Arnold Kling  

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Marginal Revolution found RangelMD, a doctor who was willing to criticize the economics of single-payer government funded health care.


In order to expand Medicare to cover every citizen and pay for all medical treatment and all medications that Americans have become accustomed to would require increasing the federal budget by over a third to over $3.5 TRILLION dollars (from the current 2.1 Trillion). Of course in order to offset what would be a $1.5 Trillion dollar deficit would require such a large tax increase that even Europeans would be pitying us. Overall this represents a massive transfer of wealth from the majority to about a quarter of the population that regularly uses three quarters of the health care in this country. "Free health care" is little more than a misnomer in these systems.

For Discussion. What answers can one give to the argument that a single-payer system would reduce administrative costs and overhead?


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COMMENTS (39 to date)
Chris writes:

> What answers can one give to the argument that a single-payer
> system would reduce administrative costs and overhead?

This is a serious question and one that the advocates of single-payer healthcare seem to bring up regularly. They claim that whereas private healthcare plans spend 20-30% of their funding on administrative overhead, medicare spends only a few percent. I have always been suspicious of there statistics. Can someone enlighten me as to the true mechanism by which Medicare maintains such low overhead? My sense is that most of the cost is passed along to the physician, who must wade through knee-deep stacks of regulations and billing codes. So my guess is that Medicare's back office functions are so efficient because all the work is offloaded on the doctors' offices.

Cap'n Arbyte writes:

The "reduced costs" show up in things that aren't on the balance sheet -- like long wait times and rationing. Ask Canada and the UK about the stellar performance of socialized health care.

In addition consider that some of the costs are simply an artifact of the current near-socialist structure, where "insurance" has become an intergenerational payment smoothing system. See http://www.simplecare.com/ for a more honest alternative.

Joe Kristan writes:

Would things at Wal-Mart be cheaper if the government ran it? Would the selection be as good? If you think not, why in the world do you think it would be cheaper for government to run health insurance?

Mcwop writes:

Not mentioned is the pay for health professional Nurses and Doctors in countries like Canada. These professional are paid less than their American counterparts. Will American health professionals accept wage controls? I don't think they will be very happy about it.

Nurses are currently leaving Canada:
http://www.cbc.ca/news/indepth/background/nurses.html

Doctor shortage in Ottawa:
http://www.caribbeanmedicine.com/article9.htm

Universal health care proposals in the U.S. lack many details.

Boonton writes:

Administration in moving money around (such as Social Security which takes money from one group and writes checks to another) is lower when you have large economies of scale. Writing checks to 1 Million doctors is cheaper per check than writing checks to 25,000 doctors.

I can't comment on the paperwork for Medicare vs private insurance companies. My instincts, though, would say economies of scale will kick in there as well. If you're a doctor and Medicare covers 25-40% of your patients you will learn to navigate the paperwork quickly. If you accept 5 private insurances their paperwork will seem burdensome due to the fact that they won't be sending you as many patients.

If Medicare is really passing the administrative buck to the doctors the result will simply be more doctors refusing to take medicare and insisting on either working for cash or private insurance. Some doctors are so good that they can do this and not suffer a fall off in demand but many count on Medicare and the HMO's to keep their waiting rooms full...even though they grumble about paperwork and low pay on the gulf course.

Boonton writes:

"The "reduced costs" show up in things that aren't on the balance sheet -- like long wait times and rationing. Ask Canada and the UK about the stellar performance of socialized health care."

I've heard this argument a lot. Isn't the best way of asking Canada or the UK observing their politics. Is there any evidence that either country has a significant portion of the population who wishes to overturn their single payer system? My impression was that even their right wing parties have not embraced the idea of moving towards the US system.

Lawrance George Lux writes:

I would first like to state I am not an advocate of the following measures; I simply put them out for explanatory purposes.

1) A single-Payer medical plan will require a single Rate schedule of payments. Allowance of Rate differention will always impel inflationary price increases.

2) Single-Payer or Multi-Payer order of business nonwithstanding, there must be a standardized list of Service provision. Otherwise, there will be no market forces at work, simply monopolistic competition for Customers with artificially set Price schedules for plan provision.

