Obamacare

Montana and the Myths of Single-Payer Health Care

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Vermont is already headed down the road to state-based single-payer health care. Now Montana wants in on the single-payer action too:

Gov. Brian Schweitzer said Wednesday he will ask the U.S. government to let Montana set up its own universal health care program, taking his rhetorical fight over health care to another level.

Like Republicans who object to the federal health care law, the Democratic governor also argues it doesn't do enough to control costs and says his state should have more flexibility than the law allows. But Schweitzer has completely different plans for the Medicare and Medicaid money the federal government gives the state to administer those programs.

The popular second-term Democrat would like to create a state-run system that borrows from the program used in Saskatchewan. He said the Canadian province controls cost by negotiating drug prices and limiting nonemergency procedures such as MRIs.

So Schwietzer's plan is to 1) ration care through centrally imposed limits on expensive procedures, which is not exactly a big political winner, and 2) pay less for drugs. It's true that drug companies sell to some buyers at lower prices than others.  But the fact that a company sells something to one person at a lower price does not mean the company can sell to everyone at that price.

Medicare's has frequently tried to fight rising spending through arbitrarily cuts to provider payment rates. If you pay less, you'll pay less, right? Sort of. That approach has downsides, and frequently just pushes costs onto others. For example, thanks to Medicare's low payment rates, Medicare officials report that 64 percent of hospitals lose money on Medicare patients. And what happens then? Well, in some cases hospitals try to cut their own costs. But in many other cases, hospitals simply shift the costs over to private payers, who end up subsidizing the government's lower rates. Even in a single-payer system, we'd likely see costs shifted elsewhere, and then conveniently ignored.

In many ways that's what happens now with Medicare, which ends up hiding a lot of its operating costs, including revenue collection. Single-payer advocates like to argue that wholly government-run payment systems are more efficient because they get rid of the need for profit and reduce administrative costs. Sometimes they even point to America's premier single-payer health care system as an example. But as John Goodman and Thomas Saving argued in Health Affairs recently, administering Medicare is only more efficient if you don't account for its administrative inefficiencies:

What about the claim that Medicare's administrative costs are only 2 percent, compared to 10 percent to 15 percent for private insurers? The problem with this comparison is that it includes the cost of marketing and selling insurance as well as the costs of collecting premiums on the private side, but ignores the cost of collecting taxes on the public side. It also ignores the substantial administrative cost that Medicare shifts to the providers of care.

Studies by Milliman and others show that when all costs are included, Medicare costs more, not less, to administer. Further, raw numbers show that, using Medicare's own accounting, its administrative expenses per enrollee are higher than private insurance. They are lower only when expressed as a percentage – but that may be because the average medical expense for a senior is so much higher than the expense for non-seniors. Also, an unpublished ongoing study by Milliman finds that seniors on Medicare use twice the health resource as seniors who are still on private insurance, everything equal.

Nor is it true that cutting back on administration always saves money:

Ironically, many observers think Medicare spends too little on administration, which is one reason for an estimated Medicare fraud loss of one out of every ten dollars of Medicare benefits paid. Private insurers devote more resources to fraud prevention and find it profitable to do so.

Medicare performs less oversight on its payment system, which is designed to pay first and ask questions later (if at all), than most private insurers. As I reported in my October feature on Medicare fraud, the lack of oversight makes fraud incredibly easy and enables huge amounts of waste. The result is that Medicare now spends almost $50 billion a year—or about 10 percent of its total operating budget—on fraud and other improper payments.

GOP Sen. Tom Coburn is currently pushing the FAST Act, a package of administrative tweaks designed to weed out some of the most glaring, easy-to-game holes in the payment system. But it says something about the program's inherent resistance to fixes that it's bled tens of billions on fraud and other bad payments for years without even the obvious holes being fixed—and that even in the face of $50 billion a year in squandered taxpayer money, typically aggressive waste-hawks like Coburn have resorted to pushing relatively minor program adjustments.

Gov. Schweitzer is right that we need to look for ways to reduce health spending. But we already have a phenomenally expensive single-payer system in this country, and it's the problem, not the solution.