Primer Mock-up

Acknowledgements: PNHP Minnesota, Dr. Nyman and Dr. Mosser, Dr. Engelhart,

This primer has been created in conjunction with a repository of current Medicare for All cost analysis studies. On the whole, these cost analyses contend with the different sources of costs and savings that could be expected under Medicare for All. While these studies often highlight how a single payer system will allow everyone to seek necessary health care and also institute mechanisms of uncontrolled costs, they do not paint a singular picture of cost savings. They illustrate a complex web of tradeoffs that will exist under M4A. By not shying away from these tradeoffs and planning for the changes that will come with Medicare for all we can strengthen the argument for Medicare for All and ensure we live in a country that affords a childless adult the same access to health care as a child from a poor family and a wealthy family.   

 

  • What is the difference between Universal Healthcare and Single Payer Systems?

 

Universal healthcare describes a system that grants all citizens, and sometimes residents, adequate healthcare through some form of insurance. Single payer, on the other hand, utilizes a “single payer”, usually the government, to replace the patchwork of private and public insurance programs. The single payer system extends access to all covered services to all citizens, and potentially residents.  In many countries the terms universal coverage and single-payer go hand-in-hand, however, universal coverage simply ensures everyone has some insurance coverage, but doesn’t necessitate the quality or cost requirements for the coverage.

 

  • What is the difference between National Health Expenditure and Federal Health Expenditure? 

 

Single-payer cost analyses tend to focus on the distinction between national and federal health expenditure. National Health Expenditure (NHE) is the total healthcare spending in the United States. This includes the annual expenditures for health care goods and services, public health activities, government administration, the net cost of health insurance, and investment related to healthcare. Federal Health Expenditure (FHE) is the total health care spending that is paid for by the federal government. Increases in FHE would need to be funded by tax increases, federal deficit spending, or the reallocation of funds from the other programs. The delineation is made in single payer cost analysis because almost all of the point-of-contact payments for healthcare will be shifted to the federal government. Most analyses also assume limited support from states because of the  2012 National Federation of Independent Business v. Sebelius case which limited the extent to which states could be required to pay for healthcare costs.

 

  • What are potential avenues of costs and savings that are expected under a single payer system? 

 

Healthcare Utilization – The single payer plan advocated by PNHP stipulates no cost sharing. By shielding consumers from the actual value of a service they are obtaining, they are prone to consuming more services. Cost analyses tend to attribute the majority of the health care utilization increase under Medicare For All primarily to the previously under- and uninsured. Many papers also estimate the increase in utilization for the general previously insured population by using the RAND health insurance experiment and recent studies finding’s price elasticity of the demand for healthcare with no cost-sharing. There is also contention whether supply side constraints of hospitals and providers will create a ceiling to healthcare utilization.   Further reading

 

PERI Mercatus Yale RAND (2016) RAND (2019)  UI UI Thorpe Friedman (2013) Friedman (2019)
12% 11.3% 8% ? 2.2% for services paid by Medicare

 2.6% for services  paid by commercial insurance

NS NS 10% 3% for most activities

20% for dental care

40% for home health care

?

Table 1. Estimated Percent Increases in Healthcare Utilization under Medicare For All. 

 

Administrative costs (Eliminating private insurance) – In 2018, private for-profit insurance companies paid for $1.2 trillion of our $3.6 trillion in national health expenditure.  The ACA now requires insurance companies to operate at 80% medical loss ratio, meaning for every $1 in premiums that private insurance companies collect, only $0.20 can go to overhead costs and profit for shareholders. Medicare and Medicaid operate at a considerably lower overhead than private insurance companies, and present an opportunity to lower costs. Contention lies in the extent of that difference and an appropriate estimate for Medicare For All’s administrative overhead.  

Administrative costs (hospital perspective) – Under the current patchwork of health insurance systems, billing and insurance related (BIR) costs are substantial for hospitals and clinics. Wrestling with a multi-payer system, obtaining prior authorization, and coordinating with managed care organizations all contribute to BIR for hospitals and Medicare For All lessens this burden by replacing a profit-driven multi-player insurance industry with a single payer and billing system. This will drastically cut back the administrative needs of hospitals.  

 

PERI Mercatus Yale RAND (2016) RAND (2019)  UI UI Thorpe Friedman (2013) Friedman (2019)
3.5% 6% 2.2% NS NS 6% 6% 4.7% 2%

Table 2. Estimated Percent of Total National Health Care Expenditure for Administrative Tasks under Medicare For All. 

 

Pharmaceuticals and Medical devices – Pharmaceutical and medical devices cost more in the U.S. than anywhere else in the world.  A “single payer” would have more bargaining power to reduce the costs of pharmaceutical prices to levels comparable to other high-income countries. These savings have already been realized in the United States by Medicare, the VA, and IHS. Further reading

Physician/hospital payment for service – The studies we explored all assumed a fee-for-service model and extrapolated with Medicare rates (+x%), however recent bills have proposed different payment models for providers and these payments could have different impacts on the cost analysis of a single payer system.

In S. 1129 Medicare for all introduced by Senator Bernie Sanders, a fee-for-service system is utilized such that for every pill, procedure, or test run there is a separate bill. This incentivises providers to increase the amount of care received because they, in turn, will be paid more for it, this money can then be used however hospitals deem fit. 

More information re: S. 1129

The house version of the bill H.R. 1384, introduced by Pramila Jayapal, uses a global operating budgeting system for institutions that separates capital costs such as renovation and expansions. Individual providers are then paid on a fee for service basis without value based payment adjustments

More information re: H.R. 1384

Transition costs – Transitioning from our current healthcare delivery system to a single payer system requires careful consideration of those who would be directly affected by this transition. Only a few articles focused on this crucial transition. The switch to single payer will displace workers that make up the “administrative overhead.” Allocating funding and retraining programs for these workers will be important cost considerations and components in financing Medicare for all discussions. Both the PERI (2018) and the RAND (2016) study give estimates for the transition costs. 

*Reimbursement rate differs from study to study. 

**includes both reduction of hospital BIR, and elimination private insurance administration