3) There must be a distinction made between Common Care provision, and Extreme Cost Care provision. All Plans must be compelled to provide both styles of coverage--separately provided, each priced at market forces Cost; Insured must also be left to pay the latter Extreme Care plan, else Care provision will be extended to no One.

4) Health Care professionals must be compelled by law, to maintain equitable Health Care charges; similar law will apply to Drug companies and Health Equipment Providers. A good law would state these Individuals could not demand Provision Prices greater than the averaged rates of the next three Nations in the World, who best-compensate health Care workers in the same area. Violation will entail confiscation of excess funds, and a Punitive fine of 10% of the Individual's or Company's listed total Income in the Year discovered.

Arnold will clearly note this is not highly Libertarian in concept, and I am not a strict advocate of the Proposals. This is one method of reducing Health Care Costs in this Country, and there are few alternatives. lgl

Mcwop writes:

LGL, on point 4 does this mean health care services provided in say NYC, where there are higher costs of doing business, cannot exceed the average of similar services in say Canada, France, and Germany?

Steve writes:

Why not just offer free education for any who wants to become a doctor?
Why not just open the borders to doctors from other countries like you've done to so many other industries where the workers make good money?

Why is health care inflation such a big deal to libertarians? Is it because it affects them directly whereas their other ideas (like privatizing fire protection and other great ones) do not?

Bob DObalina writes:

Why is health care inflation such a big deal to libertarians?

Because its causes are less a product of the market than they are of regulation.

Steve writes:

Hmmm... Causes for health care inflation:

1) Greedy doctors. Why should someone who works less than 40 hrs/week make more than $100k/year?
2) Greedy pharmas. Why should a pharma charge $1/pill for something they developed 20 years ago that costs less than $.01/pill to produce?
3) Greedy lawyers. Why should someone get $3 million for spilling coffee on himself in a McDonald's drive-thru?

Shakespeare had the right idea, but after the lawyers, we need to go after greedy pharma and greedy Doctor.

Boonton writes:

"Arnold will clearly note this is not highly Libertarian in concept, and I am not a strict advocate of the Proposals. This is one method of reducing Health Care Costs in this Country, and there are few alternatives. lgl"

Whenever healthcare comes up I inflict upon the masses my proposed voucher solution. Briefly it is:

1. A dedicated tax for universal coverage.
2. Each person gets a voucher equal to the amount raised by the tax divided by the population.
3. Vouchers are redeemable for health insurance, health care, donation to charity or cash against the employer paid premiums.

In order for insurance companies to cash in vouchers they would have to agree to some basic ground rules such as universal access with only modest variation in premiums.

Benefits:

1. Universal coverage without an entitlement. If society wants a bigger voucher they must accept a higher tax and vice versa.

2. Market forces are allowed to work. If you find insurance company B offers more coverage for the dollar than A it is in your interest to opt for B.

3. Innovation and experimentation is allowed to continue. HMO's, catastrophic coverage plans and other types of coverage compete against each other. There is no need for centralized prices plans.

4. Less disruption. Unlike other plans that opt to overhaul the entire system, this plan would allow changes to be modest.

JJ writes:

Steve, I WANT my doctor making a 150k a year. People like you are amusing, you just assume people will endure grueling schooling and internships only to work nearly for free at the end of it all. And seriously, do you only want a doctor who makes 20k a year, or whatever is acceptable in your mind, doing an organ transplant on you? And in all honesty, many doctors work way more than 40 hours a week.

Steve writes:

JJ, I WANT the person designing the aircraft I'm flying on to make 150k/year.
People like you are amusing, you just assume people will endure grueling schooling and engineering internships only to work nearly for free at the end of it all. And seriously, do you only want an engineer who makes 20k a year, or whatever is acceptable in your mind, creating the aircraft you're flying in?? And in all honesty, many engineers work way more than 40 hours a week?

Steve writes:

JJ, I WANT the person writing software for the car I'm driving to make 150k/year. People like you are amusing, you just assume people will endure grueling schooling and programming internships only to work nearly for free at the end of it all. And seriously, do you only want the guy who makes 20k a year, or whatever is acceptable in your mind, creating the ABS software for your car's brakes?? And in all honesty, many programmers work way more than 40 hours a week?

You see how absurd it is for you guys to have double standards when it comes to medical people?

