ArticlePrepared by: Kurt Finsterbusch, University of Maryland, College Park
The Case for Single-Price Health Care
We could largely solve the cost crisis simply by making medicare prices universal.
PAUL S. HEWITT AND PHILLIP LONGMAN
Learning Outcomes
After reading this article, you will be able to:
Explain why health care prices are so high in America.
Describe the benefits of a single payer system.
Understand why the drug companies have so much power.
bamacare has taken a licking but keeps on ticking. The
prospect of repeal died on the Senate floor. Republican efforts to roll it back continue, but the bulk of the
program is still in place and unlikely to go anywhere. Virginia
appears, as of this writing, on the way to expanding Medicaid,
health carc. To employers, health insurance is just a form of
employee compensation. When the cost goes up, they typically
respond by cutting back on raises and other benefits.
To put this in perspective, the hit to middle-class families with
employer-sponsored insurance has been roughly the same as if
the government had imposed a 4.5 percent payrol tax increase
beginning in 2010. No wonder, then, that four in ten adults with
health insurance now say they have difficulty meeting the cost
of their premiums and deductibles, according to Kaiser Family Foundation tracking polls, and another 31 percent say they
have difficulty covering the cost of co-payments.
Obamacare didn’t cause this crisis – in fact, relative to wages,
the rate of medical inflation in the employer-provided market
and other states will likely follow. Thanks mostly to the Afford-
was substantially higher before the law. Nor is the rising cost
of employer-provided health insurance the result of Obamacare
able Care Act’s expansion of Medicaid, some eighteen million
forcing hospitals and other providers to shift costs on to nongov-
more people have health insurance today than when Obamacare
ernmental, or commercial, payers, as some Republicans assert.
Instead, as we shall see, it’s mostly the result of monopolistic
went into effect, cutting the uninsured population nearly in half.
care for those who get their insurance through their employers.
hospitals engaging in price discrimination as they exploit their
increasing market power over private purchasers of health care.
But it’s easy to understand why many people with commer-
For these folks
cial insurance feel that the law has made them
But while progress has been made on expanding access,
another problem keeps getting worse: the soaring cost of health
who make up the majority of middle-class,
working-age Americans
the ever-rising costs of premiums,
turned into a full-blown crisis.
has
deductibles, and co-pays
Take a median-income family of four whose members are
a standard employer-sponsored plan. Last year, the
covered
by
amount that
hospitals, doctors,
and other
providers charged
to
treat such a family reached an average of $26,944, according
the Milliman Medical Index nearly $9,000 higher than in
about
2010, when the ACA was enacted. Families typically paid
increased
form
of
in
the
difference
premithat
directly
a fifth of
Who exactly paid how much of
and
co-pays.
deductibles,
ums,
axiomatic
but it’s
among economists that
the rest is not certain,
cost of employer-sponsored
employees bear most if not all of the
–
to
worse
off. In
their experience, Congress passed the ACA and now they pay
much more for health care. Adding to the grievance of many
middle-class Americans is the fact that, even as their own costs
have gone up and their choice of doctors has narrowed, millions
more lower-income people are now paying little or nothing
thanks to the expansion of Medicaid.
Fortunately, there’s a straightforward way to attack this
middle-class affordability problem. The Affordable Care Act
dramatically tightened existing price controls on health care
purchased by the federal government. It did so by setting
fee schedules for how much doctors and hospitals can charge
Medicare, Medicaid, and other federal health care programs for
Health Care
The Case for Single-Price
services or, in some cases, treating specCific
to Medicare Advantage
conditions. Similar price controls apply
to contract with
allowed
are
Plans, under which private insurers
providers at Medicare prices.
the government roughly enough
At
entire Defense Department.
money each year to fund the
commercial
for by
a time when the price of health care paid
faster than the
times
three
to
insurance has been increasing two
services
wages earned
by
answer
to the most
simply
plans
well. For
as
of health
to
a
our
health
care
commercial
these cost controls to
such a move,
middle-class
apply
typical
would drop
today,
crisis is
most expensive hospitals.
