Unbiased Analysis of Today's Healthcare Issues

Can a Multi-payer Financing reduce costs to Single-Payer Levels?

Written By: Jason Shafrin - Sep• 15•08

This is the question asked by Newhouse and Sinaiko in their 2008 paper in the Forum for Health Economics and Policy. The answer is yes.

 

Single Payer
Country Health Exp as Share of GDP (2006)
Canada 10.0
Norway 8.7
Portugal 10.2
Spain 8.4
Sweden 9.2
United Kingdom 8.4
Average 9.2


Multi-payer
Country Health Exp as Share of GDP (2006)
Germany 10.6
Japan 8.2
Netherlands 9.3
United States 15.3
Average 10.9
Average (w/o US) 9.4

Source OECD

From the table above, we see that when we exclude the U.S., many multi-payer systems have similar health care costs as single payer systems. Further, Newhouse and Sinaiko find that states in the lower quintile of health care spending spend similarly to the single-payer nations cited above.

Specifically applying a single payer system to the U.S. might not reduce health care costs as much as conventional wisdom thinks. The paper wisely notes that “the dominant American fee-for-service reimbursement method is likely to generate greater billing costs than hospitals on fixed budgets, as in Canada, but it is not necessarily the case that implementing a single-payer regime in the United States would change how hospitals are paid.”

So is a single payer system right for the U.S? This question is still up for debate. A single-payer system is likely a sufficient condition for having lower health care spending levels, but it is not a necessary condition for reducing health care costs.

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2 Comments

  1. Max Hotopf says:

    One reason why the single payer model looks much cheaper is that it typicaly covers a smaller range of services. A German gets high class orthodontics, the Brits don’t. So this useful comparison could be simplistic.

    It is also worth noting that the single payer model doesnt imply that the public sector has to do all the delivery. Most single payer systems are veering away from a monolithic-everything-run by the state model towards a much more mixed model.

    This is happening in the UK but also in Sweden and Spain. In Catalonia Adeslas a big insurer and healthcare provider has run the primary and secodnary healthcare systems at Alzira for a decade. It claims to be 25% cheaper than the state.

    In Sweden many regions are now outsourcing care of the elderly, primary care and domicilary care to private companies rather than carrying it all out themselves. About $1 billion of business should transfer to the private sector over the next 18 months.

    We cover this on our new website healthcareeuropa.com.

    I think of traditional single payer systems as the T34 approach. This was the tank that won the second world war. The USSR pushed almost all its tank production to the T34, a crude but very effective tank. Germany had far more variety with more sophisticated engineering but couldn’t produce the volumes. The single payer model works for me when it is a one size fits all T34 or Model T. But what do you do when consumers become more choosy and start demanding aromatherapy, natural birthing techniques, 88mm guns or yellow cars?

    So it will be very interesting to see if outsourcing works.

  2. [...] and both have single payer. According to this the Netherlands has a multi-payer system. Healthcare Economist