in acknowledging that cost control is something true single-payer systems know how to do -- whatever their other drawbacks.


An overlooked economic principle.

Stipulating all the plethora of economic inefficiencies in the current US health system, still...

For all the relentless repeating of the fact that the US spends more on health care than any other nation, very few people mention that by economic principles the US should spend more on health care than any other nation.

Health care is a "superior good" -- a kind of good that people voluntarily desire to spend a larger percentage of their income on as their income rises.

Most consumer expenditures provide value subject to diminishing returns -- additional amounts spent on them produce less and less incremental "reward", value to the consumer. So the value of the third family car, third flat-screen TV, third Monsterthickburger at dinner, is less than the first, and spending on such items declines as a pct of rising income.

But a superior good provides steady returns, so as spending on other items diminishes, spending shifts to it. Spending on it thus rises as a percentage of rising income.

Spending that extends life in good health always produces a valuable benefit -- so consumers steadily shift more of their income to it as they become richer and finally buy all the cars they can drive, flat-screen TVs they can watch, and food they can choke down.

This is universal human behavior, and as the US is the richest major country, it is thus expected to spend more on health care than any other, as a matter of voluntary consumer preference.

As Nobelist Robert Fogel put it in his analysis and projection of future health care costs...
~~~
"The main factor is that the long-term income elasticity of the demand for health care is 1.6 -- for every 1 percent increase in a family's income, the family wants to increase its expenditures on health care by 1.6 percent. This is not a new trend... "
~~~

The whole thing is worth reading.

The words "the US spends more than anyone else" should not automatically be taken as an epithet.


"Of course, many will assume

"Of course, many will assume that we can’t afford a single payer system without vastly increasing government spending. What they probably don’t realize is that we are already spending a vast amount on health through government as it is for programs like Medicare and Medicaid."

That's the point...


"Of course, many will assume

What if we let Medicare and Medicaid be managed like they would be in, say, the United Kingdom?

Try this proposal:

- New program called American Health Care is given a budget of $600 billion. (This number is coincidentally 1. about what the government spends right now on Medicare, and 2. $2000 for every man, woman, and child in the country, which is about the budget other countries can manage with their own single-payer systems.)

- The program operates like the Fed; Senators don't vote on what the interest rate should be, and Senators should not be voting on what medical procedures AHC covers.

- The program covers everyone in the country. If people want out, they are given a $1000 tax credit to buy better coverage.

If you don't trust the Democrats, then this is calling their bluff. "Here is your budget that ought to work for UHC, have at it. If you find their coverage insufficient, you have $1000 to buy your own.


To me, this is a reason NOT

To me, this is a reason NOT to go all the way to single payer. If we are nearly there and have nothing to show for it, it is time to go back to what actually works empirically: a consumer-driven, unencumbered market.


Why the consistent confidence

Why the consistent confidence Americans would not choose Single Payer? Your own back of the envelope estimate - that we could $800MM to $1T and get universal coverage that might just have better results, is pretty tempting.

I understand the corporate interests that would spend to rail against it as the only way to save their existence (as currently defined). I also understand we would hear inane charges of socialism at truly ridiculous levels.

But, aside from such a brainwashing blitzkrieg, why would the American people - I assume you mean a majority of them, not want this?


Single Payer

This all boils down to where one draws a line. We as a society draw a line at child labor and extreme pollution. Conservatives (sometimes I believe grudgingly) are OK with those lines while still ranting at minimum wage, equal protection, etc.

With healthcare, it is also about drawing lines. Republicans in Congress today seem OK having 30 million Americans with no health care. Democrats want everyone covered.

The question is: What kind of society do we want to live in--one where health care is limited or one where everyone is covered?

Our taxes cover the "common defense" of the country. Shouldn't it cover the common health defense of its citizens?


False dichotomy

What kind of society do we want to live in--one where health care is limited or one where everyone is covered?

All health care is limited. There will always be some expensive procedure that isn't covered that has a chance of extending your life by a day.

I think we could give a good basic level of coverage to everyone with our current government spending. But we will need some realistic accommodations from adults. The Democrats will need to realize that the government not spending money to keep you alive isn't a crime. The Republicans will need to signal that they are not going to try any more "death panel" noise. And we will need to credibly signal to the future that we are putting limits on government spending on health care into place.




Recent comments


Advertising


Order from Amazon


Copyright

Creative Commons LicenseThe content of CapitalGainsandGames.com is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. Need permissions beyond the scope of this license? Please submit a request here.