Cost growth, universal coverage, and single-payer

In It's Only a Matter of When, we set the stage a bit with our discussion of subsystems overwhelming the systems of which they are a part and which support them, especially with financial resources and how that triggers system responses. The example we used was of the loss of coverage. Let's now discuss the implications for universal coverage generally and single-payer, in particular.

The system structures and associated dynamics in It's Only a Matter of When help explain the rising numbers of uninsured, which are themselves much of the political impetus for some form of universal coverage. But, unless we're foolish, the leap to some form of universal coverage also requires that we create the structures in a new system to counterbalance those forces. Otherwise, we will simply transfer the associated problems from one coverage system to another.

Growth in healthcare costs at rates greater than the rest of the economy will continue to cause more people to become uninsured - the gap that universal coverage would fill. But a one-time jump in transfers from the rest of the economy to healthcare that would accompany a political move to universal coverage would not, by itself, change the system structures that create these dynamics. Thus, any move to universal coverage must take those inflationary structures into account and deal with them as part of reform. Certainly no reform should weaken the counterbalances that exist today, much less create new inflationary incentives.

Contrary to the rhetoric of many single-payer advocates, we cannot do this by relying solely on reduced administrative costs. Perhaps politically and rhetorically attractive, that's a dangerous distraction. Instead, we must face up to core healthcare costs and their continual rise and we must find effective means of counterbalancing them.

Let's jump off from part of Tom's comment about this post:

The rejection of the Clinton plan, in part, because of the canard that it would have limited consumer choice, marked the beginning of a consumer revolution that rejected all limits on choice, thus virtually all cost-control mechanisms. So discussions of how we'll reshape the delivery system under a particular universal health care system to control costs probably miss the point, which is that the American public may not allow costs to be controlled under any model. (which is why I think it makes sense to target administration and marketing costs, since those may be the only excess costs truly on the table.)

One of Tom's implicit assumptions is that only by limiting choice can we control costs. I'm not sure that's true. I've certainly seem mechanisms that had the effect of reducing costs without limiting choice. Indeed, I've even seen cost reductions result by giving the patient more choice leverage (through deeper education about their options), but I don't want to dwell on that here.

Rather, momentarily granting Tom's assumption about unfettered choice, let's look at his next point, "the American public may not allow costs to be controlled under any model." Yes, they will. They may hate it. They may resist. They may claw and scratch, but, even under a single-payer system, ultimately they will have no choice but to allow cost controls politically. Why?

Because continual and accumulative healthcare cost growth that exceeds the rate of growth of the economy that pays for it and supports it will sooner or later, but inevitably run into a "Decision/Behavioral Change Threshold" such as we discussed and depicted here. At that point the larger system (the rest of the economy in this case) will push back and say, "no more." (More likely the wording would be a bit more aggressive.) The healthcare sector will have to live and content itself with X percent of the nation's economic resources. Pick your own percentage threshold. Fifteen percent? A bit over where we are today. Twenty? Maybe. Fifty? You must be kidding. The American public which had previously rebelled over "lack of choice" would have long before furiously rebelled over the tax burdens associated with that level of economic commitment. Why would it be otherwise? The point here is not to argue what the trigger level would be. Rather it is to simply say that structurally, such a trigger level will be an intrinsic part of the system and pulling the trigger is a matter of when, not if.

Tom, then using the single-payer advocate argument, goes on to say:

... which is why I think it makes sense to target administration and marketing costs, since those may be the only excess costs truly on the table.

Over the last few years, the administrative costs argument has become the centerpiece of the rationale for single-payer advocates. This is dangerous. Whether large or small, administrative costs are an "add-on" to core healthcare costs. They rise with the increases in core healthcare costs, which the single-payer proposal does nothing explicit to address. All the systems we're discussing, reformed or otherwise have and will have some form of counterbalancing mechanisms. Whether in the present system or embedded in a single-payer system, the same generic system structures will produce the same generic system behaviors. It's best to  think about the nature of these counterbalances  consciously in advance of reform and to discuss them openly.

The administrative savings rhetoric is more than a distraction. The rhetoric of many single-payer advocates supports at least implies more dramatic, perhaps radical controls on core healthcare costs:

• It does this in comparisons to other nations' healthcare systems which devote to healthcare much smaller shares of overall economic capacity. If the US spends 14 percent of GDP on healthcare and another system spends 10 percent, we must ask of the single-payer advocate, are you suggesting that the US move toward 10 percent? Are you suggesting that we cap the US system at 14 percent while other nations catch up? If two of the 14 percent is for administration and we can eliminate that, will we then cap healthcare's share at 12 percent? And, especially after dismantling the administrative controls, in any of these cases, how would we do that?
• Most single-payer proposals include or imply some form of price controls. Today that's often aimed at the current villain, pharmaceutical firms. But price controls certainly wouldn't be limited to such firms, they would apply to all forms of healthcare included in the benefit package. A single-payer systems would be a monopsony (single buyer rather than a single seller monopoly). Its leverage over hospitals and physicians and most other services would be near total.
• Service use controls would be of two types, implicit and explicit. Price controls will inevitably have a hidden, implicit effect on service. Priced low enough, no one will sell a service. So patients would have complete freedom of choice to seek services ... that no one sells. In part, this is just an extreme version of the waiting line effect. Explicit service use controls would no doubt emerge as well.

