Single-Payer Health Care and Vouchers

Robert Frank argues for a single-payer health care system with universal coverage supported by a voucher system:

A Health Care Plan So Simple, Even Stephen Colbert Couldn’t Simplify It, by Robert H. Frank, Commentary, NY Times: In his State of the Union address, President Bush proposed tax cuts to make health insurance more affordable for the uninsured. The next day, Stephen Colbert had this to say on his show on Comedy Central: “It’s so simple. Most people who can’t afford health insurance also are too poor to owe taxes. But if you give them a deduction from the taxes they don’t owe, they can use the money they’re not getting back from what they haven’t given to buy the health care they can’t afford.”

Just so. As health economists have long known, market incentives induce private insurers to spend vast sums to avoid people who may actually require health care. This problem is mitigated (though not eliminated) by employer-provided group policies. Because Mr. Bush’s proposal would steer people toward individual policies, it would actually strengthen the incentive to shun unhealthy people. Such people can now keep their insurance by not changing jobs. But no private company would want them as individual policyholders...

That Mr. Bush’s proposal will not shrink the ranks of the uninsured is not its most serious problem. Far more troubling is its embrace of a system under which we spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours. American costs are so high in part because the reliance on private insurance multiplies administrative expenses, currently about 31 percent of total outlays.

Most health economists agree that government-financed reimbursement is the only practical way to control these expenses, many of them stemming from insurers’ efforts to identify and avoid unhealthy people. ... A single-payer system that did nothing more than reduce administrative expenses to the levels of other countries would save roughly $300 billion annually.

Some critics worry that expensive but ineffective medical interventions may proliferate if health care becomes a federal responsibility. But Victor Fuchs ... at Stanford University, and Dr. Ezekiel Emanuel, ... at the National Institutes of Health, have outlined a single-payer plan that would limit such interventions far more effectively than the current system. (A copy of their plan is on the links page of my Web site, www.robert-h-frank.com.)

If the single-payer system embraced by virtually all other developed countries is clearly the best solution, why doesn’t the United States adopt it? Some analysts concede its merits, but characterize it as either unaffordable or politically unrealistic. But why should a policy that promises better results for less money be considered a nonstarter?

There are two obstacles, which could both be overcome by intelligent political leadership. One is that the single-payer system would require additional tax revenue. In the current climate, that’s a tough political hurdle... Yet how complicated would it be to explain to voters that because the single-payer plan would reduce costs substantially, every additional tax dollar would be offset by an even larger reduction in private insurance spending? Given that such a system is so much cheaper over all, calling it unaffordable makes no sense.

The second obstacle is opposition from private insurers, who would be understandably reluctant to abandon multibillion-dollar annual profit streams. ... But intelligent leadership could overcome that resistance. Whenever a pie gets bigger, everyone can get a larger slice than before. ...[I]t should be possible for everyone, including the insurance industry, to come out ahead. ...

Selling this argument in an era of 15-second sound bites would be challenging, but hardly impossible. Indeed, forceful advocacy of the single-payer approach offers a golden opportunity for any serious presidential candidate. ...

We live in challenging times. Does a candidate who couldn’t persuade voters to embrace the single-payer approach deserve to be president?

The basis of the voucher plan, an he notes, comes from a proposal by Ezekiel Emanuel and Victor Fuchs( here and here). The plan is explained in a November 2003 Op-Ed in the NY Times:

The Universal Cure, by Ezekiel J. Emanuel and Victor R. Fuchs, Commentary, NY Times: The public has good reason to be worried about health coverage. ... As a solution, many policymakers are advocating small reforms like a Medicare prescription drug benefit or expansion of the Children's Health Insurance Program. Unfortunately, more services for some groups may increase costs and force reductions in coverage for others.

What we need is a fair proposal that is simple, efficient and appealing to disparate constituencies. For more than a decade, as members of the medical and economics communities, we have advocated such an alternative: universal health care vouchers. ...

Each family or individual would be given a voucher to purchase a policy that covered basic services, including doctor visits, hospitalization, pharmacy benefits, some mental health and dental care, and catastrophic coverage. People who want more services, like wider choices of specialists, could pay a premium over the basic voucher.

This would continue to be a decentralized system with existing health plans contracting with providers, but their insurance would no longer be employment-based. That Americans receive insurance from their employer ... has one advantage -- pooling people to reduce premiums -- but many disadvantages, including locking people into jobs so they can continue to receive health coverage and allowing employers to choose insurance providers. It has also become an albatross for businesses. ...

A voucher system would also enable the government to end Medicaid and phase out Medicare. Having multiple health care systems squanders resources. ...

One consistent concern about vouchers is that health plans would have financial incentives to avoid the sick. But requiring each insurance company to offer a basic package with catastrophic coverage would ensure that individuals ... would not be excluded. More important, the voucher system would pay insurers part of their cost as a lump sum and part as a reimbursement fee for actual services rendered, reducing the incentive for insurers to avoid sick patients.

A national health policy board would administer the system...

[U]sing an earmarked tax to pay for the vouchers would limit cost increases. The level of the tax would determine the value of the voucher. If the public began demanding an increase in the voucher value, it would be directly linked to higher taxes, moderating these demands and health care inflation. ...

