Unbiased Analysis of Today's Healthcare Issues

Single payer commentaries

Written By: Jason Shafrin - Mar• 27•07

Tyler Cowen has interesting piece in The New York Times (“Abolishing the Middlemen…“) in which he states that a single-payer system’s cost savings from the reduced administrative and overhead cost may be illusory. The article’s arguments are sound and are similar to the one’s I made in the post titled “Medicare’s (true) Administrative Costs.”

The Economist’s View blog has some rebuttal comments from Paul Krugman. Tim Worstall’s blog makes the point that even if there are low administrative costs for government health insurance, one must take into account the deadweight loss which is incurred in order to raise the money (through taxes) to finance a single-payer system.

Overall, I think we could in theory design a superior single-payer system to that of the private market. I am skeptical, however, that a single-payer system will work in reality in the long-run for the following reasons:

  1. No competition. Competition breeds innovation and new ideas. Mr. Cowen makes the point that “Private insurance…provided earlier access to prescription drugs — an expensive yet effective form of medical care — for 20 years or more before Medicare did. The competition among private insurers may appear wasteful, but over time it stimulates better and more complete coverage.” Without the threat of competition, it is likely that single-payer systems will lag in terms of innovation.
  2. Government Bureaucrats. Is having government bureaucrats making medical allocation decisions worse than having private sector insurance company bureaucrats making medical allocation decisions? I would say probably so. Individuals with political connections will always receive top care when government bureaucrats make decisions; on the other hand, private sector bureaucrats will generally give treatment to anyone who can pay the insurance premiums they require.
  3. Consumers have less choice. If the government mandates that individuals have a specific level of government-financed insurance, this will reduce an individual’s scope of choice between consumption of medical services (or health insurance), consumption of other goods and savings.

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  1. Tom Leith says:

    “Competition breeds innovation and new ideas.” Sure — but Cowen is talking about competition for new financing arrangements, not improved health outcomes. Reasonable competition can almost exist for financing schemes. But there can’t be a competitive market for “healthcare” on a one doc, one patient, one drug or device maker sort of basis — the information asymmetries are simply too great.

    With single payer, inventors will compete to get their inventions covered. And they’ll have to prove to a board that they’re better than existing modalities. Will it be perfect? No. Better than what we have now? Probably. Might it be worse? Maybe. Looking around the world, you should be able to find plenty of examples.

    > private sector bureaucrats will generally give treatment
    > to anyone who can pay the insurance premiums they require.

    On what planet? There is a constant fight over “medical necessity” between private sector bureaucrats and docs/patients. And when that fight is fought, there is another one about how much to pay for the treatment. One problem the insurers face is that they basically can’t write a simultaneously useful and clear contract because of biomedical uncertainty, the pace of innovation, agency problems, and biomedical uncertainty. And the courts always construe against the stronger party to a contract. So whenever some sad case comes along, the insurer ends up paying regardless of all circumstances. And when the courts don’t do it, the legislatures will. Patients lobby to get an “any possible benefit” level of decision-making turned into “standard of care”. Every possible or impossible “provider” wants “equal access” to patient/insurer funds, making it impossible to write a contract that forecloses aromatherapy or whatever. They lobby legislatures to write insurance regulations to make it happen. If a healthcare board worked like the Fed, this would be more difficult and we’d probably end up with a market more competitive than the one we have now because the information asymmetries would be narrowed and the board would be more independent than even the insurers are today.

    Besides, it is possible to socialize actuarial risk to address social justice concerns, and leave allocation decisions in the private sector. We could have an Enthoven-ish sort of system that is “single ultimate payer” but doesn’t create a huge government bureaucracy — it creates lots of medium-sized private bureaucracies.

    As for choice, it is not the highest good. That said, I bet though that a system of socialized acturarial risk opens more choices people actually value than it forecloses in total scope. I know, I’m a heretic.


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