than $18,000 in the
insurance, it keeps getting
commercial
For people with
the increase in price for
2024,
current course, by
worse. On the
with employer coverage
middle-class family of four
a typical
this
in the payroll tax
increase
another
will be cquivalent to
of
wage
That’s on top of the 4.5 percent
time of 4.8 percent.
the Obama years, and
inflation
during
income lost to medical
2028, the total
under George W. Bush. By
the 7.3 percent lost
come to $44,000 per family.
annual health care hit will
which account for
pressing aspect of
the total
family,
price of health
care
by
if enacted
new
without having to pass any
about a third in the first year,
care
health
to change their
taxes and without forcing anyone
fact that we already do
c o m e s from the
plan. Proof of concept
and Medicaid. You’ve
covered by Medicare
this for everyone
This is the case for single-price.
heard of single-payer.
best fix for our brocost controls are the
To show why direct
causon what’s
we need to get straight
ken health care system,
How Did This Happen?
A
–
consume
But
we
country
cally more in
actually
don’t
are
care
s o m e real
than in markets where
20
percent higher
run roughly
about the phenomSince we first wrote
competition remains.
Obamacare,” January/February
(“After
enon in these pages
that monopoly
has
literature
grown up confirming
vast
2014), a
for Americans
prices
factor pushing up
in health care is a major
more
well aware of the inflated price of prepeople
But drugs account for only about
scription drugs in the U.S.
far the largest source
10 percent of health care spending. By
Most
as
Where health
see more
the United States.
merged
two competitors
have to negocreate a health care plan, they
employer wants to
own
prices.
who dictate their
tiate with providers
prices
consolidation is strongest, hospital
too much health
doctors, or receive
in other advanced
than our counterparts
scans or surgeries,
than
fewer days in hospitals
countries. We spend dramatically
thanks
routine preventive care,
and seek out less
we used to,
net
and n a r r o w e r provider
high-deductible plans
to the rise of
care
health
American’s utilization of
works. Overall, the typical
mid-1990s.
the
has been flat since
health care
the relentless increase in
what’s
driving
So
research paper pubwords of a seminal 2003
spending? In the
Study after
Stupid.”
the
Prices,
“I’s
lished in Health Affairs,
Americans pay more
that the biggest reason
study has found
residents of any other advanced
for care than the
per person
dramatior treatment costs
is simply that the same pill
care.
med
is that in most markets,
that
the
to
point
with each other
reason
to
local monopolies. According
Commission,
Trade
used by the Federal
the standard metric
market remains in
competitive” hospital
not a single “highly
hos40
percent of all
A full
of the United States.
region
controls
any
where a single entity
o c c u r in areas
pital stays now
where only
20 percent occur in regions
all hospitals. Another
insurer or
an
when
that
remain. The result is
assume
related heart disease.
smoking and
Americans
Another theory is that
underappreciated
they effectively operate
older and
that Americans are just getting
number of old peo
but that’s not it. The increasing
sicker
rise in health
about a tenth of the
accounted for only
c o n s e n s u s estiple has
to
since the late 1990s, according
care spending
and opioid abuse have
risk factors like obesity
mates. And while
has been more
their effect on spending
more prevalent,
gotten
dramatic decline in
especially the
than offset by other trends,
might
major,
ical providers have
ing the crisis.
You
83
more
–
relative to the average wage.
Phillip Longman
delivery
a
the federal programs
has actually been declining
care bills
37 percent of all health
The
price
–
through
delivered
save
the
most Americans,
Hewitt and
medical services.
is the increasing cost of
of medical inflation
Health Plans shows,
International Federation of
A report by the
for
hospital and physician charges
for example, that in Australia,
2015;in
in
came to around $3,800 and often
an appendectomy typically
on average,
$16,000
cost
the U.S., the same operation
in Spain, but
will cost you around $2,000
far more. Giving birth
$11,000- and
in the U.S. costs an average of
normal
pertorming specific
These cost controls
by Paul S.
