Column | Healthcare Reform

The Fiscal Realities of a Single Payer Healthcare System

Column | Healthcare Reform

The Fiscal Realities of a Single Payer Healthcare System

More Americans are in favor of a single-payer approach to health care, but the financial ramifications should be fully explored.

At the Scottsdale Institute’s Spring 2017 Conference, Paul Keckley predicted that the United States would have a national referendum on a single-payer healthcare system in 2020. The referendum already may be taking place.

According to a June 2017 national survey by the Pew Research Center, 60 percent of the public feels the federal government is responsible for ensuring healthcare coverage for all Americans, and 33 percent favors a single-payer approach, with a single health insurance system run by the federal government. That share is up five percentage points since January and 12 points since 2014. a

Perhaps fueled by this shift in public sentiment, on Sept. 13, Sen. Bernie Sanders (I-Vt.) introduced the Medicare for All Act of 2017, despite Republican majorities in both chambers of Congress. Some four years earlier, his similar American Health Security Act of 2013 attracted no co-sponsors. This time, 16 Democratic senators—one-third of the party’s Senate caucus—came aboard as co-sponsors, including Cory Booker (D-N.J.), Kirsten Gillibrand (D-N.Y.), Kamala Harris (D-Calif.), and Elizabeth Warren (D-Mass.), all possible presidential candidates.

Medicare for All would create a federally administered single-payer healthcare program that would provide comprehensive coverage for all Americans, across the entire healthcare continuum “from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing, and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics, and treatments.” b All physicians would be effectively in-network, and there would be no deductibles, copayments, or cost-sharing requirements of any kind.

The Cost of a Single-Payer System

Citing the lower per-capita costs of health care in other industrialized countries that have single-payer systems, Sanders contends that national health expenditures (NHE), which are projected to total $3.5 trillion in 2017, would actually amount to $6 trillion less over 10 years under his plan compared with the current system. c Currently, the federal government pays for slightly less than one-third of NHE, about $1.1 trillion, funding Medicare, Medicaid, the Children’s Health Insurance Program, health insurance subsidies and related spending, and veterans’ medical care. d Obviously, under a single-payer system, the federal government’s expenditures for health care would increase significantly.

Based on Sanders’ six-page white paper, “Options to Finance Medicare for All”—which outlines a dozen tax revenue-generating ideas—$16.2 trillion is the implied expected increase in federal expenditures over a 10-year period under Medicare for All. e

However, the Urban Institute and Emory University professor Kenneth Thorpe, in their respective analyses of the Medicare for All plan that Sanders proposed during the 2016 presidential election, both concluded that federal expenditures would increase by much more than Sanders estimated, and NHE would be higher than under the present multipayer system.

The Urban Institute concluded that federal expenditures would increase by approximately $32 trillion over 10 years (2017-26)—roughly twice what Sanders projected—and NHE would in fact increase, not decrease, by $6.6 trillion over the same 10-year period. f Thorpe concluded that federal expenditures would rise by almost $25 trillion over the same 10 years. g To put these figures in perspective, the entire federal budget for 2018 will be roughly $4 trillion.

The Urban Institute and Thorpe both concluded that the 2016 version of Sanders’ single-payer plan, which specified tax revenue proposals that would raise $15.3 trillion from 2017 to 2026, would be grossly underfunded and would require significantly higher taxes than he proposed.

The Risk of Eliminating Cost Sharing

By requiring no deductibles, copayments, or cost-sharing requirements, Sanders’ single-payer plan could result in greater demand for medical services than projected by Sanders and even Thorpe and the Urban Institute.

A landmark 1982 Rand Corporation study that examined the spending patterns of patients with insurance that covered 100 percent of expenses versus those with copayments and deductibles found that patients with no out-of-pocket fees spent 30 percent more for medical services, and a more recent study of Medicare patients concluded that every $1 decrease in cost sharing increases spending on patients by 30 to 45 cents. h

Larry Levitt, a senior vice president at the the Henry J. Kaiser Family Foundation, concludes, “Having no deductibles or copays will sound great to patients, but it means that people will be going to the doctor a lot more than they are now, and that will drive spending up.” i

Potential Impact on Hospital Finances

In general, Sanders’ Medicare for All plan proposes to reimburse healthcare providers at Medicare rates for the entire population. However, under the current system, 56 percent of the U.S. population has commercial health insurance, and commercial health plans pay significantly more than Medicare. A national comparison of commercial and Medicare fee-for-service payments to hospitals concluded that commercial payments on average were 61 percent higher than Medicare on an unweighted basis across 50 DRGs. The analysis also concluded that 60 percent of the 50 DRGs had a commercial-to-Medicare payment ratio of between 1.25 and 1.75. j Obviously, a single-payer system that applies Medicare payment rates to all patients could adversely impact the finances of hospitals and other healthcare providers.

A single-payer healthcare system is attractive because of its sense of altruism and simplicity, but there is a high-stakes debate over its cost, tax implications, and sustainability for healthcare providers. Ultimately, faced with potential public opposition to tax increases that likely would be higher than expected, the federal government may have to resort to various forms of wage and price controls, perhaps even a fully nationalized healthcare system in which it would own and operate all healthcare provider entities.

Footnotes

a. Kiley, J., “Public support for ‘single payer’ health coverage grows, driven by Democrats,” Pew Research Center,  June 23, 2017.

b. Sanders, B., “Medicare for All: Leaving No One Behind,” accessed Oct. 3, 2017.

c. Centers for Medicare & Medicaid Services, “NHE Fact Sheet,” June 14, 2017.

d. Congressional Budget Office, “An Update to the Budget and Economic Outlook: 2017 to 2027,” June 2017.

e. Sanders, B., “Options to Finance Medicare for All,”, accessed Oct. 3, 2017.

f. Urban Institute, “The Sanders Single-Payer Health Care Plan,” May 2016.

g. Thorpe, K. E., “An Analysis of Senator Sanders’ single Single Payer Plan,”, Jan. 27, 2016.

h. Katebi, C., “Bernie Sanders’ ‘Medicare for all’ bill is a fiscal fantasy,” Washington Examiner,  Sept. 25, 2017.

i. Kurtzleben, D., “Here’s What’s In Bernie Sanders’ ‘Medicare for All’ Bill,” NPR,  Sept. 14, 2017.

j. America’s Health Insurance Plans, “National Comparisons of Commercial and Medicare Fee-For-Service Payments to Hospitals,” Feb. 2016. 

About the Authors

Ken Perez

is vice president of healthcare policy, Omnicell, Inc., Mountain View, Calif., and a member of HFMA’s Northern California Chapter.

Advertisements

Related Articles | Healthcare Reform

News | Innovation and Disruption

Oct. 19-25: CMMI leader to address value-based care executives

Healthcare finance policy events for the week of Oct. 21 include an address from a CMMI executive, HFMA webinars and a deadline for comments on advanced beneficiary notices.

Blog | Healthcare Reform

Addressing the largest area of healthcare waste requires plans and providers to collaborate

Plans and providers should work together to systematically catalog the biggest administrative complexities responsible for unnecessary healthcare spending and develop a standardized approach to reduce or eliminate them.

News | Social Determinants of Health

Kaiser ramps up SDOH spending, but a demonstrable ROI is likely ‘years’ away

Kaiser Permanente is directing a growing share of its $2.8 billion community benefit spending to address the social determinants of health.

News | Innovation and Disruption

Oct. 13-18: Multiple national gatherings among key upcoming healthcare events

Key events include an HFMA webinar, national healthcare provider meetings and a House hearing on healthcare affordability.