Why Single-Payer Will Only Make Health Care More Expensive
The Federalist - Monday July 31, 2017
by Scott Ehrlich
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?
I’m not here to bash single-payer because it’s European. I’m also not a fan of socialism in principle, but if there is a way to provide better care at a cheaper price, then I’d be all for it, even if that would make me an awful libertarian. But the arguments I hear for single-payer nationwide are full of ridiculous extrapolations, economically illiterate assumptions, and pie in the sky dreams of willing, abundant, qualified providers to treat these hundreds of millions of patients. I’m willing to listen, but the arguments need to be better.
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.
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.
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.
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.
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.
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.
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.
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).
According to this Weekly Standardarticle, 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.
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.
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.
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.
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.
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.
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.
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 and save 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.
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