Wall Street Journal’s $15 trillion Single-Payer “Price Tag”

An article published in the Wall Street Journal today, headlined the “Price Tag of Bernie Sanders Proposals: $18 Trillion,” seems intended to induce what I might call “single payer sticker shock.” After all, the article states, $18 trillion not only “alarms conservatives,” but also “gives even many Democrats pause.” $15 of that $18 trillion is attributed to Sanders’ proposed single-payer health care reform. It sounds like a forbiddingly high number.

But is it a fair number? A story by David Dayen at The Intercept (“Wall Street Journal’s Scary Sanders Price Tag Ignores Health Savings) and a post by Matt Yglesias at Vox (“Bernie Sanders’ $18 trillion in proposed spending is more affordable than it sounds”) help put this number in context, but I think there are couple more things to be said about it.

As Dayen notes, the article draws from a study published by Gerald Friedman, an economist at the University of Massachusetts at Amherst, to compute the $15 trillion figure. Friedman wrote the study in 2013 in order to estimate how HR 676 – the single-payer bill sponsored by Congressman John Conyers – might be financed. The mix of taxes Friedman suggests is one potential approach to paying for single-payer; others are possible.

In any event, since the WSJ article relies on Friedman’s estimate, it’s worth turning to his report and asking: how much would single-payer cost? There are two ways to answer this question.

In Table 2, Friedman describes the “Estimated costs of health system improvement and transition costs under HR 676 (in billions of dollars),” which I’ve reproduced, verbatim, here:

Increased utilization $144
Cost of expanded coverage including government administrative costs $110
Cost of Medicaid rate adjustment $89
Transition cost of unemployment insurance and retraining for displaced workers $31
Transition cost of capital buy-out of private health care facilities $20
Total $394

Thus, according to Friedman’s analysis, the cost of expanding health coverage to everyone in America (i.e. eliminating uninsurance together with most out-of-pocket health care costs) along with various associated costs (e.g. reimbursing owners of for-profit health facilities and assisting newly unemployed insurance workers) would cost $394 billion annually ($51 billion of that would be for transitional costs, so would apply to the first year only).

So should we argue that single-payer “costs” $394 billion a year? No, we shouldn’t. Table 3, “Savings on provider administrative overhead and pharmaceutical costs,” details the various savings associated with a single-payer system. Direct governmental negotiation with pharmaceutical companies over drug prices would result in $115.9 billion savings annually. Reduced administrative expenditures (something I recently blogged about), would, according to Friedman’s numbers, save $476 billion a year.

In other words, at least according to this one study, overall savings under HR 676 would be $592 billion a year, while overall costs would be $394 billion a year. Here is Friedman’s pie chart, which I’ve redrawn:


Now, as Dayen argues, this makes sense: “The entire point of a single-payer health care plan, aside from covering everyone in the country,” he writes, “is to minimize costs, by reducing administrative bureaucracy, the profit motive and middlemen.” Exactly. But if savings > costs, where does the $15 trillion figure come from?

In a universal single-payer health care system, everyone would be covered; all current expenditures on health care would be replaced by taxes. As the WSJ admits, the “trade-off” for such new taxes would be that “employers would no longer have to pay for or arrange their workers’ insurance.” However, this is entirely inadequate. The following additional expenditures would likewise disappear entirely:

1) Employee contributions to their insurance premiums

2) Payments made for insurance premiums for those not covered by their employer.

3) Out-of-pocket expenditures (which are on the rise) on things like copayments, deductibles, and co-insurance

4) Payments for long-term care, which are today essentially uncovered for most (except for those in poverty, through Medicaid)

Yes, all of those payments would have to be replaced by taxes (see note 2 below).  But as Yglesias notes, “[i]f you financed it [single payer] with a broad-based payroll tax (the way Social Security is financed), people with job-based insurance plans wouldn’t even notice the difference — today’s insurance premium line on your pay stub would become a tax line.”

While payroll taxes are only one way to finance single-payer (and, as the 2003 PNHP proposal notes, progressive taxation would actually be fairer), the overall principle holds: replacing current health care expenditures with taxes would be relatively unobtrusive for most of us.

And in return for what is essentially a spending swap, we would have universal first-dollar health care for everyone in the nation. That seems, to me, to be a small price to pay.

Note: Edited for unfortunate name misspellings … Apologies!  Also, my initial figures for administrative (and total savings) were incorrect in the text, though they were correct in the pie chart; they have now been corrected. Finally, I’ve now clarified that of Friedman’s $394 billion per year in costs for health system improvement under single-payer, $51 billion would be for transitional costs which would apply for the first year only.

