Debating Single-Payer Health Insurance

Mark Thoma and Andrew Samwick discuss problems with and potential solutions for the social safety net in this week’s WSJ Econoblog. They cover several important points, but following up on some posts from last week, let me highlight their discussion of the pros and cons of a single-payer health insurance system.

Mark Thoma argues that a single-payer system would have several advantages over market-based health insurance provision:

The benefits of a comprehensive single-payer system covering both non-retirees and retirees begin with preventative care. Under the current system, there is little incentive for insurance companies to pay for preventative care. Instead, their incentive is to minimize costs when patients are young and relatively healthy, and then pass patients along to someone else, often the government, in later years when preventable problems become costly illnesses.

A second advantage is a reduction in the high overhead and administrative costs incurred by private insurance companies.

…A third advantage is the substantial saving that a single-payer system can realize through its bargaining power with drug and medical device suppliers. A comparison to health-care systems such as Canada’s shows such savings can be large.

Finally, single-payer systems offer a solution to conflict of interest problems among doctors, drug companies, and medical equipment makers that lead to an overinvestment in high cost treatments and higher medical costs.

Andrew, on the other hand, is not a fan of the single-payer solution. He concedes that a single-payer system would have cost advantages through increased bargaining power and lower administrative costs, but is skeptical about the other advantages to a single-payer system. Instead, Andrew “would prefer to fix some of the obvious mistakes before making such radical changes to the [US’s health care] system.”

The first mistake is to make insurance voluntary when we don’t subsequently exclude those who need care from getting it at the public’s expense. We should make health insurance mandatory, but we should do so by putting the mandate on the individual, not the employer. Those who cannot provide proof of insurance on their tax returns should be charged an amount that corresponds to an insurance policy in their area. Implementing this on the tax form allows for family resources to be taken into consideration.

The second mistake is to allow the tax code to distort the type of insurance offered… Rather than the Bush administration’s proposal to make out-of-pocket expenses deductible via expanded medical savings accounts, I favor removing the excludability of health-insurance premiums from taxable income. This eliminates both the large tax expenditure and the distortion in the health-care market.

The third mistake is to force young workers to subsidize older workers in group health-insurance markets… Lowering premiums for younger workers would draw them into the insured sector and hopefully keep them there.

Needless to say, I find myself squarely in the single-payer camp on this debate. The potential savings are enormous: better preventative care may save as much as $136bn annually, lower administrative costs could save up to $300bn per year, and if improved bargaining power reduced drug and medical equipment costs by just 10%, that would save perhaps $25bn-$50bn per year – with savings of perhaps $100-$200bn if we assume that a national health insurance provider could negotiate a 10% fall in overall provider prices.

More importantly, however, a single-payer system would mean that everyone in the US has access to routine health care, thus improving the quality of life for millions, and would eliminate an enormous source of complexity and stress in many people’s lives – worrying about maintaining (and fighting the bureaucracy of) health insurance coverage.

Whether you agree or disagree with me, however, it’s worth reading this Econoblog in its entirety. Mark and Andrew do a very nice job outlining two competing economist-prescriptions to improve the way health care is paid for in the US.