U.S. Sen. Bernie Sanders advocates a medical system known as “single payer.” Though not well known by most Americans, it is favored by a majority of people who consider themselves Democrats.
While our society would benefit from an honest discussion of alternative funding mechanisms for medical services, this seems impossible given our current environment of partisan bickering and wildly inaccurate statements from political pundits.
Freedom of the press has morphed into license to say whatever serves one’s political goals.
As an economist, my responsibility is to provide verifiable information that may be useful in understanding why so many Americans favor this system whose reputation has suffered almost irreparably from misleading attacks.
First, the single-payer system is what economists call a monopsony. Investopedia defines monopsony as a market structure that’s similar to a monopoly except that a large buyer, not seller, controls a large portion of the market and drives prices down. The government, or an organization funded by the government, is the primary buyer of health services and as such forces all suppliers to lower their prices in order to be paid.
A simple example is found in Canada. There a single organization purchases all pharmaceuticals for their citizens. This purchasing power enables Canadians to consume the same products we use for 30 to 50 percent less than we pay.
It is important to understand this system refers only to the funding mechanism. As we will see, the single-payer funding system can function with private suppliers as happens in several countries or with public or government suppliers as is the case in Great Britain. But single payer does not require or suggest that government is supplying medical services.
While many countries use a form of the single-payer system, Canada is often cited as a useful example for us to understand how it works. There, each province provides a health insurance plan for all residents. Within provinces, citizens may go to any private physician or hospital for medical services. The provincial funding agency pays all bills stemming from these services.
The system in Canada saves money compared to our American mixture of private insurance and government funding in two essential ways. First, using their buying power, the provincial funding agencies bargain down prices charged by the private doctors and clinics. Second, the Canadian process entails dramatically less paper work (and expense) than realized by our providers and insurers.
One study found that Canadian doctors spend about one-tenth as much time as their American counterparts do on payment system forms and reports. This allows their doctors to spend more time with patients and explains how their 2.2 physicians per 1,000, is lower than our 2.4 per 1,000, enabling them to serve all their citizens.
Another found that American insurance companies have twice the overhead costs of the Canadian funding agencies.
The result of these savings is that Canada spends less, both as a percent of their GDP and in real dollars than we do on their total health care system. In Canada, 10 percent to 12 percent of their GDP goes toward health expenses that cover all citizens. We spend 16 percent to 17 percent of our GDP on health services even though more than 10 percent of our citizens do not have coverage.
A major American criticism of the Canadian system is that patients have unacceptable wait times for procedures other than visits to family physicians. One study found the following median wait times: slightly more than four weeks for appointments with specialists, two weeks for diagnostic services such as MRI and four weeks for surgery.
Other countries that use the single-payer system include Australia, Spain, Slovenia, Italy, Taiwan, Great Britain, Iceland, Finland, Sweden and Norway. Taiwan is an interesting case. It is clearly seen as the most conservative country in East Asia. Its National Health Insurance was instituted in 1995, and its system provides equal access to health care for all citizens.
Most health care providers are private firms that compete in a market for clients. The payment agency is funded by a payroll tax and additional general fund government expenditures. Recently the system switched from a fee for service payment to a prospective payment system for each patient enrolled in private clinics.
The system in Taiwan spends about 6 percent of their GDP to cover health needs of all citizens. While some may consider Taiwan a developing country, its average life expectancy is essentially the same as ours.
With these results, we must ask why the single payer is not seriously considered in our country.
The answer is clear: People and firms that profit generously from the existing system are highly motivated to use their resources to block any threat to their favorable position. These include insurance companies, drug firms and medical specialists or corporations that employ them.
When will we have an honest discussion of health care funding?
Kenneth Zapp is a professor emeritus at Metropolitan State University and a mentor for Savannah SCORE. Contact him at Kenneth.Zapp@metrostate.edu.