(Author’s Note: This is the third in two series of posts explaining what’s wrong with single-payer, government-run healthcare. Recent interviews with medical school and public-health policy students have shown this information is desperately needed to warn our youth of the evils of this form of healthcare. This series was first published in October, 2017 and is re-published here.)

 

In Part I of this series, I discussed the first of five reasons to oppose single-payer healthcare from economist Chris Conover’s point-of-view. Today we will look at his second reason.

The Moral Hazard

 Conover says the second reason to oppose single-payer healthcare is the enormous waste it would create due to the moral hazard. This is an economist’s term for the waste created whenever you give someone something for free. Anyone given something for free will consume more of it and will be less likely to shop for a lower price (because it’s already free!). In other words, consumers will use more of the product or service and pay more for it (because someone else is paying the real cost).

This is just as true for healthcare, except when there is an emergency. Since very little of healthcare is actually an emergency, the moral hazard is a very real problem.

Many years ago the RAND Health Insurance Experiment (HIE) proved this point. The HIE randomly assigned thousands of families to different types of health insurance plans ranging from a free care plan (much like Senator Bernie Sanders’ single-payer plan) to a very high deductible plan with a large amount of cost sharing. There was an upper limit on cost sharing so that no family spent more than a certain fraction of family income.

The graphic above shows three different healthcare plans and the results of the RAND HIE. The green band shows wasted spending and the results show there is 30% wasted spending with free care, but much less with the other plans.

That means the Sanders Medicare For All Act can be expected to waste 30% of the money spent. In other words, the value of the healthcare spending under such a system is only 70% of the cost. The annual difference in between the free care group and those with a more sensible cost-sharing design was nearly $2100. Fully 82% of that cost differential represented waste!

How much waste would there be under Medicare For All?

The exact amount cannot be calculated until more details are given about the plan. But according to the Urban Institute, which estimated the Sanders plan would cost $3.277 Trillion per year, we can estimate his single-payer plan would waste over $1 Trillion per year. In addition , it would also include $308 Billion in long-term care services.

To be sure, there is waste in the current system, too. I won’t bore you with the details, but Conover calculates the Sanders plan would cause a net increase in waste of $524 Billion per year.

But wouldn’t free care save lives?

This is the favorite argument of progressives pushing this agenda. Unfortunately, this is wishful thinking. The RAND HIE also compared health outcomes – including risk of death – across all plan participants. Conover says,

“There was not a dime’s worth of difference in health outcomes for the average patient. More scientifically, we can say there was no statistically significant difference in health outcomes (including risk of death) when those who got free care were compared to those with cost-sharing plans, including those in high-deductible plans whose actuarial value was only 54%!”

 

The only exception was that high-blood pressure and corrected vision problems were worse in those groups with high cost-sharing plans.

So far we have learned that Senator Sanders’ Medicare For All Act will produce:

• $1.1 Trillion in deadweight losses
• $524 Billion in additional wasteful spending

 

That should be more than enough reasons to oppose this plan but we have three more to go! Stay tuned for Part III in this five-part series.

(Author’s Note: This is the second in two series of posts explaining what’s wrong with single-payer, government-run healthcare. Recent interviews with medical school and public-health policy students have shown this information is desperately needed to warn our youth of the evils of this form of healthcare. This series was first published in June, 2017 and is re-published here.)

 

ObamaCare is dying. GOP plans to replace it are floundering. What’s next? For progressives, the answer is single-payer healthcare. Senator Bernie Sanders has already introduced his bill for single-payer called The Medicare For All Act. Currently there are 16 Democratic senators in support of his bill. A recent Politico poll showed 49% of Americans favoring “a single-payer health care system.”

I have written extensively in the past on this issue from a doctor’s point of view. I have discussed the poor medical outcomes in countries with this system (Canada, Great Britain, Sweden) and the prolonged waiting times for treatment. Now I would like you to hear the opinion of a well-known healthcare economist.