Medicaid.
by Medicare or
took the single measure of
would
happen if we just
What
health insurance
to all commercial
applying Medicare prices
to a study by the Congresand did nothing else? According
is
for a one-day hospital stay
sional Budget Office, the price
to commercial insurance plans
89 percent higher when charged
Medicare patient stays in the
and their customers than when a
not covered
–
time. Overall, the discounts
bed for the same amount of
in the 20 to 40 percent
Medicare and Medicaid receive are
of imposdone at a stroke, the first-order effect
range. Thus, if
would be to reduce the price of
ing Medicare prices universally
same
about one-third.
the health care received by a typical family by
about $9,000
of
That would translate into annual savings
would still be
today, and much more over time. The savings
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Annual Editions: Social Problems, 42/e
substantial even if we implemented the plan in phases to ease
the transition.
Wouldn’t “Medicare prices for al cause massive
disruption
across the health care sector?
Yes, but in a good way.
Impor-
tantly, hospitals that disproportionately serve low-income and
elderlypatients- typically found in rural or poor, urban locations
–
would be the least affected. That’s because they
already know
how to break even or even earn a surplus at Medicare and Medicaid prices. Unable to pass inflated costs along to
patients with
commercial insurance, they’ve had to learn to be more efficient.
The same is true more
generally of hospitals that lack
monopoly power. Studies show that hospitals with real competition in their local markets have found ways to lower costs
to the
point that they can get by on Medicare prices. These hospitals might even welcome a move to universal Medicare prices
because it would help level the playing field with
monopolistic
competitorsS when it comes to recruiting and retaining doctors.
It would be a different
story, though, for hospital systems
that have been living high off their
ability to extract monopoly
prices from commercially insured patients. These hospitals will
sCream that
they
are
already losing money on every Medicare
they are able to inflate the
and Medicaid patient, and that unless
prices they charge commercial payers, they will go broke. But
the reason they lose
money on Medicare and Medicaid patients
is that their costs are too
high. And the reason their costs are
too high is that
they don’t need to cut them so long as they
can gouge commercial
payers which, as
or near
monopolies
monopolies, they can. The majority of these hospitals are classified
nonprofits,
as
so the revenue from their
high prices doesn’t
even have to go back to shareholders.
Instead, it turns into
inflated salaries for administrators, lucrative contracts for
spe-
cialists, and, often, giant building projects. In order to survive
Medicare prices, they would have to become much
more
efficient and cost conscious.
on
Meanwhile, going to a “Medicare prices for all” system
would also help to structure the market for health
insurance in
ways that promote the public interest. For one, once you eliminate all the haggling and
gamesmanship involved in setting
different complicated fee schedules for
patients on different
plans, much of the administrative cost in health care vanishes.
For another, since all employers would
pay the same amount
for health care, eliminating price discrimination would shrink
the advantage large employers have when it comes to
attracting
workers by offering generous plans.
Moreover, large insurance companies would no longer have
any advantage over smaller ones in negotiating contracts with
providers. That, in turn, would encourage new companies to
enter the health însurance business and actually compete over
who can deliver the most value at a given price. This would
mean developing plans that optimize choice, easy access, inte-
grated care, and expanded benefits like gym memberships and
discounted drug prices. These perks are already commonly
offered under Medicare Advantage Plans, which all pay the
same prices for care and must therefore find more creative
ways to compete for customers.
Could we be sure that all these savings would get passed on
to average Americans? Provisions in the Affordable Care Act
already require insurers to spend 80 to 85 percent of premium
dollars on medical care, thus ensuring that the lower
prices
couldn’t be turned into higher profits and salaries for insurance
companies and their executives. That leaves open the question of
whether employers would pass along savings to employees. In a
truly competitive labor market, there is no reason to believe they
wouldn’t. But, of course, labor markets today are often noncompetitive, due to factors ranging from industry consolidation to the
fading power of unions. To make sure that employers shared the
savings with employees, a new law might include a requirement
that
existing
employer-sponsored
plans
cut
premiums,
ibles, and co-pays in line with the reductions in health carededuct
prices.
In normal markets, price controls are seldom a
good idea.