Assume for the moment, that we could have a single-payer solution and universal coverage with zero administrative costs. We would have received a one-time savings. But would we still have a healthcare cost problem? Would healthcare costs continue to rise faster than the rest of the economy? Clearly yes. And therein lies the problem. Because as this new administration-free, single-payer system consumed an increasing share of gross domestic product, eventually the rest of the economy, the taxpayers would limit the resources available to healthcare

As I discussed before, I've never found the administrative cost argument compelling except in the extreme short term. If single-payer advocates were actually able to make the sale to the American public, they would shortly thereafter find themselves accused of a "bait and switch" because the core costs, for healthcare services would continue to grow faster than the rest of the economy and there would be little alternative but to impose administrative controls on service, both raising administrative costs and creating exactly the sort of problems they had promised to avoid. Not a pretty picture.

Any credible reform proposal must include the means by which core healthcare cost growth will be constrained to some fixed percentage of our society's economic capacity or it will necessarily fail.

Even my own discussion of the importance of finding the Mama Bear "just right" levels of healthcare service use does not yet address how. But we must openly and directly address how we would do this

Any universal coverage system must directly face up to how the core costs will be controlled. This can be done bureaucratically or it must leave individuals and families the ability to choose among different systems of care and financing and do so with a financial incentive that creates a counterbalance to healthcare's core inflationary forces. Individuals and families must play an active role in the choices that affect them and their decision making must include personal trade-offs regarding service choice and cost. Even more than in the present system, in a healthcare system with universal coverage, core healthcare costs will be controlled by the rest of the economy. This can be done arbitrarily to patients and physicians and I fear that arbitrary means will be the only ones available in a single-payer system. We must find functional and politically acceptable means of restraining growth in core healthcare costs. At best, tinkering solely with administrative costs avoids finding a solution to the more serious problem, even worse, it's a distraction. Worst of all, it may undermine our ability to confront the greater challenges.

Comments

[John Fembup]

Solid thinking.

"a one-time jump in transfers from the rest of the economy to healthcare that would accompany a political move to universal coverage would not, by itself, change the system structures that create these dynamics . . . Any universal coverage system must directly face up to how the core costs will be controlled."

That's precisely why I say, until I see persuasive arguments that health care costs can be contained, I have absolutely no faith in "solutions" that rest on some kind of insurance mechanism.

That's my story, and I'm stickin to it.

[Abby]

My remarks aren't tempered by any real-world experience in the healthcare biz. So take them for what they're worth, which is not much.

A general question, why does France seem to do so much better with less? I don't know, and I'd really like to.

PRO SINGLE PAYER ARGUMENTS

1.) The administrative aspects. This is a one-off deal, but I think it might be enough to bring everyone into the system at current spending levels.

2.) Freeing people from employer-based coverage might allow people to be more entrepreneurial and could spur economic growth. (Strictly speaking, that's an argument for universal coverage, not single payer, but if we could get the economy to grow faster then the proportion of our economy taken up by health care won't go up so much even as health spending rises absolutely.)

3.) Rational pricing on pharmaceuticals. Yeah, these are price controls, but I don't think it will kill all innovation. The government could, for example, pay a reasonable and customary rate for medical services received during the course of research. This would cut down the cost of doing clinical trials and could make up for some of the loss in revenue to drug Pharma and others.

4.) If the government insures you over your whole life time, it will have an incentive to give you good preventative care---not a panacea, but not negligible either.

5.) The government will have an incentive to clean up the health care environment. I know that this sounds coercive and big brotherish, but I don't mean for it to be. If the government has to pay for the asthma care of kids in polluted areas, there will be a greater incentive to get the polluters to pay for the cost of that care or simply to clean up their mess.

6.) I think it could be easier to get things like electronic medical records and other IT innovations which could allow for co-ordinated care implemented. It would be a lot easier to collect naturalistic data. (Some of the best studies on schizophrenia treatment come from Denmark, and patients who were discharged from the military, because it's relatively easy to follow their course of treatment.)

7.) I think that there would be a greater emphasis on research into cures and vaccines. If there were a fairly expensive treatment that cured your diabetes, it would still be worth it for the gov. to shell out, since the gov. would otherwise be paying for your pills for the rest of your life. A private insurer knows that you probably won't be with the same plan in a few years and isn't therefore incentivized properly.

Now maybe that should be combined with some sort of HSA, although I think that, if it is, there ought to be some sort of redistribution towards those at the bottom.

[macleod]

you're all very learned on this topic, and certainly more intellectual then i. however i've existed and occasionally triumphed as a solo fp in small town with a large multi-specialty( think churn those patients till we've rung every last dollar out of them), a hospital employee group( think, who cares if we see any patients, we're making 300k a piece), and a federally funded "migrant" health center that now runs its own health plan and competes with me for insured patients. so here are my well cogitated thoughts on insuring all:
1) no change will make any difference as long as there is not real tort reform. the cost of defensive medicine is incalculable. as i watch the work of recent grads (5-6 years) it's quite clear that they don't even why they're doing some of the things they do routinely. even in my generation, there is tremendous pressure to do things that cover you in the future. as a former police officer, i well remember the lessons of cya, taught from the very first day of tha academy. medicine doesn't do it very well. because, i think, they're afraid to call it what it is. and it's very expensive
2)any real universal and/or single payer will eventually cap fees. there is no other way to control costs. the problem is that you have new grads coming out of training owing 250k in loans. where are they to make the money to pay off that debt?
3) while i'm not troubled by the idea of universal coverage, i am troubled by the single payer concept. because we all know the government would be the payer. we have a national healthcare system in place. it's called the va. you see almost constant roll backs from the commitments made to vets, in an effort to control costs. who really thinks that the same government that brought us the postal service, would manage healthcare at some mystical higher level then it runs anything else. name one government program that really works. medicaid? medicare?
frankly, i think the wheels are falling off, and our political system lacks the flexibilty and the integrity to deal with the problem.
i have 15 years to go, but my wife makes a nice income. like so many others, it wouldn't take much to chuck it.