[V]ouchers hold the promise of securing wide support. Democrats have long favored the notion of universality, while Republicans instinctively favor voucher plans and have longed for the demise of Medicare and Medicaid. Businesses want to stop providing health insurance, and Americans want guaranteed health coverage with choice. ...

The universal health care voucher can secure both widespread support and finally establish a fair, functional health care system in the United States.

Here's what Ewe Reinhardt thinks of the voucher proposal:

Health Insurance For All Americans?, Letter to the Editor, NY Times:

To the Editor:

Re ''The Universal Cure,'' by Ezekiel J. Emanuel and Victor R. Fuchs (Op-Ed, Nov. 18):

The writers' idea that we reach universal health coverage through a system of tax-financed vouchers has a distinguished but sorry history in this country. It was first proposed, in 1971, by Paul M. Ellwood, widely regarded as the father of the idea of managed competition among private insurers. It was proposed, in 1972, by Herman and Anne Somers, two former Princeton colleagues.

In principle the idea is eminently workable, but it did not become reality and probably never will, for a simple reason: it would require the well-to-do in this country to pay additional taxes on behalf of the poor and near poor.

Does anyone sincerely believe that this is politically feasible, now or any time soon?

Uwe Reinhardt Princeton, N.J., Nov. 18, 2003
The writer is a professor of political economy at Princeton.

Comments

[spencer]

There are several issues we are concerned about with health care. But probably the single biggest issue is the high cost. So the President proposes we deal with the high cost of health care by making it more expensive.
Arnold Kling, and others seem to think this makes sense.
But it is not self-evident to me.

[vorpal]

The Fuchs plan is the way to go. Clearly there needs a health insurance/care board that regulates the industry to ensure efficient and equitable health care for all. Simply having a regulation that disallows customer screening of any kind, that is, if one person pays a certain amount for a certain plan then all others who want the plan pay the same. One plan, one price. Just this would save billions of dollars. Going further with vouchers and a health board would work wonders.

I dont think we'll see this happen because the nation seems pretty bent on doing everything wrong at this juncture. They are still joyriding in their cars. When real hardship comes along (I believe it will), then they may be more receptive to making significant changes.

[Carter]

Based on a cursory reading, the plan would not reduce the redundant bureaucracy - Federal Government & private insurance involvement - that make our health care system much more expensive than the rest of the post industrial world. Hospital administrators would still have to sort through the myriad of co-payments & deductibles that vary among insurance companies, which makes the largest share of hospital jobs one of determining reimbursement.

Its plus is universal coverage. As more individuals are removed from work place coverage by their firms, universal coverage becomes societally more attractive. I suggest that to deal with the political clout of the insurance companies, progressives promote a pincher movement - through further regulation & taxes on the insurance industry - where involvement in health care becomes less & less profitable to the industry.

[bakho]

Part of the issue is "who pays". If the insurance is currently paid by the boss and is now shifted to taxes, do we think the boss will pass on the health care savings to the peons? Or will they put the money into bonuses for the CEOs? Unions should be on board because it would create a pot of corporate money to bargain higher wages. Whatever gets proposed will have to steamroll the insurance snakes.

[Scott Ferguson]

This is not a "single payer system". It is the same system with vouchers. As Carter wrote, it adds a layer of bureaucracy. If you want to force Insurance companies to provide catastrophic coverage without screening, then do it. Don't pretend that it has anything to do with a voucher plan.

A true single-payer system is the way to go but, in the end, you can not just eliminate a multi-billion dollar industry with the stroke of a pen. The potential job losses alone would sink it. I fear that inertia will doom us to our current system with occasional piss-ant reforms (in which category I would include the above). Perhaps even my fantasy of IBM and Ford forcing universal coverage to escape their own Health Care trap are too far fetched to be believed...

Sigh!

[JRossi]

I agree with carter that a large number of insurance companies with their own bureaucracies wastes resources. One set of rules for providers is the way to go.

[Bruce Webb]

The biggest single obstacle to single-payer is politics and the roots of those politics are not in the economics of health care but in ideology.

There is a certain portion of the Economic Right who simply don't believe in social solutions. They don't like Medicare, opposed it from the start, under Gingrich proposed huge cutbacks to make it "wither on the vine". They regard Bush's expansion of it with Part D with revulsion. They are not swayed by cost analysis of any given social program, led by their spiritual leader Grover Norquist they want to get government to the point that it can be "drowned in the bathtub".

It is fine to discuss ideal solutions to medicare, put pretending that the path to that point will be fundamentally lit by honest policy analysis is kind of naive. That single-payer is demonstrably cheaper is what makes the Economic Right oppose it all the more.

The path to Single Payer runs through Social Security. If that program can be proved fully solvent then much of the rhetorical opposition to Single Payer, that Big Government solutions don't work, gets swept away. They know that full well, which is why they are making a final run at Social Security, because "crisis" is the only thing between them and what they disdainfully call Socialized Medicine.

They don't like Socialized Anything. They will talk about market efficiencies until the cows come home, but in their hearts they are continuing the decades long battle against Socialism in all its forms, especially when that means paying taxes.

