Moving to a Single-Payer System

As a follow up to my last post about administrative costs in the US health care system, let me take a moment to address the following hypothetical question: what could we really expect if the US moved from its current system to a single-payer system?

Theoretically, there’s no clear answer to this question. On the one hand, it’s possible that people in the US would consume more health care services than they already do if they didn’t have to fight private insurance companies over every payment, which could cause health care spending to rise. In addition, millions of people in the US who currently lack health insurance would be insured, possibly encouraging them to consume more health care services.

However, one could reasonably argue that some of the additional health care services consumed (particularly by those who are currently uninsured) would be more preventative in nature, thus reducing health care costs for problems that are more seriously developed. A study by the Institute of Medicine estimates that providing health insurance to the uninsured would save perhaps $130bn by replacing expensive hospital visits by the uninsured with far cheaper treatments at earlier stages of illness. (See Paul Krugman’s discussion about diabetes for another example.)

Furthermore, the administrative costs that I discussed earlier would plausibly be reduced dramatically, perhaps by hundreds of billions of dollars per year. These types of savings would have to balanced against the increased consumption of health care services.

Since there are theoretical forces that would make a single-payer health system both more expensive and less expensive, the best we can do is look at examples from other countries to try to gauge which force would be larger. Much has been written about how health care spending in countries with nationally-provided health insurance is lower than in the US, though their health outcomes are as good or better than in the US. Note as well that waiting times are not necessarily any higher in countries with single-payer health care.

As another useful data point we can examine the case of Taiwan, a country that replaced a collection of different insurance schemes with a National Health Insurance program in 1995. The percent of Taiwanese with health insurance rose from about 60% in 1994 to 96% a few years later. It turns out that in Taiwan’s case, the forces that would increase costs roughly balanced the forces that would decrease costs. A study in Health Affairs reported the following:

Our data show that Taiwan was able to adopt the NHI without using measurably more resources than what it would have spent without the program. It seems that the additional resources that had to be spent to cover the uninsured were largely offset by the savings resulting from reduced overcharges, duplication and overuse of health services and tests, transaction costs, and other costs.

These pieces of evidence suggest that a single-payer health insurance plan does not typically raise health care spending in the aggregate. If anything, the evidence suggests that single-payer systems are cheaper than the US’s system. While this is not conclusive evidence for what might happen if the US were to adopt a single-payer plan, it does seem to place the burden of proof on those who would argue that such a plan would increase medical spending in the US.

However, the reasons to adopt a single-payer system are not only, or even primarily, economic. The moral case for nationally-provided health insurance is at least as important, albeit one without data for me to measure or graph.