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Zapp: Single-payer health system might be economic solution

An open letter to our congressmen, who continue to consider health care funding models:

As my representatives in Congress, I invite you to an open and non-ideological discussion of the single payer health care funding model. As a retired economist, I hope to help you enhance the efficiency of our health delivery system, a goal I assume we share.

The single payer funding system is simple: There is one organization which pays for (and therefore buys) health services and products. If we remember our introductory economics, this single buyer is called a monopsonist, the opposite of the single seller, the monopolist.

We understand that a monopoly exercises extreme bargaining power in a market because it faces no competition. It sets the price which maximizes its profits. The single buyer uses its bargaining power to extract the lowest possible price from suppliers which compete for its business. After WWII, several American oil firms created a company called ARAMCO which was the only buyer of crude oil from middle eastern producers, keeping its price unnaturally low until OPEC was created in the early 1970s.

In health care, the single payer model may be used in two different systems: in a government health care system in which state or public agencies provide the services as is the case in Great Britain, or in a private health care system in which private doctors and companies provide the services as is the case in Canada and Taiwan. To analyze the funding system honestly, we must agree that it does not require the government supply of health care, only its payment as is true in Medicare and Medicaid.

Some health cost data: According to the World Bank (2014) we spend a dramatically higher percent of our GDP on health care than other industrialized nations. Here’s the tally:

Canada, 10.4 percent; Denmark, 10.8 percent; France, 11.5 percent; Germany, 11.3 percent; Israel, 7.8 percent; Japan, 10.2 percent; Sweden, 11.9 percent, Switzerland, 11.7 percent, United Kingdom, 9.1 percent; and the United States, 17.1 percent.

If our health results were better than these other countries, the cost disparities may be understood. However, by key criteria of well-being, we Americans fare poorly compared to citizens of these nations. According to the OCED (2016) males and females in countries listed above live 3.3 years longer than their American counterparts. For Americans younger than 5, the mortality rate is 71 percent higher than the other countries, and our infant mortality rate is 67 percent higher.

Before discussing the details of the single-payer systems in Canada and Taiwan, it seems necessary to stress how or why it achieves lower costs of health care while maintaining the private doctor-patient relationship.

First, as a monopsonist, the single payer extracts lower costs from all suppliers. We know well, for example, that legal pharmaceuticals are 20 percent to 45 percent cheaper in Canada than in our country. My friends in Minnesota used to organize bus trips to Canada to purchase their prescription drugs before they were able to do so through the mail. Unfortunately, during the previous decade, Congress prohibited our federal government from negotiating prices with drug producers, making Canadian prices unavailable here.

Second, our existing dependence on private insurance companies is unnecessarily expensive. Research has found that administrative costs (including marketing and advertising) compromise 18 percent to 27 percent of their revenue. Studies of the single payer system report that it reduces these non-medical expenses by at least half. This alone would lower our health care expenditures by about 10 percent.

The Canadian Health Act of 1984 created that country’s single payer system. A Provincial Ministry of Health issues a health card for each person enrolled. The level and scope of coverage varies by Province. The government sets quality care standards but does not supply any services which come from private doctors and companies. The patient is not involved in service billing as the provider submits all invoices to the provincial funder. The system is funded through provincial income tax except in British Columbia which imposes a monthly fee on enrollees. There are no deductibles for basic care and co-pays are low by American standards.

Dental and eye care coverage depends on provincial regulations. Most cosmetic and elective surgeries are not covered but can be paid by private insurance which can also fund private rooms in hospitals. A member’s coverage is not affected by employment status as long as monthly fees are current and there are no life-time limits or exclusions for preexisting conditions. Individual members select their own primary care physicians who make referrals to specialists when needed. Patient wait times for diagnostic or specialized treatments, often cited by system critics seem reasonable. According to the Canadian Medical Association Journal, median wait times for diagnostic services is two weeks and surgery four weeks.

In Taiwan, the National Health Insurance was established in 1995. It is funded by premiums based on the payroll tax and supplemented by patient fees and direct government subsidies. By 2004, 99 percent of the population was covered by the system. The public seems pleased with the costs and coverage available to all citizens. One recent poll found that 70 percent of respondents said they were satisfied with it.

As in Canada, the service providers in Taiwan are private doctors and companies. The initial payment system was based on a fee for service model. After realizing that some providers were requiring more services than thought necessary, the payment process was changed to a prospective system in which providers were paid for all services over the year. Currently, Taiwan spends slightly more than 6 percent of its GDP on its health care system, about 35 percent of what we spend while their life expectancy and infant mortality rates compare favorably to ours.

While this is not an exhaustive analysis of the single payer model, I believe that it clearly requires that we study it formally in order to determine if we can benefit from its adoption in some form. Our country deserves an honest discussion.

Winston Churchill was quoted saying that he depends on our country always doing the right thing — after we try everything else first. Have we not tried everything else?


Kenneth Zapp, professor emeritus at Metropolitan State University, is a Mentor for SCORE Savannah.