Note 2: How much would those payments be?  Although the $15 trillion figure is sourced in the WSJ article to Friedman’s study, the study that I linked to doesn’t mention that number. I’m assuming the figure combines the assumptions of the study with projected national health expenditures over the next ten years (figures noted by both Dayen and Yglesias), which are available from CMS here (NHE  Projections 2014-2024, Table 3 “National Health Expenditures By Source of Funds”).  Summing the projected national health expenditures for the years 2014 – 2023 gives us $4.14 trillion in projected out-of-pocket payments and $13.16 trillion for private health insurance.  Those sources of payment would need to be replaced with public funding. Doug Henwood also pointed to this data, and made a similar overall point, at LBO.   

Note 3: I’ve noticed that Gerald Friedman, the author of the study cited by the WSJ, has weighed in on the use of his analysis at the Huffington Post, available here.  He includes his 10-year projections, and confirms that approximately $15 trillion in new federal spending would be required under HR 676.  However, “…by spending these vast sums,” he writes, “we would, as a country, save nearly $5 trillion over ten years in reduced administrative waste, lower pharmaceutical and device prices, and by lowering the rate of medical inflation.”   The bottom line couldn’t be clearer.

CNN: Racial injustice still rife in health care

Racism mars the history of health care in America. For years, black patients were relegated to separate — and appallingly unequal — hospitals and wards. Many were simply denied medical attention, either “dumped” into the care of other facilities or turned away at the hospital door … An Op-Ed by me and Vijay Das of Public Citizen at CNN.com today.

Blog Post: Hayek and Healthcare Administrative Expenditures (not at all wonkish)

Would a single-payer national health program, at the end of the day, truly be sleeker and slimmer than our bloated and fragmented semi-private system? Not according to Dr. Michel Accad, who takes on this important single-payer talking point in his blog post posted last week on KevinMD, “Will single-payer really reduce administrative waste?”

Given that savings from reduced expenditures on billing and overhead are a core argument that single-payer advocates (myself among them) employ to advance our cause, the piece caught my eye. To quote the proposal of the Physicians’ Working Group for Single-Payer Insurance (of note, I’m active in the organization Physicians for a National Health Program, which was behind the proposal), published in JAMA in 2003:

Our multiplicity of insurers forces US hospitals to spend more than twice as much as Canadian hospitals on billing and administration; forces US physicians to spend vast amounts on billing; and nourishes a panoply of business consultants, coding software vendors, and other satellite business.

So had a new study been published demonstrating, contrary to all existing data, that private insurers somehow had lower administrative costs than Medicare? Had Canadian expenditures on healthcare administration somehow suddenly vaulted ahead of that of the United States?

No, neither had come to pass (not surprisingly). In fact, Dr. Accad doesn’t really deal with any of the literature about the administrative efficiency of different types of health care systems. Instead, he employs a “Hayekian perspective” to make the argument that central economic planning is inherently inferior to an atomized free market where individual economic actors buy and sell, rationally relying on their intimate knowledge of local market circumstances. “Only in a decentralized system,” he argues, “of decision making, where price fluctuations can adjust to the reality of needs and provisions, are major gluts and shortages avoided.” (i.e. no one knows the business of bread making better than the bread maker, etc. etc.).

Now on the one hand, it’s a bit quixotic to invoke the political philosophy of a neoliberal economist to argue against what is essentially empirical point, i.e. that the United States spends more on health care administration than nations that have a single-payer system.

For it clearly does. To review, one 2003 study published in the New England Journal of Medicine found that the US spent about three-times as much as Canada on health administration ($1,059 vs. $307 per capita, in 1999). More recently, a study published in Health Affairs found that the US had the highest hospital administrative costs among eight high-income nations (an astronomical 1.43% of GDP spent annually on hospital administration in the US, as compared to 0.41% in Canada).

Closer to home, Medicare – a single-payer-like system for older Americans – has an administrative overhead around 2%, as compared to the 13.6% in overhead and profits of privatized Medicare Advantage, which is run by private insurers.

I could quote my favored political philosophers here to counter Accad’s quotes from Hayek, but it’s really all beside the point. “The question,” as the Princeton health care economist Uwe E. Reinhardt put it in a post on the issue in New York Times, “is how long American health policy makers, and particularly the leaders of our private health insurance, can justify this enormous and costly administrative burden to the American people and to the harried providers of health care.”

To be fair, Dr. Accad makes a good point ridiculing the extraordinarily complex and “byzantine scheme of codification” used by Medicare (and followed by private insurers) for billing purposes. “[A] CPT code 99204-21 (new patient visit, E/M coding level 4, prolonged service) associated with ICD-9 code 786.50 (chest pain, unspecified),” he notes, “hardly conveys any real knowledge and cannot possibly be a basis on which relevant decisions can be made or value established.”

No, it can’t, but that’s not what such codes are used for: they’re used to determine reimbursement. But they don’t have to be – and that’s where the administrative savings come in.

