(Bloomberg View) — A few weeks back, I wrote a story on Vermont’s adventures in single-payer health care.
“So this is going to be expensive. So expensive that I doubt Vermont is actually going to go forward with it,” I concluded. “This should be instructive for those who hope — or fear — that Obamacare has all been an elaborate preliminary to a nationwide single-payer system. It isn’t. The politics are impossible, and even if they weren’t, the financing would be unthinkable.”
I was inundated by complaints from proponents of more government intervention in the health-care system. Permit me to summarize the many individual exchanges I had with these interlocutors.
“Why are you ignoring all the evidence that single-payer works?” they demanded. “If single-payer is so expensive, how come America spends twice as much as civilized nations, for worse outcomes?”
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“Good question!” I responded. “I will do a follow-up post to explain why single-payer doesn’t magically transport us to the land of cheap health care.” This, as you may already have guessed, is that post.
Let’s start with where they are right. The U.S. spends a lot more on health care than, well, anyone else:1
Ah, you will say, but the U.S. is so much richer! We are the biggest rich country and the richest big country. Of course we spend more.
There is indeed a strong, though not perfect, correlation between how rich a country is and how much it spends on health care. But that alone can’t explain why we spend so much:
Even if you look at spending as a fraction of national income, the U.S. is an outlier. The figures above are for 2010; we now spend close to 20 percent of our national income on health care. One in every five dollars earned goes to buy health-care services, while no other nation cracks 15 percent.
The implication that many people draw from this is that the U.S. could realize fabulous savings from switching to a government-run health-insurance system. But wait:
The U.S. already has a government health-care system. Actually, it has several: Medicare, Medicaid, Veterans Affairs, military, federal employee benefits, state and local government benefits. And this system already spends more per capita than most other rich-world governments:
The numbers get a little better if you look at them as a percentage of gross domestic product. But not much better. We are spending almost as high a percentage of gross domestic product as every other country, just to cover a fraction of our population. How can that be?
Well, let’s think about the general theories of why government makes health care cheaper. The first idea is that you get big discounts for buying in bulk. Because governments cover a lot of people, they can negotiate the best prices, which can’t be matched in America’s fragmented market.
The problem with this idea is that U.S. health insurers already buy in bulk. They cover more people than many of the countries cited as cost-control models for the U.S.:
A more sophisticated version of this argument says that the power comes from setting prices and controlling administrative costs. This is the idea behind a “public option.”
But we already have a public option. As mentioned, we have several. And Medicare doesn’t control costs noticeably better than the private sector does:
Medicaid controls costs significantly better. That’s because it’s a program for poor people who don’t vote much, and politicians don’t necessarily care if doctors refuse to take it. So states set reimbursement rates that are so low that you could pay more to take your kid to Panera than the government would pay for you to take him to see a general practitioner.
On the other hand, seniors vote, and thus, politicians are very reluctant to tinker with reimbursements. Prices are set the way that other governments set them — by a centralized committee. But they’re set high.
There are two potential outcomes for a “public option” health insurer: It could set rates high, in which case it wouldn’t control costs, or it could jam them down to Medicaid levels, in which case no one but the very healthy or the very desperate would buy that insurance because it will be hard to actually use that coverage.
That brings us to the most sophisticated version of the argument: that we can use monopoly power to bring our health-care spending in line with that of other countries. As long as there is private-sector competition, the argument goes, prices will stay high, because doctors can refuse to accept government reimbursement. But if the government is the single provider of health care (or at least, the single price setter), then we can drive down reimbursements and drug prices to something approaching European levels.
This idea has a number of problems, starting with its constitutionality. Here’s a big one:
Most of the time, since the 1980s, growth in government spending has been higher than total growth, not lower. This represents coverage expansion, as well as price growth. What it does not represent is significant cost control.