[ken melvin]

Does the idea of government issuing vouchers to be used to buy insurance from private insurers seem ridiculous to anyone else? Why subsidize them? It makes some sense to let them bid on the administration of a single payer system. As Pete Stark says, let them compete with MediCare.

[James Killus]

As usual, I find myself in near total agreement with Bruce Webb.

I will note that there is another venue for government provided healthcare and that is the VA system. Here both the ideology and hypocrisy of the right shows its colors yet again as they try to undercut and underfund it at every turn, while the "anti-military" Clinton Administration, actually reorganized it into a functioning care delivery system.

There should be a VA clinic/ER in every community in the country, with excess capacity that could be used for disaster relief, epidemics, and treatment of the poor and indigent. Veterans, of course, should take precedence in those facilities, and no verteran should ever be more than half an hour away from emergency medical care. I want every member of Congress who "supports our troops" to have his/her feet held to the fire until this happens.

[Movie Guy]

Bruce and James,

I think both of you have misstated the situation with regard to the political rightwingers. There are two separate groups within that political elements - those under 65 years and those over 65 years.

I have never, not once, heard any of the over 65 years group bitch about the provision of Medicare. And they viewed Medicare Part D as a budget lifesaver.

The same story applies to those receiving Social Security benefits.

Now, if you intended to limit your rants to the under 65 years, then you should say so.

The age demographics are the key on these subjects, not political party membership.

I raise this issue because I have raised it in meetings. The split between the groups, even among rightwingers, has occurred at age 45-55 in such meetings. My polling is based on a show of hands, of course. But the message is clear. None of those receiving Medicare or Social Security, or those contemplating receipt of such benefits and services (the 50-60 window) fall into your crowd of complainers.

Now, I can not say the same about Medicaid and similar support programs. Then again, I haven't conducted a meeting poll on those issues.

James, agree with your VA comments. The same can be said for active duty military benefits. The Republicans are disappointing the hell out of some conservative Active Duty members and Veterans alike based on their voting records on such matters. I hear this all the time. And it's not at all unusual for me to say, "Well, why the hell are you guys Republicans? Don't you get it? They don't like you. It's the Democrats saving you, not the Republican bastards." (I normally observe a lot of sheepish nods...)

[bakho]

I half expected our County Veterans affairs officer to be a Republican, but he is a Dem (can't be outspoken). He is really, really unhappy with our GOP Congressman.

[James Killus]

Movie Guy,

Certainly it is true that it is rare for right wing ideologues to advocate the elimination of any transfer payment structure from which they themselves benefit. The rationalizations one hears from such folks are often quite entertaining, or would be if the sitiation were not so sad and hypocritical.

However, when confronted with the notion of extending such benefits to anyone other than themselves, the ideology kicks in and they're agin' it. Over 65 individuals are still often against "socialized medicine" and single payer programs, even though they themselves are receiving the benefits of such programs. They have been convinced that such things will result in a loss of their own privileges, or, as they call them, "rights."

[Peter Schaeffer]

Singapore’s system is vastly cheaper than typical single-payer programs or the U.S. approach. One source Health Care Expenditure and Financing in Singapore gives 3% of GDP, another source Transforming Singapore Health Care: Public-Private Partnership gives 3-4% of GDP.

By contrast, European style single-payer systems typically cost around 10% of GDP. Various sources give 9.9% for Canada, 10.1% for France, and 11.1% for Germany. Clearly, the Singapore approach is drastically cheaper than any of the single-payer systems that are offered as a model for the US.

In the past, several folks have asked how Singapore’s system could deliver some of the best health care in the world (apparently Singapore has the lowest infant mortality rate worldwide), at such a low cost. Let me try to offer an analogy. Some time ago, the Federal Government released a controversial report showing that private K-12 education is no better than the public K-12 system if you adjust for family characteristics (income, race, etc.). This is probably true. Indeed, the Bush administration was accused of releasing the report on Friday to minimize publicity. What most folks missed is that the private K-12 system is 50% cheaper than the public system. See Do Public and Private Schools Compare? for the actual numbers.

Why is private education so much more efficient than public education? Because real people have to pay for it with their own money. The same is clearly not the case in the public sector. Washington D.C. spends $14,000 per student (see What’s in the FY 2007 Budget for Education?) to run some of the worst schools on earth.

In some sense, health care in the United States and public education are quite similar. Neither sector has any sense of cost control or efficiency, because funding is mostly third-party. Singapore resolves this problem by having people pay for most of their own health care out-of-pocket. The results, both in health care quality and cost efficiency, are highly positive.

[anne]

"In some sense, health care in the United States and public education are quite similar. Neither sector has any sense of cost control or efficiency, because funding is mostly third-party. Singapore resolves this problem by having people pay for most of their own health care out-of-pocket."

Yes; certainly let's charge for public education and the most costly the better, I say. Can't have people too educated. Same for health care. Chemotherapy for $100,000 anyone? Say what? I really am going to have my gall bladder replaced with a more modern one, as soon as I can figure out what gall is? Love that gold-plated health-care.