But health care is not a normal market.
Purchasers, whether
consumers, insurers, or employers, have a hard time
evaluating
the quality of medical services, for
example. There are also all
kinds of agency problems involved with so much
care being
purchased with other people’s money, and a moral problem
involved with the fact that a large and
increasing share of the
population can’t afford to pay the price of their own health care.
And that’s all before you
get to the problem of industry consolidation. In highly concentrated, opaque health care
markets,
administered prices are the only real alternative to
dicprices
tated by the fiat of monopolists.
These are the reasons
why literally
every other
developed
country in the world uses administered prices in health care,
including countries that rely on privately owned hospitals and
entrepreneurial doctors. And it’s why their use in the Medicare
and Medicaid programs has been successful in
containing cost
inflation while predatory pricing prevails
else in
everywhere
the increasingly cartelized U.S. health care sector.
Getting legislation passed to allow the federal government
to set
prices directly
may sound
far-fetched, but it’s likely more
politically doable than you might think. Just as Obamacare made
it through Congress in part because
key sectors of the health
industry came to see it as advantageous, so too with a
single-price system.
Ending price discrimination would liberate insurers, employers, and other large purchasers of health care from the
growing
care
monopoly power of their “suppliers” It would also establish
new opportunities for insurers to expand into local markets and
take on entrenched incumbent players, including both
monopolistic providers and monopolistic insurers. The
single-price
plan also preserves a role for a private health insurance industry, albeit one more like those found in France and Germany,
Tne Case Tor Singie-PIce iedi
the prices and private-sector insurers
provide the best service.
that have already learned how to
where the government sets
compete
over
who
can
Meanwhile, hospitals
reduce costs enough to make a living on
Medicare
prices would
stand a better
have reason to support the idea. They would
if
they didn’t have
chance of attracting and retaining doctors
instito match the inflated pay scales offered by monopolistic
tutions living off inflated commercial prices. A major political
benefit of the single-price system is that it could split the inter-
ests of providers, isolating price-gouging, monopolistic net
works from smaller, community-minded hospitals and doctors.
insurAt the same time, by preserving a role for commercial
ance, it spares health care reformers from being pitted against
the entire medical industrial complex. (See “How Big Medicine
Can Ruin Medicare for All,” November/December 2017.)
The idea of applying Medicare and Medicaid prices across
the board is so compelling that it has started getting serious
attention from influential policy wonks. On the conservative
side, the Council for Affordable Health Coverage recently
issued a white paper that calls for the expansion of Medicare
prices to commercial plans. On the liberal side, Princeton’s
Paul Starr broached the idea in an article in the American Pros-
pect in January. More recently, the Center of American Progress has included
idea in a policy paper.
The Starr and CAP Medicare price proposals were, however,
just one small part of broader plans to achieve universal coverage-by expanding eligibility to the existing Medicare program
or creating a brand-new, very expensive entitlement that would
require big tax increases. Administered prices of some kind
would also be a part of any single-payer plan.
But there are very strong reasons to believe that starting with
price controls alone is a better idea than trying to achieve them
and universal coverage in one shot. To see why, we first have
to look at the potential pitfalls of more far-reaching proposals.
The most ambitious plan so far, of course, is Bernie Sanders’s “Medicare for All” bill, which would shift every American
onto Medicare, as the name suggests, over the course of four
years. While the bill has gained momentum among prominent
Democrats, it has two widely remarked-upon shortcomings.
First, people who are currently satisfied with their insurance
might balk at being forced into a different plan. Second, it
would be terrifically expensive, requiring a major tax increase
estimated that the plan Sanders
pay for it. The Urban Institute
last
the
presidential election would increase
proposed during
federal spending on health care by 232 percent, or a cumulative
$32 trillion by 2026. Sanders says his more recent plan could
to
be paid for with a 7.5 percent payroll tax on employers
4 percent income tax surcharge on individuals.