David Thomson writes:

“Each person gets a voucher equal to the amount raised by the tax divided by the population.”

You are conveniently ignoring the free rider problem. Some people will always take more than their share. Health care must be perceived as expensive by the masses---or they will eventually bankrupt the system. They have to be obligated to pay much of the costs themselves. Your well meaning views are premised upon a sentimental and unrealistic view of human nature. The at least metaphorical reality of Original Sin is regrettably alive and well on planet Earth.

Jim Glass writes:

"What answers can one give to the argument that a single-payer system would reduce administrative costs and overhead?"

I see no reason why single-payer should be any less effective at reducing cost and increasing quality when providing medical care to the masses than it would be at doing the same in providing food, housing, clothing, university education, white goods, automobiles and transportation (remember the Trabant?), industrial goods, entertainment, and Internet connections to the masses.

To just assume that medical care is simply *different* from everything else, so that single-payer provision of it by the goverment would be less effective than such single-payer provision of anything else, would seem to be some kind of irrational ideological or religious belief.

History well shows the efficiency benefits that can be reaped by eliminating all the duplications and redundancies that inherently result from competition among providers.

Lawrance George Lux writes:

Boontan,
I agree with David Thomson that Americans must be made to realize the cost of health care. Universal entitlement will bankrupt the Country. A Custodian who made $20,000 per year for 40 years, must not expect to receive the same health care as Bill Gates, even if this seems unfair.

David,
This is a case where regulation can work more effectively than taxation. Basic Primary Care insurance must be separated from Extreme Cost Care insurance. The American people would quickly see the cost of health care. Basic Primary Care for One could be reduced to a $800-1200 premium per year. Extreme Cost Care insurance would carry a premium of $6000-8000 per year.

A law could state Primary Care must be sold separately from Extreme Cost Care insurance, and no medical Insurer can other either, unless they offer both. lgl

Lawrance George Lux writes:

Boontan,
I agree with David Thomson that Americans must be made to realize the cost of health care. Universal entitlement will bankrupt the Country. A Custodian who made $20,000 per year for 40 years, must not expect to receive the same health care as Bill Gates, even if this seems unfair.

David,
This is a case where regulation can work more effectively than taxation. Basic Primary Care insurance must be separated from Extreme Cost Care insurance. The American people would quickly see the cost of health care. Basic Primary Care for One could be reduced to a $800-1200 premium per year. Extreme Cost Care insurance would carry a premium of $6000-8000 per year.

A law could state Primary Care must be sold separately from Extreme Cost Care insurance, and no medical Insurer can offer either, unless they offer both. lgl

Boonton writes:

"You are conveniently ignoring the free rider problem. Some people will always take more than their share. Health care must be perceived as expensive by the masses---or they will eventually bankrupt the system. They have to be obligated to pay much of the costs themselves."

Actually they are paying for much of the costs themselves. If they use their voucher to pay for medical services directly, then every dollar they spend will be one less dollar. If they use their voucher to buy insurance then they are effectively outsourcing the job of pricing medical services to the insurance company. The insurance company that can keep costs low will be able to offer nicer coverage and therefore win more voucher dollars.

"A Custodian who made $20,000 per year for 40 years, must not expect to receive the same health care as Bill Gates, even if this seems unfair."

Which will be the case with vouchers. You are perfectly free to supplement the voucher with your own dollars (or even ignore the voucher entirely if you wish...). No doubt Bill Gates will opt for something very expensive no matter what...

Cap'n Arbyte writes:

Boonton,

"I've heard this argument a lot. Isn't the best way of asking Canada or the UK observing their politics. Is there any evidence that either country has a significant portion of the population who wishes to overturn their single payer system? My impression was that even their right wing parties have not embraced the idea of moving towards the US system."

No, don't look at the politics, because the broad mass of people are ideologically committed to socialism. They're afraid of free markets, or they think there's something wrong in profit-making, or whatever. It took Russia decades to muster the political will to change its system, and that was after the utter failure was plain for all to see.

When the government fails people usually put the blame on the market instead of on the government, because they believe in the good intentions of the politicians and are suspicious of the profit motive.

Eric Krieg writes:

Like everything in America, race and immigration need to be taken into account when talking about health care.

