Myths of Single Payer

Readers of this blog are aware that I am a strong advocate of health care reform.

However, I am very cautious about a total overhaul of our system. I have a low tolerance for bad math and empty promises – which both appear all too often in the promotion of Single Payer.

Here are some specific points of propaganda that concern me………..

Myth #1`- Administrative Costs for Providers Will Plummet

Single payer advocates have a fantasy where medical staff will spend perhaps 30 seconds to enter claims that are straightforward, never challenged, with no prior authorization required….

Unfortunately,  the real U.S. Medicare today denies over 100 million claims a year, leading to even more paperwork.

 Medicare is not exactly claims heaven. It has over 10,000 codes for various treatments. The instructions for filing office visit claims run 60 pages. There is an entire industry devoted to ‘upcoding,’and, frankly, milking the fee schedules. If we stay with fee-for-service, most of the administrative overhead will remain.

 One thing for sure:  A single-payer program on the Medicare model will need new bill-payment teams, call centers and IT systems on an enormous scale on day one. The Affordable Care Act was much smaller in scope, but it still had a catastrophic rollout. Medicare Part D also had huge problems at first.

This is where state and federal governments have traditionally under-performed. A cynic would predict  that providers will need more administrative staff, not less, to handle the early stages.

Claim forms lost, hours on hold, futile debates with bureaucrats – this could be the real first year of Single Payer.

Myth #2  –  Providers will accept Medicare rates  (since they are saving so much on administration)

   The single-payer advocates assume that

a. utilization will increase, due to zero deductibles;

b. but administrative savings would reduce total costs;

c. thus enabling providers to maintain high incomes.

 This assumes that doctors will be freed up from fighting claim denials, which gives them time to see more patients.

However, some doctors and hospitals will simply not accept the current Medicare rates, at least initially. We are not Germany, where medical providers and insurers are accustomed to national collective bargaining.

 Doctors will have a great deal of leverage vs. the government over fee schedules.

The general public must be confident that they can keep their family doctor under single payer – otherwise the plan will never pass.

 If some providers can reject single payer, and still make a good living on just their private pay patients, the Single Payer movement will have a huge challenge. Sens. Sanders and Warren have discussed banning private insurance, but that seems too great a stretch. I expect it will take at least 160% of Medicare rates paid to providers, just to get the program going.

Myth #3 – All workers will get a raise under single payer, and their new income taxes will help pay for the program.

If employers are “off the hook” in terms of providing health insurance, this theoretically frees up as much as $1 trillion that could turn into higher wages.

However – all realistic single payer plans include a payroll tax for at least large employers. 

If that tax is 7% on an employers’ entire payroll, for example, some companies will not have much left over for raises.

This is especially true for firms with a large number of part-time employees, and for private-sector firms that do not pay for family coverage any more.

Many employers look on health insurance as a regrettable bonus, and have no intention of turning today’s premiums into higher wages.

(Plus: even where Single Payer does result in pay raises, the first 15% in any new taxes goes straight to the Social Security and Medicare trust funds.)

 In other words: this is not a honeypot of tax money for single payer expenses.

Myth #4  – We can pay for single payer by taxing the rich.

Prof. Gerald Friedman assumes $442 billion in annual revenue from a tax on stock and bond transactions alone.

Writer Matt Bruenig estimates $133 billion annually from taxing capital gains as ordinary income,  $45 billion from ending the step-up in basis at death on capital gains, and $81 billion from eliminating itemized deductions.

Sen. Elizabeth Warren assumes $200 billion of new revenue in corporate taxes by ending accelerated cost recovery, and by imposing a 35 percent minimum tax on foreign earnings.

Sen. Warren also proposes taxing capital gains for the top 1 percent on an annual basis, rather than just when a sale of assets is made. That theoretically raises $150 billion a year.

   .

She proposes a massive increase in IRS enforcement aimed at reducing  tax avoidance. If successful, this could supposedly raise $200 billion a year.

The fairydust-ism of these tax hikes is pretty clear.

 Moreover, I do not think we can raise any income taxes at all on persons over age 65. They feel they have already paid for their Medicare, and will not want to rock the boat.

 The result is that millions of citizens effectively cannot be taxed for Single Payer.

Myth #5 – There will be no deductibles or copays.

Even the countries with the most comprehensive benefit plans – such as Denmark, the U.K., France and Germany — mandate copayments for outpatient pharmaceuticals, and some cost-sharing for inpatient hospital stays.  

 Canadians need to purchase private insurance or have employer-based supplemental coverage for medications, mental health services, and dental care. 

Most international systems are considerably less “universal” when covering immigrants. Some countries insist new arrivals pay into the national system prior to obtaining health coverage.

Newcomers to Canada must pass a thorough health screening prior to being eligible for “universal”   coverage.  If the government cannot confirm that the cost of a pre-existing condition will not exceed $20,000 in annual expenditures, then health care coverage will be denied permanently.

 Woke politicians in California or New York may think it is right and good to give free health care to all undocumented persons. The  liberals also see no reason why Single Payer should not cover abortion.

Many states will think otherwise.

More Myths of Single Payer

Myth #6 – We can save money by putting hospitals on global budgets.

This is technically true….but incredibly difficult to implement.

Giving a hospital one huge check a  year is basically the way we pay for fire and police departments, libraries, and schools.

 Adam Gaffney – an articulate advocate of Single Payer — asks: “What if instead of giving schools a lump sum “global” budget to take care of all their students, we required them to issue per-student bills that were to reflect each student’s unique educational needs, and the precise mix of services they received.

