The Fantasy of Single-Payer Health Care In The States

HEALTHCARE LAW PROTESTS AT SUPREME COURT(A version of this Health Alert was published in the Washington Examiner)

One of the defining characteristics of Bernie Sanders’ socialism is single-payer healthcare, a fully taxpayer-funded universal medical system. Single-payer healthcare has long had a following in the United States, but it is unlikely to become federal policy. Obamacare’s setbacks have made Americans less confident than ever that the federal government could operate such a system.

So single-payer advocates are focusing on individual states. This November Coloradans will vote on single-payer healthcare. A couple of years ago, Vermont’s governor tried to institute it, but gave up short of the finish line. Other states will surely try. I would put Oregon and (maybe) Hawaii at the top of the list of states to watch.

If successful, this would be a Canadian-style roll-out of single-payer healthcare, which began in individual provinces in the mid-20th century and subsequently won federal support. However, there are significant obstacles to any state instituting true single-payer healthcare in 21st-century America, even if the people or politicians choose it.

First, Medicare (which covers most senior citizens) is already fully federal. States have no role in either financing or organizing its care. The system is moving from fee-for-service to managed care delivered under arrangements whereby groups of providers bear financial risk for patient outcomes.

Different models have different labels (“Accountable Care Organizations,” “Bundled Payments for Care Improvement,” “Alternative Payment Models,” “Merit-Based Incentive Payment System”). The models are designed by federal bureaucrats in an office in Baltimore, who are highly unlikely to ever yield power to state counterparts.

Second, Medicaid (which covers most low-income residents) is also largely federal, with over half the money coming from Washington. Although it is operated by the states as part of their welfare bureaucracies, states deliver benefits under strict federal constraints.

Any change in the program, such as in how care is delivered to disabled patients at home, even if desired in only one county or city, requires a federal waiver, which is only won after lengthy, strained and complex negotiations between state and federal bureaucrats. And the waiver will be limited to a few years.

Block grants of federal funds to states’ Medicaid programs (which would significantly reduce federal involvement) would be similar to the way the Canadian federal government subsidizes provincial single-payer systems, and it would make it easier for a state to migrate to single-payer. The irony is that federal block grants are proposed by Republicans in Congress and opposed by Democrats.

Third, most private health insurance is offered as group coverage through employers. Employers with more than 100 or so workers almost always take advantage of the federal Employee Retirement Income Security Act (ERISA) to self-fund these benefits, which preempts state insurance laws.

So a state could not simply institute a single-payer system as the Canadian provinces did decades ago. It would have to get Congress to approve a transfer of both finances and statutory authority over these three groups (the elderly, the poor and those working for large businesses), which constitute the majority of the population.

Such congressional approval is extremely unlikely in the foreseeable future. Both parties are solidly committed to federal control of seniors’ access to healthcare, as executed by the federal Medicare office.

America’s seniors are famously resistant to change. When House Speaker Paul Ryan proposed reforming Medicare for future beneficiaries who at the time were then under age 55, current beneficiaries (who were at least 65) got riled up and protested.

Further, America’s large employers are extremely attached to the status quo. They have their own association, the ERISA Industry Committee, which protects their current benefits. Even states that might otherwise consider single-payer healthcare would retreat when faced with employer opposition. A prime example would be Washington State, which might go for single payer if not for firms like Microsoft and Boeing.

Even if Coloradans vote for single-payer healthcare in November, the obstacles to it or any other state actually instituting it are overwhelming.

Comments (18)

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  1. Big Truck Joe says:

    If it didn’t work in Vermont, the smallest, most uniform and one of the healthiest states in the union, it’s not going to work for the THC induced Coloradans. The VT governor concluded that the 11.5 percent payroll assessments on businesses and sliding premiums up to 9.5 percent of individuals’ income “might hurt our economy”. When will our so called political leaders understand there’s no such thing as a free lunch. I guess that’s why hey get paid the big bucks.

    • Devon Herrick says:

      In Vermont was the assessment 11.5 percent of payroll AND sliding scale premiums up to 9.5 percent? In other words, 20 percent of payroll was required to fund Socialized Medicine.
      As I recall, Vermont ran into a stumbling block when the zealots who promoted single payer balked at a plan design that would require Vermont residents to pay in more than something like 6% of costs out of pocket. I wonder what would have happened to the cost projections if a portion of the 20% was instead deposited into to HSAs?

    • John Fembup says:

      Not so long ago my state of Connecticut appointed a blue-ribbon committee (what other type of committee does a government ever appoint?) to recommend a single-payer scheme for our residents.

      The committee was just a couple weeks from making its presentation to the General Assemply when it discovered how much its recommendation would cost. It was projected to cost more than the entire state budget.

      The Committee duly expressed its surprise and disappointment. Imagine! In Connecticut! With all those insurance companies and the actuaries who work in them! At the 11th hour, the blue-ribbon committee was astonished to learn the cost!

      Anyway, the committee sank from sight after a few embarrassed harrumphs.

      Luckily, a few years later, Obamacare arrived to save the day.

  2. Devon Herrick says:

    I used to tell people that the biggest problem with single payer was the waiting lines, lack of service and poor quality facilities. I even coauthored a book on the topic a decade ago, Live at Risk: Single-payer National Health Insurance around the World.

