The 'Invisible Scalpel': The Unintended Consequences of Single-Payer Healthcare

05/25/2011 12:00 pm ET

The merits of single-payer healthcare as it exists in Great Britain, Canada, and the other developed countries are undeniable. The obstacles to single-payer are, however, far greater here than they were in those countries. Whatever your position on the issue, it's unwise to dismiss these obstacles too cavalierly.

That's why it's disappointing to read statements like this one from Kevin Drum: "If we snapped our fingers and covered every person in the country today with Medicare, it would cost us way less than 20% of GDP." Actually, there's no way to know that and no reason to believe it's true.

And if we were able to cover every person under Medicare with the snap of a finger, there might be chaotic - and avoidable - side effects.

There would undoubtedly be immediate and positive results. The most important would be that the United States would finally join the community of developed nations in providing adequate healthcare for all its citizens.

I'm not taking a position against single-payer, but I am pointing out that there are a number of factors to consider before making a change that hasn't been fully thought out.

I'm also suggesting that the choice between single-payer plans and the California/Massachusetts model is a false choice.

Regular readers know that I have major problems with the current employer-based system. (So do most employers, if you ask them.) I'm also a critic of state-based "universal coverage" programs like Massachusetts' (here's what I wrote at the time).

The Massachusetts and California plans reward the private health insurance system without forcing it to become more efficient. (As someone who has worked in that industry, I know how inefficient it can be.)

Let's not let our goals obscure our perception of reality, however. Here are some of the problems that could well arise if we "snapped our fingers and put everyone into Medicare":

The Relationship Between Medicare/Medicaid and Private Insurance

There are many reasons why Medicare is so inexpensive, but here's one of the biggest: The private healthcare system is a pressure valve for Medicaid/Medicare rates, which in some ways are artificially low. Hospitals lose money, and physicians lose income, because the Feds use their clout to keep rates low and enforce rules about utilization of services.

The private healthcare system offsets these losses by paying more for individual services. They're also less able than the Feds to control over-utilization, which means that hospitals and doctors can (and do) sometimes over-treat to make up for lost income.

The Health Delivery Impact

If we put everybody into the Medicare system, there are several very likely results:

  1. Downward pressure on hospital rates would result in hospital closings or reduction in services.
  2. Many more doctors would opt out of the public system, leading to increased wait times for appointments and other difficulties getting access to care.
  3. The health system would become increasingly more two-tiered, as popular doctors who opt out continued the trend of offering "concierge medicine" for those Americans who can afford it.)

The Longer-Term Scenario

Without the pressure valve of a private health system, doctor and hospital reimbursements for Medicare would eventually jump. That would slow the hospital closings and defections from the system, but at a significant price.

That cost increase, plus the amount wealthier Americans would pay for concierge medicine, might easily leave us with a number in the 20% range - and with significant problems in health access for all but the most well-to-do Americans.

If that were the only choice, it might be one we're forced to make in order to extend coverage to all Americans. But I don't think it is the only choice.

Another easy answer being promoted by some is this: "Why not put everybody into the Veteran's Administration plan?" That's not so simple, either. First, the VA system is under imminent financial threat because it's unprepared for the rush of wounded veterans.

One recent study shows signs that it's already cracking under the strain. As co-author Linda Bilmes of the Kennedy School of Government wrote: "The VA system has a reputation for high-quality care, but waiting lists to see a doctor at some facilities now run as long as several months. Shortages are particularly acute in mental health care."

Secondly, the VA is essentially a hospital-based group health plan, like Kaiser, and there would be tremendous resistance to placing all Americans in a Kaiser-like system. The cost of expanding the VA's physical infrastructure alone would be enormous (hospitals, clinics, etc.), and it would take years to build.

Lastly, while I share the general enthusiasm for the VA's new leadership, the reports touting the VA's effectiveness focus on a relatively limited set of medical conditions. They're promising, but hardly conclusive.

A Mixed Model

So what am I advocating? I think we should examine giving Americans healthcare "vouchers." (I know that word has a bad ring in liberal circles because of the private-school debate, but hear me out.) These vouchers could be used for Medicare membership, or to enroll in a private insurance plan.

People could pool their vouchers for group and association insurance purchases. Employers could elect to pay a payroll tax - or offer group health insurance, in which case employees could use their vouchers (and their dependents') to cover their share of the premium. Or, if they don't like the company plan, they can stay in the Medicare system.

This would force private insurers to compete with Medicare on the basis of a) better access, b) better coverage, c) improved services, and d) price. And, by preserving a mixed public/private system, it would prevent some of the economic chaos that might result from a Medicare-only system.

Remember, our health care economy has developed under this system for many years now. You can't radically change a trillion-dollar economy overnight without some unpleasant unintended consequences - and it may not be necessary.

Certain principles would be required of all healthcare plans - a "health bill of rights" for all Americans. And I would evaluate the feasibility of having the Federal government directly manage certain national programs - possibly including preventive care, well-child coverage, some types of disease management, and catastrophic health insurance.

These ideas are obviously not the product of a well-endowed think tank. As they say in the movies, "I'm just one guy." But the basic concept recognizes that the U.S. healthcare economy has strong internal forces at work, and tries to take those forces into consideration without compromising basic principles.

While I don't believe the "invisible hand" of economics always acts in the public interest, we can see that it is always ... acting. The hand of the healthcare economy holds an "invisible scalpel," and it can cut both ways.

We ignore it at our peril. Fortunately, we can recognize these economic forces and still do the right thing.