The Economics of a Single-Payer Healthcare System

Guest post by Ken Perez, vice president of healthcare policy, Omnicell, Inc.

Ken Perez
Ken Perez

Though largely overshadowed by the continued pursuit of repeal and replacement of the Affordable Care Act by the Trump administration and congressional Republicans, the concept of a single-payer healthcare system is gaining popularity, and a referendum on it is already starting to take place.

According to a June 2017 national survey by the Pew Research Center, 60 percent of the American public feels it’s the federal government’s job to provide healthcare coverage for all Americans, and a third of the public favors a single-payer health insurance system run by the federal government.

On September 13, Sen. Bernie Sanders (I-Vt.) introduced the Medicare for All Act of 2017. In striking contrast with his previous solitary introductions of this approach, this time 16 Democratic senators—one-third of the party’s Senate caucus—identified themselves as co-sponsors, including Senators Cory Booker, Kirsten Gillibrand, Kamala Harris, and Elizabeth Warren, all possible presidential candidates.

Medicare for All Defined

Per Sanders, Medicare for All would create a federally administered single-payer healthcare program that provides comprehensive coverage for all Americans, spanning the entire healthcare continuum, “from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics and treatments.” Every doctor would be in network, and saliently, there would be no deductibles, copays or cost-sharing requirements of any kind.

Estimating the Cost of a Single-Payer System

One admittedly simplistic way to estimate the cost of a single-payer system would be to assume that the federal government would pay for the nation’s entire national health expenditures (NHE), which the Centers for Medicare and Medicaid Services projects will reach about $3.5 trillion in 2017, which would be equivalent to a more than tripling of the roughly $1.1 trillion the federal government will spend this year on Medicare, Medicaid, the Children’s Health Insurance Program, health insurance subsidies and related spending, and Veterans’ medical care.

Single-payer advocates argue that administrative savings and decreased waste would reduce spending, generally by 20 percent to 30 percent, but such savings would likely be offset by the cost of covering the approximately 25 to 30 million Americans without health insurance, as well as higher demand (from those currently with coverage), resulting from the elimination of all cost-sharing requirements, which tend to curb overutilization of medical services. Per a landmark 1982 Rand Corporation study that examined the spending patterns of patients with insurance that covered 100 percent of expenses versus those with copays and deductibles, patients without out-of-pocket fees spent 30 percent more for medical services. A 30 percent increase in demand for medical services would add more than $1 trillion to the nation’s annual healthcare bill.

Citing the lower per capita costs of healthcare in other industrialized countries with single-payer systems, Sanders argues that NHE would actually decrease under his single-payer plan, by $6 trillion over 10 years. Sanders’ white paper, “Options to Finance Medicare for All”— which outlines a dozen tax revenue-generating ideas —presents $16.2 trillion as the implied expected increase in federal expenditures over a 10-year period under Medicare for All.

The Urban Institute and Emory University Professor Kenneth Thorpe, in their respective analyses of Sanders’ Medicare for All plan that he outlined during the 2016 presidential election, both concluded that federal expenditures would increase by much more than Sanders’ estimate, and NHE would be higher than under the current multi-payer system.

The Urban Institute concluded that federal expenditures would increase by approximately $32 trillion across 10 years (2017 to 2026) — roughly twice Sanders’ projection—and the federal budget would swell to about $12 trillion in 2026 (almost double the most recent projection by the Congressional Budget Office). Healthcare expenditures would account for an astounding 48 percent of the entire federal budget in 2026, all other things held constant. Moreover, the Urban Institute projects that NHE would in fact increase, not decrease, by $6.6 trillion over the same 10-year period. Thorpe similarly concluded that federal expenditures would rise by almost $25 trillion over the same 10 years.

A Possible Domino Effect: A Fully Nationalized Healthcare System

The Urban Institute and Thorpe both concluded that the 2016 version of Sanders’ single-payer plan, which proposed tax revenue hikes that would raise $15.3 trillion from 2017 to 2026, would be grossly underfunded and would require significantly higher taxes. But what could happen if there is strong public opposition to the requisite enormous tax increases, especially if the Trump administration and congressional Republicans succeed in cutting taxes in the next few years? The federal government may have to resort to various forms of wage and price controls, perhaps by imposing a fully nationalized healthcare system, in which it would own and operate all healthcare provider entities. Healthcare provider organizations would be wise to consider this possibility as they contribute to the national discussion on a single-payer system.

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