Back in October I wrote “Is Obamacare’s Failure Intentional, to Promote Medicaid-for-All?” In it I discussed how Bernie Sanders famously advocated for single-payer socialized medicine during his campaign. In 2011, the Vermont legislature passed a bill to create a single-payer initiative known as Green Mountain Care. In 2014 it was abandoned by Vermont’s governor — a Democrat — as being too costly. Green Mountain Care was going to require an 11.5 percent payroll tax and an additional sliding-scale income tax that topped out at 9.5 percent. Despite the heavy tax burden, a single-payer system in Vermont was projected to run deficits by 2020.
A similar single payer initiative also failed in Colorado this past November when voters rejected it:
Colorado Health Institute (CHI) found the program would operate in the red from day 1 and the deficits would grow each year. The CHI analysis also found the “savings” from lower overhead, less administrative costs, lower hospital fees would about equal the “new expenses” from covering the uninsured and higher utilization by people whose taxpayer-funded care is now nearly free. In other words, the savings from a Single-Payer program in Colorado is a big, fat goose egg.
The analysis found the program would almost breakeven in its first year (2019). In 2019, ColoradoCare would cost about $36 billion, losing only $253 million. By 2028, ColoradoCare would run an $8 billion deficit — more than $100 per member per month.
Now, Bernie Sander is back at it again. More than 50 House Democrats have introduced The Expanded and Improved Medicare for All Act, (more accurately known as Medicaid for All). Although being presented as new & improved, it’s the same bill that failed last year.
This brings me to a point I’ve made in the past. Medicare, a public program that costs more than $50 billion per year is in dire need of reform. It’s prone to waste, fraud and abuse. Medicare is a mixture of fee-for-service piecemeal providers and private managed care plans. If it were expanded to six times its current size, the opportunities for fraud would increase. More importantly, Medicare’s plan design is nothing like single payer systems used in other countries.
A single payer system such as the one used in Canada, would have to include monopsony pricing. Everyone knows what a monopoly is: it’s a when one firm is the only seller of a good or service. Monopoly has bad connotations because everyone knows monopolies can price gouge and charge more than what would be charged in a competitive market. Think about some of the specialty oncology drugs on the market. They sometimes cost $100,000 per course of treatment because there are no competitors and death is not a popular alternative.
A monopsony is similar to a monopoly except it’s the only buyer of a given good or service. Just as a monopoly can charge higher prices than in a competitive market, a monopsony can pay less for the good or service than in a competitive market. If doctors don’t want to work for a mere $100,000 per year, tough. Find something else to do for a living. The point is that a monopsony like the Canadian government looks at the supply and demand curves for medicine and figures out where to set wages such that the cost is lower than in a competitive market creating a slight shortage of labor.
In a competitive market, the quantity of labor supplied (think doctors, nurses, and so on) is Q1 while the wage rate is W1 (see graphic below). If the government is the only buyer of doctors’ services, it could set doctors’ wages at W2 and accept that fewer doctors are willing to work for that rate. The quantity of labor supplied would be lower – at Q2. In a monopsony health care system that is fine, since every doctor working is costing money to treat patients (whose demand for care that’s free at the point of service is insatiable).
Paying lower wages to service providers is one way a single payer system saves money. They have the power to tell providers “it’s my way or the highway!” This is true not just of doctors, but every specialized employee of the health care system. Some employees would seek work in other industries. But a doctor and a nurse doesn’t have much choice, although some would retire or retrain for other careers.
Another way single payer systems hold down costs is by paying less for medical supplies and hospitals stays. Hospitals in Canada are generally paid a global budget, whereas in the United States hospitals expect to be paid for every service they provide. What his means is that rather than paying a hospital for everything they do piecemeal like insurers must do, the government has a formula based on prior years’ capacity and provides the hospital with the money to operate but no more. In return for that global fee, hospitals are expected to accept all patients who present for care. Of course, a formula could be created that slightly rewards hospitals for seeing as many patients as possible.
Finally, single-payer systems have the power to ration the range of medical goods and services available to patients. When the $100,000 per year oncology drug price tags are capped at a mere $10,000, you can expect fewer advanced oncology drugs to be developed. Also expect fewer pieces of high-tech equipment and longer waits to use the equipment that is available. When the health care system is controlled by the government there are no competitors, it too has the ability to tell patients it’s the government’s way or the highway. Naïve proponents assume this would not occur. But it’s a necessary cost-saving measure when tax revenue runs short of patient needs, which inevitably occurs when medicine is funded by taxes.
There are a lot of liberal Democrats and Bernie Sanders’ supporters who think single payer is some panacea that will magically cure what ails our health care system. They know nothing about how it actually works. A single payer system that actually saves money would have to exercise monopsony power the way it is done in Canada, Britain, New Zealand and Australia. It would also have to ration care using waiting lists, equipment shortages and monopsony power. Most experts do not believe Americans are ready for that kind of overt rationing. Without overt rationing, there would be little savings as ColoradoCare critics discovered.