plus a
Medicare for All advocates make the case that, despite the
sticker price, the plan will actually bring down overall health
and
care spending by imposing lower prices on providers
almost all of
saving on administration. But here’s the problem:
don’t know
those savings will come from money that voters
Americans
they’re currently spending. More than 150 million
see
have employer-sponsored group health care plans. They can
what they are forking out directly for premiums, deductibles,
innocent
and co-pays, and they don’t like it. But they are largely
of the far greater amounts they pay in lost wages. In a typical
employer-sponsored family plan, two-thirds of the premiums
in turn shifts much
are nominally paid by the employer, who
of
if not all of that cost to employees by reducing other forms
are aware of this reality. So
Yet few
compensation.
employees
save people
selling a single-payer system involves promising to
at
the same
while
know
don’t
they pay,
money on costs they
time telling them that they’1l have to share more of their pay-
check with Uncle Sam. Not easy.
Some Democrats have been trying to finesse this political
lite”
reality by proposing what might be called “single-payer
Extra
“Medicare
The Center for American Progress’s
plans.
for All” proposal is an example. Under this plan, everyone can
choose between buying into Medicare or keeping their current
insurance. And because the plan would impose Medicare prices
universally, the price of private insurance would go down.
But that is just a part of the proposal. It would also establish a new federal health program offering enhanced benefits,
including dental, vision, hearing, and maybe even coverage for
long-term nursing home stays, which Medicare and standard
commercial health insurance currently don’t cover. Premiums
would be free for people living in poverty and would be capped
at no more than 10 percent of income for anyone else who
wanted to join. Deductibles and c0-pays would likewise be eliminated for low-income people and reduced for everyone else.
Sounds pretty good, but who would pay for it? CAP doesn’t
specify. Instead, it merely says that “Medicare Extra would be
financed by a combination of health care savings and tax revenue options,” adding that it “intends to engage an
third party to conduct modeling simulation to determine how
independent
best to set the numerical values of the parameters.”
Whatever numerical values come back, they’ll be substantial
and controversial. Even if the CAP plan was financed in good
measure by new taxes on the super-rich, it would still involve
large transfers from middle-income people, who will be at least
partially financing their own benefits, to people with lower
incomes, who would be paying nothing for the health care they
receive.
A plan based purely on Medicare prices for all would avoid
these political land mines. Ending price discrimination against
people with employer-provided or other commercial insurance
in one fell swoop would address the biggest concern of the largest group of voters –
crucially, without asking them to make
higher taxes. This would raise
the chances of the party that passed it actually being rewarded
any sacrifices in the form of
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Annual Editions: Social Problems, 42/e
for health care reform, rather than punished, as the Democrats
were for Obamacare. Voters would quickly fecl the benefits in
lower premiums, deductibles, and co-pays. And that, in turn,
should make them more open to efforts to extend health coverage to those that lack it.
So why not just keep it simple, at least to start?A “Medicare
prices for all” plan doesn’t require tax increases or involve transfers paid for by the middle class. It doesn’t require Americans
to give up their current health care plans. And it doesn’t repeal
or replace the popular features of the Affordable Care Act. But
it does directly attack the middle-class affordability crisis using
a proven approach that the great majority of Americans might
Internet References
Harvard Health Publishing
https://www.health.harvard.edu/
New American Studies Web
www.georgetown.edu/crossroads/asw
Social Science Information Gateway
http://sosig.esrc.bris.ac.uk
Sociology Web Resources
http://www.mhhe.com/socscience/sociology/resources/index.htm
Sociology-Study Sociology Online
http://edu.leansoc.org
Sociosite
http://www.topsite.com/goto/sociosite.net
actually support.
Critical Thinking
1. Many Americans distrust the government playing a major
role in providing health services. What are some arguments
on the other side?
PAUL HEWITT is an economic adviser to the Council for Affordable
Health Coverage. His views do not necessarily reflect those of CAHC
or its members.
2. Why is health care so much less expensive in Europe than in
America?
3. Why is the current health care system in crisis?
PHILLIP LONGMAN is senior editor at the Washington Monthly and
policy director at the Open Markets Institute
o2018 by Washington Monthly Publishing. LLC. Reprinted with permission of Washington Monthly.