“Assume also that teachers had to issue bills for every episode of instruction provided to each pupil daily, using a complex fee schedule incorporating the length, complexity, and/or intensity of every interaction.

 “Finally, imagine that the tsunami of resultant bills went not just to the local government, but to a welter of different “educational insurance” plans, with varying rules and requirements; that these insurers frequently contested the charges; and that schools were required to collect co-pays and deductibles from parents, which varied depending on how much education a child “consumed” and their particular insurance plan.”

Gaffney concludes: “Quite simply, hospitals shouldn’t have prices, any more than public schools, parks, or libraries.”

In a Gaffney system, each hospital would receive an annual lump-sum payment to cover all operating expenses. The amount of this payment would be negotiated with the state national health program payment board.

 No part of the operating budget could be used for hospital expansion, profit, marketing, or major capital purchases or leases. There would be no profits or retained earnings. Any surplus in one year will be poured into next year’s budget.

All hospital care effectively becomes prepaid care; There would be no hospital claims — so no deductibles and no denials, and no hospital debt.

 However:

 The track record of Canada and Britain on global budgeting is far from perfect. Their systems do wipe out patient debt, but other problems develop.

• Equipment and facilities have not been replaced timely.
• Doctors and nurses have not flourished.
• Countries such as Hungary, Spain, Sweden and Germany have actually moved away from 100% global budgets.

American hospitals today are incredibly varied financially. Some have huge financial reserves, some own massive real estate, others want to buy up doctors’ practices, et al.

Setting budgets for each hospital – and dealing with protests — would require an army of analysts and skilled negotiators. The for-profit hospitals will go ballistic against this, of course, and the largest non-profits will be right behind them. Going down to civil service salaries will not be attractive to their managers. There is not enough money anywhere to buy up all private hospitals and nationalize them.

Deriving the global budget from ‘regional needs’ would be time-consuming and probably futile….Take lithotripsy as a case in point. A panel of medical experts would be asked to study the incidence of kidney stone disease in a population. The panel will determine the volume of that disease in a given population group (e.g., in the state of Minnesota),  and will then recommend how many lithotriptors are needed.

What if the panel decides that only three lithotriptors are required —  but six hospitals have them now. Will lease payments be approved for every hospital? Who tells the Mayo Clinic to cut back?

What if an entire hospital appears to be superfluous for the area? Will a popularly elected governor go on television and tell a senate district that a local hospital will no longer be paid for?

Excess beds and high-tech equipment create a real two-edged sword. Our excess supply unquestionably drives up our costs.

However, this surplus means no waiting lists for well-insured American patients. We will miss the inefficiency if we ever install Single Payer.

Finally — with any global budget, there is a prosaic concern about cash flow.

If all American hospitals were financed federally, the U.S. Treasury would need at least $1.2 trillion liquid each year.

Even if half of this comes from existing programs like Medicare and Medicaid, we still need $600 billion in reliable new taxes.

We would need all the money ‘up front’– i.e. the hospitals must have at least one-fourth of the $1.2 trillion on the first day of each quarter. There is no room for federal shutdowns or national debt debates.

It would be idiotic to assume that Single Payer will create massive savings in its first year. The full $600 billion must be available without fail, to pay utility bills and meet payroll.

 Single Payer advocates would say that $600 billion in new taxes is a mark of progress – i.e. the taxes are less than the insurance premiums and deductibles that we are paying today.

Opponents counter that large new taxes drag down the economy, no matter how well-intentioned.

I have no final answer myself.

 In defense of Single Payer, note the highly-taxed and highly-prosperous nations of Northern Europe.

In opposition, consider the American tendency to disguise or postpone any new taxes that a program requires, and to ignore the long-term costs of federal borrowing.

 Myth #7 -We can jump-start Single Payer in the individual states

This is an attempt to repeat the Canadian experience – where liberal provinces created the first plans, and started a national movement.

But there are major hurdles for American states:

1. The blue states  could ask for a transfer of the federal funds now tied to Medicare, Medicaid and Affordable Care Act exchanges. This money could be re-directed to pay for state single-payer plans.

The dollars involved are enormous. For example, the state of California has about 6 million persons over age 65. Since Medicare costs $13,000 a person, the waiver process assumes that Washington will smoothly transfer $78 billion to California every year.

Plus there is more on the table. Medicaid and ACA waivers for California would cause the transfer of over $50 billion more.

I cannot imagine this transfer going smoothly, or frankly happening at all in a Republican administration.

 Almost all single-payer proposals depend on these waivers, and states don’t often have fallback plans if this federal funding gets denied.

• ERISA law is another barrier to state-based Single Payer.

 This Federal law largely prevents states from regulating employer-provided health insurance. Courts could rule that states cannot stop employers from offering their own health care benefits. Single Payer would fail overnight in such a state.

• Finally,  state governments have far less leeway than the federal government to increase budgetary spending. 

No serious analyst expects a universal health plan to stay on budget each and every year. There must be financial reserves.

The federal government uses deficit  spending as the reserve.  The wisdom of doing this can be questioned – but in any event, individual states cannot count on this luxury.       

The Single Payer proposal in Vermont hit the skids when Gov. Peter Shumlin proposed extra taxes to  develop a fiscal reserve. One suspects this would happen everywhere. Americans are spoiled by the easy assumption (even by Republicans since 1980) that  “federal deficits don’t matter.”

This could be the greatest  myth of Single Payer of all.