A good deal of the delta between health care outcomes in this country are a result of our open immigration policies. Peasants from Mexico working as day laborers skew our health care sysytem towards the third world end of the spectrum.

We also have the legacy of slavery, Jim Crow, and the New Deal/ Great Society to deal with. Black people locked into lives of inner city destitution bring down our health care statistics. The Euros and Canadians have no such underclass.

So, before I would let a homogenous country like Canada or the Euros talk smack about how much superior their single payer system is, I would ask how well they would do if their society were as multicultural and open as ours is.

Steve writes:

Canada is as open as can be! Nobody wants to move their though. I'm thinking it's the Molson Ice, eh?

Boonton writes:

"No, don't look at the politics, because the broad mass of people are ideologically committed to socialism. They're afraid of free markets, or they think there's something wrong in profit-making, or whatever. It took Russia decades to muster the political will to change its system, and that was after the utter failure was plain for all to see."

In other words, despite the claims that the Canadians are deeply unhappy with their system they are unable to express it because they ideologically blinded. Only Cap'n Arbyte is able to see what the Canadians *really* want but are afraid to say.

Eric Krieg writes:

>>Canada is as open as can be! Nobody wants to move their though. I'm thinking it's the Molson Ice, eh?

Don't let the Canadian propaganda fool you. They are pretty picky about who they let in. Educated Asians and Indians, yes. Peasants, not so much. Mexicans, no.

My downfall has always been Molson XXX. It's like 9% alcohol or something stupid like that. That and THE BEST DAMN STRIP CLUBS ON EARTH! The combination should be illegal.

And when I was frequenting Ontario a lot, the Canadian dollar was like sixty five cents or something like that. Moral decrepitude has never been so cheap.

Cap'n Arbyte writes:

Boonton,

"n other words, despite the claims that the Canadians are deeply unhappy with their system they are unable to express it because they ideologically blinded. Only Cap'n Arbyte is able to see what the Canadians *really* want but are afraid to say."

Shame on you, Boonton. No, I fully recognize that they *don't* want capitalism -- what I'm saying is that they *ought* to, and that it would solve their problems, but they're unwilling to try it for ideological reasons.

JJ writes:

Steve, if you suddenly found yourself in the position of supreme dictator of the world, what would be your economic policies?

Boonton writes:

"Shame on you, Boonton. No, I fully recognize that they *don't* want capitalism -- what I'm saying is that they *ought* to, and that it would solve their problems, but they're unwilling to try it for ideological reasons."

Let's leave aside the loaded language and center in on health care. I don't see any evidence that Canada is deeply unhappy with their healthcare system...stories about waiting lines or a few who go to the US for treatment does not constitute evidence here. Nor do I see evidence that the UK wants to scrap their system and move towards the US model.

These are both countries that have diverse political parties and have markets. If a serious portion of them really felt that US system would be an improvement I see no reason why there's such a lack of a political movement in that direction. Even when most elected officials do not share a view, that doesn't stop political movements from being very active. In the US, for example, there's a lot of grassroots support for cutting back on the Drug War & even legalization. That despite the fact that most elected officials will not even entertain this as a serious view.

It seems rather arrogant and silly for us to sit back and declare Canadians are misirable and they just don't see it because we know better then them.

Steve writes:

JJ--

Protect the jobs/industries that you want people to go into. Biology, medicine, technology, software. Open up the markets for the ones you don't want them to go in: textiles, polluting industries, etc. Protect the industries vital to defense: steel, auto, high-tech mfg, ag.

Easy fixes to today's problems.

People(free traders and protectionists alike!) are bemoaning the fact that so few are going into engineering majors. Gee, I wonder why?

Eric Krieg writes:

>>It seems rather arrogant and silly for us to sit back and declare Canadians are misirable and they just don't see it because we know better then them.

Sitting here in Chicago, I have no idea why Canada is as it is. The place is a hole. It's POOR! Toronto is a sorry excuse for a city, and the rest of Ontario makes the US Rust Belt look prosperous.

I can't explain why Canadians are happy with their lot (just like I can't explain why the Euros and Japanese are so happy being so mediocre).