Chris Conover, Duke University healthcare economist, has written a series on reasons to oppose a single-payer healthcare system from an economist’s perspective. He gives us five reasons single-payer is a bad idea. Today we will discus the first of these five reasons.

Deadweight Losses

The number one reason is what economists call “excess burden” of taxes, better known as “deadweight losses.” To understand these terms it is fundamental to understand that “whatever you tax, you get less of.” It is also fundamental to understand that every tax shrinks the economy to some extent resulting in a loss of welfare for consumers and producers. This impact varies with the type of tax.

The graphic above depicts how this tax burden varies with different types of taxes. The marginal excess burden (deadweight loss) is the drain on the economy that results from the type of tax.  The burden is highest for income taxes and lowest for payroll taxes. This burden is reflected in lower GDP, which means fewer jobs and lower wages. (This should be of great concern to those who oppose the current Republican proposal to lower income taxes.)

Deadweight losses are typically expressed as a percentage of the revenue raised.  So the average excess burden represents the entire amount of such losses as a fraction of the entire amount of tax revenue raised. This excess burden rises with the tax rate.

Conover estimates deadweight losses for the federal tax system overall averages 44 cents for every dollar of revenue raised. Since the entire American healthcare economy is $3.5 Trillion, if we raised that amount through federal taxes, we’d have to accept welfare losses of $1.5 Trillion per year! This is the burden on the GDP imposed by such taxes. This burden means fewer jobs and lower wages.

How large would the deadweight losses be under Medicare For All?

The left-leaning think tank Urban Institute has calculated the plan would add $32 Trillion to federal health spending in the first decade, or $3.2 Trillion per year. To put this in perspective, the total federal tax revenue currently is only $3.6 Trillion annually.

Senator Sanders has offered a variety of options to finance his plan including a payroll tax of 7.5%. This approach would lower the deadweight losses from 44% to 38% – but they would still amount to $1.33 Trillion per year. This loss of GDP would represent loss of jobs and wages that benefit the same working class workers Sanders is supposed to be helping!

Other options include increasing income taxes, but a review of the graphic above shows this would increase deadweight losses the most! (52%!) If the income tax rates were raised on the wealthy, the burden would be even higher (up to 165%!), causing a net negative growth of GDP, greatly impacting jobs and wages on lower income families. So “socking it to the rich”, as liberals favor, would actually be harder on the poor.

The Urban Institute analysis suggests that if the Sanders plan were currently the law of the land, an added $2.5 Trillion in federal revenues would be required to finance it just in 2017. In other words, we’d need an additional increase in federal tax revenues of 72.2%! There would be a hidden cost of $1.1 Trillion in deadweight losses in 2017 alone.

This calculates to an extra burden in taxes of $3400 per citizen or $13,400 per family of four. To put this into perspective, remember that President Obama sold the American public on ObamaCare promising everyone a reduction of their health insurance premium costs for a family of four of $2500 per year. The Sanders plan would effectively be asking the same people to accept an increase in their healthcare costs of $13,400 per year. That’s five times worse than Obama’s promise! How could anyone support such a plan?

 

Author’s Note: This is only the first of five reasons Conover gives us for opposing single-payer healthcare. Next post we’ll discuss his second reason.

 

Grace-Marie Turner is President of Galen Institute, dedicated to informing the public on issues concerning our healthcare system. On her website at galen.org, she recently spoke about the attitudes of students today in medical school, or in public health policy.  She says these young people are convinced that single-payer, government-run healthcare is the answer for the future healthcare of our country. They reject the idea of a market-based system that provides physician autonomy and patient choice.

Where are they going wrong?

It is said that “ignorance is bliss.” But what you don’t know can hurt you! These young people are clearly ignorant of the track record of single-payer healthcare systems that currently exist in the world. This would mean countries like Canada, United Kingdom, and Sweden.

