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June 13, 2005


John Fembup

Your excellent summary reminds me of a question I occasionally ask: do you believe that there must be a single employer in order to achieve full employment? Most people simply laugh (because it is a laughable idea). Oddly, it takes oceans of words to argue that a single payer for insurance is equally laughable. Isn't it obvious? Apparently not.

I favor universal coverage but not compulsory coverage and, for most of the same reasons as you, I oppose single-payer coverage. I think that "universal" may eventually be defined as some participation level close to, but below 100% - in much the same way economists define "full" employment as something less than 100%.

There remains an essential analytical distinction to be made between the cost of health care and the cost of health insurance. This distinction is continually ignored or glossed over. Insurance does not change the cost of health care, it only rearranges the cost - that is, insurance is fundamentally a mechanism for spreading cost around. Because insurance does not change the underlying costs, it cannot be a solution to the problem of costs. There is a huge public debate about how to mitigate the cost of health insurance, and by comparison a miniscule debate over how to stem, or even cope with, the very high cost of health care. And there is little sign that the public recognizes how much of the cost of health care is driven by behaviors (poor diet, inadequate exercise, inadequate sleep, alcohol abuse, substance abuse, smoking, speeding, violence, yadayadayada). It may be that when all factors are considered, Americans really WANT health care to be expensive and to escalate in cost every year, because we believe commensurate value is returned for what we spend. Maybe. There is certainly a lot of evidence to the contrary. Whatever, It is not a sound strategy to focus mostly on how to share costs and mostly not on how to manage the costs.

There is an even more ominous possibility in a single-payer arrangement, that being the mechanism of insurance would be twisted into an explicit means to limit expenditures - rationing for instance; or think Medicare or Medicaid, or Canada, or UK, or etc. Are any politicians willing to raise this as an issue? Maybe Senator Kennedy?

So as much as I support the concept of universal coverage, I think the cost of health care is the more fundamental issue and should, ideally, be addressed first. In the absence of reasonable restraints on the overall cost of health care and its yearly growth, I think more payments into the system via a universal health insurance program will simply fuel continuing outrageous costs, and the insurance program will compel me to pay for it. That does not strike me as any kind of "solution" even were it temporarily to benefit me.

Jon Dougherty

Congrats to both Johns. Very well analyzed and conveyed to cyberspace. I would add just one little tidbit. We need to keep in mind that what we have is a systemic problem resulting from the success of healthcare. The insured “pool” is older, living longer and is susceptible to disease to a greater extent than a generation ago. In my mind this is driving cost: HEALTH CARE = GREATER LIFE SPAN = MORE DISEASE = MORE HEALTH CARE etc. (John Rodat, does this look like something you've written about before?) There is certainly no easy answer to this problem.

Working in the government world, I can say that it would not be advisable to allow people who took more than a decade to pass a budget on time to control the health care system. And that is but one example of where the governmental affairs process would not translate well into operating a very complex and politically charged health care system. Is this my opinion alone? Actually, the same sentiments were voiced by the late Senator Daniel Moynihan, a rather noted progressive individual, when he opposed the Clinton Health Security Act.


I think it would help clarify the arguments for and against single payer to imagine how one would implement an expansion of Medicare (presumably with expanded benefits) to cover the entire population.

Whatever the clinical and economic merits, the cost savings would be clear. Medicare has a 2% admin cost, while Medicare+Choice plans average an 8% admin and marketing cost, plus an estimated 2% for profits. As Uwe Reinhardt (no left-wing ideologue) has pointed out, using a Medicare-based system would rapidly cut 10% or more off health coverage costs - and the savings would compound over time, since Medicare costs rise more slowly. Plus, an end to cherry-picking and hence more savings!

Now I think it would be fair to argue that Medicare's admin costs are too low for its own good, and that it needs to spend more money on chronic care management, pay-for-performance, etc. So let's double the admin costs to 4%. Still looks pretty good, huh?

A similar argument is raging over at Check it out.

Harry MacAvoy

Problem of course is that while Medicare's administrative expenses may be low as a percentage of overall costs, they're low because costs are so high. Think about the $9 asprin tablet and multiply that by the enormous amounts spent by Medicare for all sorts of drugs, equipment, supplies, etc.

A universal health care system will do for healthcare what the public schools do for education -- improve healthcare at the lower end of the spectrum while reducing its quality at the higher end. In the end we wind up with a dual track system, not unlike education, that on the whole costs much more.


Some good comments here. My responses?

To John Fembup:

To my mind universal is universal. I don't know how to handle those in the US illegally, but everybody else into the pool.

Though it carries problems with it, I think we need to make at least some part compulsory. Or, make a real offer of coverage with the money to back it up and then if an adult takes a walk, I'd cut them no financial slack when the walk into an ER uninsured. The exception to this is kids. Cover them all, period.

If there's not some element of compulsion, there will always be some free-riders and that undermines the whole system and adds a lot of administrative costs.

Not to pick nits, but I disagree with your point about "Insurance does not change the cost of health care, it only rearranges the cost." The economic effect of coverage is to increase the use of service and likely to increase the price of service above what it would be in an uninsured market. That's one of the problems. The distance between the insured and the uninsured becomes greater and greater. I'll have to diagram this.

To Jon D: Yup. See my next post.

To Tom H:
Yes, those administrative savings are attractive aren't they? But if, at the end of the implementation process we're left with no means to improve the cost-effectiveness of care (and I have very little confidence in the Federal government's ability to do that, then we're trapped. I was already working on my next version of "web chatter on universal coverage," had picked up on TPMCafe and have since posted it. But thanks for the pointer. Please alert me to more in the future.

To Harry MacAvoy:
Re your point, Medicare administrative costs are "low because costs are so high." Thank you. As soon as I read it, I slapped my forehead and thought, "of course." I've never heard anyone else even mention the point, much less put it so succinctly.

Feel free to weigh in here as well:



I didn't respond to Harry's point because it sounded like garden-variety water-cooler opinionating. So I'm surprised to see that John shares his prejudices, without adding anything in the way of facts. But I still don't know what there is to respond to.

What's the evidence that Medicare overpays for services? Does it overpay vis-a-vis Medicare+Choice plans? What's the standard of comparison given the sick and elderly population covered by Medicare? Is there reason to believe some other system covering 35 million people (and hence beyond the realm of price negotiation) would do better? Numbers, please. And if Medicare really pays $9 for an aspirin, I'd like a citation.

But I'm open to persuasion. And if John has an alternative that improves cost-effectiveness without degrading care, I'm all ears.

John Fembup

"What's the evidence that Medicare overpays for services?"

Tom, I think Harry's example of a $9 aspirin tablet is a bit distracting, and I don't think that is what John R. was agreeing with. Harry's point is basically: Higher numerator - constant denominator - value of fraction decreases.

Benefits spending for the Medicare population is very high compared with an "average age" population say, the active labor force. That difference constitutes the increased numerator. There need not be any "overpayments" in Medicare for this to be true. The principal reason Medicare costs are high is the higher prevalence of chronic conditions in an older population, therefore: higher frequency and complexity of treatments, increased use of specialists, more hospitalizations, and higher cost, all primarily the consequence of normal human lives (and not incidentally the intersection of those lives with the medico-legal complex). The denominator - admin expense - does not exactly stay the same, but its change is not terribly significant and does not alter the point.

That is the paradigm that I recognized in Harry's note, and is what I think John R. was responding to. I think Harry made a fair point.

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