But that doesn't mean that we can't sit here and critique the Canadians, Euros, and Japanese, and give them solutions to their economic problems, problems that we have had in the past and overcome.

dsquared writes:

Just as a data point, Eric, would you rather be rich or happy?

Boonton writes:

"But that doesn't mean that we can't sit here and critique the Canadians, Euros, and Japanese, and give them solutions to their economic problems, problems that we have had in the past and overcome."

A single payer healthcare system was a problem the US had in the past and overcame?

Eric Krieg writes:

>>Just as a data point, Eric, would you rather be rich or happy?

It isn't an either/ or preposition.

By the standards of this earth that we live on and its long history of human civilization, I am both happy and rich. And by any objective measure, I think that average Americans are both happier and richer than anyone elses' average.

I don't think that you need to be rich to be happy, if that is what you are getting at. But I do a lot of business globally, and everyone is bitching about one aspect of their country or another. So I would dispute anyone's assertion that other nationalities are happier than Americans are.

I don't think that the problems that America has are especially bad or intractable. And unlike the Euros and the Japanese, Americans have a psychological trait that, once we acknowledge a problem, we fix it.

If I could wish anything for the Euros and the Japanese, it would be that they adopt that one American trait.

Eric Krieg writes:

>>A single payer healthcare system was a problem the US had in the past and overcame?

Every country seems to have health care sysytem woes of one type or another. But what are they doing to fix them?

The Socialists seem to be trimming around the edges, which is not going to work.

Only the US is being innovative and debating new ways of delivering health care.

And in the recent past, we made the transition from fee for service to HMOs, which controlled health care expendatures for a time.

Eric Krieg writes:

http://www.marginalrevolution.com/marginalrevolution/2003/12/who_are_the_uni.html

Who are the uninsured in the US?

Jim Glass writes:

"... would you rather be rich or happy?"

I'd rather be rich enough to test whether this is a false dichotomy.

Cap'n Arbyte writes:

Boonton,

"I don't see any evidence that Canada is deeply unhappy with their healthcare system...stories about waiting lines or a few who go to the US for treatment does not constitute evidence here."
...
"It seems rather arrogant and silly for us to sit back and declare Canadians are misirable and they just don't see it because we know better then them."

I'm not sure if you're just saying I shouldn't use anecdotes, or if you're suggesting that polling is the only objecctive way to determine the success of a health care system.

I pay no heed to the feelings and irrational fears of the electorate. The long delays for care are a fact, and cost lives. If they're happy with their system it's because it pleases their ethical sensibilities (greedy profit motive bad, the loving hand of government good) and not because their system succeeds at providing for the health of the citizens.

Boonton writes:

"I pay no heed to the feelings and irrational fears of the electorate. The long delays for care are a fact, and cost lives. "

And our system costs lives as well when preventative care is forgone because people cannot afford it or lack adaquate coverage. Ancedotal stories about the crowded Canadian waiting room or the number lost to breast cancer that could have been saved with a free mamogram are just that. They do not tell us if the system is good or bad overall.

I do find it revealing that these countries that are supposedly suffering under single payer appear to lack any political movement to reform the system towards the US model. Ok, maybe some Canadians and Brits think they are doing a good service to their fellow man by suffering long lines but considering that human beigns tend towards their self interest some group would be saying 'the Americans have it better, let's do it like them'.

It's not like there is no precedent for this sort of thing. The Brits had enough to vote for Thatcher's privitization in the 80's. One would think that if they really did want the US system they would say so. Instead we just get stories about a long line at a hospital.

I think your position continues to boil down to: The US system is better than what Canada or the UK has....they are really unhappy there. But if they don't say it then its because they are brainwashed by socialism...I know how they really feel better than they do!

Cap'n Arbyte writes:

Boonton,

"I think your position continues to boil down to: The US system is better than what Canada or the UK has....they are really unhappy there. But if they don't say it then its because they are brainwashed by socialism...I know how they really feel better than they do!"

Again, I explicitly agree that they *are* happy with what they've got and that they don't want to change it. What I'm saying is that socialist health care is popular for ethical reasons, not for its measurable effects on health. It's not even about economics for most people.

Incidentally, I don't hold up the U.S. system as a shining example of how it ought to be done. I do think it's better than what they have, but not by much, and there's a lot of room for improvement.

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