    Now I tell people the problem is that it won’t work as designed even if it is implemented. Single payer is a monopsony; that is, only one buyer of a good or service. A single-payer Medicare for All system is designed to ration services, eliminate redundant equipment and reduce the unnecessary amenities (like 5-story hospital atriums akin to a 5-star hotel). A monopsony saves money because it is sort of like a monopoly, but as a buyer rather than a seller. If only one entity is allowed to buy a service, it can pay prices so low that it barely obtains enough suppliers. Keep in mind supply curves are upward sloping and a monopsony can set price at the lower end of the curve slightly to the left of where the demand curve intersects (i.e. that creates the waiting lines).

    It’s been shown time and time again that any reform to the Medicare program that has any chance of saving money is thwarted by lobbying. That includes minor changes that would only reduce costs by nominal amounts. If CMS is unable to implement minor changes that reduce some selected expenses only modestly, then how is it supposed to ram though a price controls that slashes expenses by 35 percent?

  3. Don Levit says:

    In Vermont would the 20 percent go to the state’s general fund as in Medicare?
    If so, the “insurer” would get its pro rata portion of total state expenditures
    How can an insurer operate if it receives only say 15 cents of every dollar allocated?

    • Devon Herrick says:

      I haven’t investigated much about Vermont. I know it hired Gruber and Hsiao. But in theory, why wouldn’t Vermont have had Gruber-Hsiao model the prices of medical services, calculate out a global budget for most hospitals (and a global budget for all health care spending), hire TPAs and have a 70/30 cost-sharing with a portion of the 20% “premiums” (maybe 5%) going into a HSA?

      I’m not a paid consultant of Vermont. I’m not even a fan of single-payer. Yet in a few minutes I designed a plan that is far more likely to succeed than the one Vermont spent years working on — only to ultimately fail.

      • I am not sure we should not allow individual states to go single payer. It would be a learning experience.

        • John Fembup says:

          I agree – because that’s a very federal idea.

          While I think the states would encounter the same immovable obstacles that Connecticut encountered, if even one of them does find something that works, well that would be terirific. So why not encourage the idea?

  4. Bob Hertz says:

    The single payer advocates in Colorado say that they can fund their plan with a 10% income tax on absolutely everyone including all senior citizens.
    The advocates also assume that they can force every doctor and hospital in the state to accept Medicare rates from day one.

    Two rather tall orders!

  5. jimbino says:

    Both parties are solidly committed to federal control of seniors’ access to healthcare, as executed by the federal Medicare office.

    What use is a post that confuses health care with insurance? I’m a senior with good access to health care who is totally uninsured. I find good, cheap health care overseas and negotiate with USSA providers for cash discounts. Insurance is the first refuge of the weak minded and risk averse.

    Even in Germany, I chose to go “freiwillig unversichert,” saving a fortune in annual Krankenkasse premiums. In the USSA, insurance is a fair deal for breeders and hypochondriacs. Everyone else is a LOSER.

    • Okay, but most citizens and politicians are eager to identify health care with health insurance.

      • John Fembup says:

        “most citizens and politicians are eager to identify health care with health insurance”

        Yes, that’s true. And citizens mostly believe that because politicians have always told them so. But that doesn’t make it sensible.

        Meanwhile, politicians avoid engaging the underlying problem they have no idea how to solve. That problem is the high overall cost of medical care delivery.

        Instead, the nation has wasted time and money trying to solve outgo problems (cost) by using income tactics (subsidies). Doesn’t make sense to me. I think this helps explain why Obamacare supporters still cannot quite grasp that an insurance mechanism has zero chance of solving the problem of high medical delivery costs. In fact, because insurance pumps more money into the system, it is not at all likely to restrain cost growth. I think there is already evidence of that.

        (btw, i think it’s also not helpful to conflate the terms “health care” and “medical care”. Most of us can – if we only will – take reasonably good care of ourselves and in that sense health care is free. Medical care requires professional help and is definitely not free. But the language, as the saying goes, has “moved on”. That’s a shame because addressing the problem of high overall medical cost seems to me to require a solution that has two distinct parts: medical delivery on one hand – the “supply side” if you will; and improving public health on the other hand – the “demand side”. Maybe someday politicians will run out of excuses for not insisting on careful definition of the problems. But I’m not holding my breath).

  6. bob hertz says:

    Jimbino, I wish you luck in negotiating with Mayo Clinic for a liver transplant, and I respect you if you have the cash to pay the final price. There is a place for catastrophic insurance.

  7. bob hertz says:

    Single payer advocates tend to ignore the rather large numbers of persons who would be worse off economically in their regime.

    I do not know the exact number, but I would guess that about 15 million Americans still have good employer insurance and pay nothing for it, or next to nothing. This group would have to pay higher income taxes in virtually all single payer proposals.

    Then you have early retirees from the military and the federal government, who likewise pay next to nothing for good coverage.

    Then you have the persons who get large ACA subsidies.
    They could be worse off with single payer due to higher taxes.

    Finally you have doctors, nurses, and insurance company employees and agents. Some number of this group would see lower incomes in a single payer plan.

  8. Floccina says:

    I see it as problem that medical care is mostly regulated at the state level but much of it is paid for at the federal level. State politicians like to bring as much federal money onto their states as possible and so are less concerned about regulations that drive up costs and are less interested in changes to regulation that would tend to reduce costs that they otherwise would be.

  9. Bart I says:

    I read somewhere that the difference between communism and socialism was “…to each according to his needs” vs. “…to each according to his contributions [or deeds if you want it to rhyme].”

    So calling a system with premiums based on a percentage of income “socialized health insurance” may be a misnomer in more ways than one.