Since it is clear that many people, especially these young students, need more information on the evils of single-payer systems, I have determined now is a good time to re-publish some of my previous posts that address this subject in depth. Therefore, today begins a series of posts re-published from the past, beginning with Single-Payer v. Market-Oriented Healthcare: Which is Better?, first published on June 12, 2017:

It has been their goal from the beginning. Progressives have been pushing for socialized medicine since the days of Teddy Roosevelt. In the politically correct world of healthcare terminology it is referred to as “single-payer” healthcare. There is no real debate happening in Congress right now between Democrats and Republicans on how to stop the collapse of ObamaCare. While Republicans favor a market-oriented system to correct the ObamaCare problems, Democrats deny the problems exist and demagogue the issue, trying to frighten the public. Their real goal is to let ObamaCare implode and then push for its replacement with a single-payer system. Which system is best for America’s future?

The Lancet Study

Chris Conover, writing in Forbes, reports a new study from the British medical journal Lancet that compares the two systems. This study adds to the growing mountain of evidence that market-oriented health care systems outperform the single-payer systems that so enamor progressives. This study compared healthcare outcomes in the single-payer systems of Canada and the United Kingdom (UK) with those of market-oriented systems in the Netherlands, Switzerland, Singapore, and the United States.

Single-payer systems rely on a command-and-control approach to healthcare that depends on price controls and government determined capacity constraints that predictably lead to long waiting lines and lower quality care. Market-oriented systems rely on markets to ensure universal access to high quality care at an affordable price. Switzerland uses private health insurance for all of its citizens, even the poor and the elderly, providing subsidies to purchase the insurance for those in most need.

The Lancet researchers, led by Christopher Murray, uses a measure called the Healthcare Access and Quality Index (HAQ Index) to focus on mortality related to adverse effects of medical treatment. This index measures the ability of countries to avoid “amenable mortality”; i.e., deaths that hypothetically would not occur with timely and effective medical care.

Conover says amenable mortality in the U.S. accounts for about one-fifth of mortality under age seventy-five in men and nearly one-third in women. Since there are over one million deaths a year in the U.S. among those under age 75, this implies there are more than one quarter million avoidable deaths annually.

This figure shows a comparison between single-payer systems in Canada and the UK on the left with market-oriented systems in Switzerland, Netherlands and Singapore on the right. The United States is depicted in the middle. Higher HAQ indexes are seen in green. To be sure, the numbers suggest that single-payer would be an improvement over the status quo (ObamaCare) but not nearly as good as the market-oriented systems in the countries on the right.

Conover has also isolated the “adverse effects of medical treatment” scores, which demonstrate that market-oriented health systems do even better at avoiding medical mistakes than single-payer countries. Contrary to intuition that might suggest more regulation by the government reduces mistakes, this study shows that greater reliance on market forces actually produces greater incentives to avoid errors. It is interesting that Singapore – which relies heavily on health savings accounts – performs the best of all on this measure.

Achieving Potential

The Lancet authors recognize that resources vary from country to country which may limit what can be achieved in avoiding preventable deaths. By these measures alone you could not expect the UK to have a HAQ Index as high as Switzerland, which has a GDP per capita twice as high as the UK. Yet despite these differences the market-oriented systems come closer to achieving their hypothetically attainable HAQ index scores than the single-payer systems. This is depicted in the graph below.

In this graphic we can see that the United States is functioning 11.1% below what it is capable of, which by the earlier calculations results in 250,00 preventable deaths per year. If these measurements are accurate it implies that conversion to a single-payer system like Canada would improve the HAQ Index and potentially save 150,000 lives per year compared to our status quo. However, conversion to a market-oriented system such as Switzerland would save an additional 100,000 lives or 250,000 lives over the status quo.

The status quo is unacceptable. No one wants to go back to the pre-ObamaCare days. America can do better. But the answer is not single-payer healthcare. The answer is a market-oriented health system that preserves freedom of choice to pick your doctor, your insurance coverage, and your treatment – and incentivizes doctors and hospitals to provide high quality care at the lowest possible cost. Such systems in countries like Switzerland, the Netherlands and Singapore are already providing high-quality healthcare at a lower cost to both government and patients than in America today.

(Author’s Note: More on single-payer, government-run healthcare in my next series of blogs.)