Under a single payer system (as PNHP’s proposals describe), hospitals would receive a global lump sum budget to pay for all operating costs; there would be no need to monitor services used by individual patients, tabulate costs, or hire debt collectors. Indeed, hospital billing could largely be eliminated from the ledgers of hospital operating expenses.

Simplified fee schedules, capitation, or salaries – without bonuses or penalties for more or less health care use – would be used to reimburse providers in the outpatient sector. The name of the game would be “[s]implicity, simplicity, simplicity!”, as one prominent New Englander put it in his important defense of a national single-payer system, Walden.

I share what I sense is Dr. Accad’s bitterness at onerous documentation obligations. But a universal system would make much of that documentation irrelevant, and therefore unnecessary. It would therefore be a win both for practitioners and for the public (though it would admittedly be a loss for many others, including those who profit from the system’s inefficiency, e.g. the health insurance industry).

“Reducing administrative waste” may or no not be the heady revolutionary slogan that today’s millennial physician-activists are looking for, but it’s no less true for that – whatever the unrelated musings of Hayek or Henry David Thoreau.

Note: Updated to note that the “global lump sum budget” is described in PNHP’s proposals.   

Note 2: A version of this post has been published on KevinMD.com.

Blog Post: The Problem with “Narrow Networks”

In a viewpoint recently published online in the Journal of the American Medical Association entitled “Narrow Networks and the Affordable Care Act,” Haeder and colleagues take on the controversial issue of the so-called health insurance “narrow network,” and warn that “populism” and “rash decision making” may lead to government regulation of insurance networks which might, they argue, be  counterproductive.

First, by way of background: a “network” refers to the physicians and hospitals that are “included” in a particular insurance plan.  Going “out of network” is a perilous pursuit: patients and families can easily accrue thousands or tens of thousands of dollars of medical bills in an encounter with the medical system when outside of the network of physicians or hospitals covered by their insurance plan.

“Narrow network” plans mainly refer to insurance plans purchased on the Obamacare “exchanges” (or marketplaces).  In order to keep premiums down, insurers play hardball with providers: those requesting relatively high fee schedules can simply be excluded from the insurance plan.  As Haeder and colleagues put it:

These so-called narrow networks (plans offered to patients that include services of only a subset of all hospitals and physicians in a geographic area) often severely restrict the choices offered to consumers … Although only a small number of studies have assessed the networks in plans sold in insurance marketplaces, substantial evidence suggests that networks are often narrower in size when compared with commercial insurers’ networks.

Exclusion of particular hospital systems, however, has understandably made many people rather unhappy, and has generated substantial attention from the press.  An AP story from March 2014 headlined “Health law concerns for cancer centers” reported that “some [of] the nation’s best cancer hospitals are off-limits” to patients with some exchange insurance plans.  According to the AP survey, only 4 out of 19 of designated “comprehensive cancer centers” (which responded to the survey) reported that patients would “have access through all the insurance companies in their state exchange.”

Now on the one hand, it is entirely understandable why cancer patients – who have enough on their plates to begin with – would find complex exclusions from well-regarded cancer centers daunting, exhausting, unfair and unjust.

Within the logic of our current health care system, however, the use of network size to contain premiums makes complete sense.  That’s the essence of the “marketplace” concept: insurers vie with one another in the competitive milieu of the “exchange” so as to deliver the lowest possible premium to health care ‘consumers.’

For this reason, Haeder and colleagues accurately argue that limiting the ability of insurers to control network size would at the same time compromise their ability to contain costs.  However, they also urge that at the very least, insurers should be transparent about what providers are available in each plan. They moreover contend that limiting networks could also be used to exclude lower quality providers (evidence on this point, however, is very limited).

At the end of the day, however, we all want to go to the physicians, facilities, and hospitals of our choice.  And there is simply no reason that we can’t: “one big network” in the form of a national health program would make such a reasonable wish a reality.  Within the framework of the Affordable Care Act, however, provider exclusion remains a key cost containment tool (albeit of questionable overall efficacy) of the marketplaces.  It we want something better, then, we have to move beyond that framework.

Blog: Political Jostling Post King v. Burwell

Democrats may be overly optimistic in their hopes that a Supreme Court ruling against Obamacare subsidies in King v. Burwell would be an unambiguous political disaster for Republicans.

The absurd, widely ridiculed claim tweeted by Senator John Thune – which suggested that the Affordable Care Act was to blame for the (potential) loss of health insurance premiums subsidies for six million Americans – was admittedly far too crude to gain traction:


At the same time, as reported yesterday by Politico and the Associated Press, Congressional Republicans are already readying proposals that would provide for the temporary extension of insurance subsidies in case of a victory of the plaintiffs in King.  Such proposals, however, would simultaneously gut key Affordable Care provisions, like the individual and employer mandates.

These proposals would be unacceptable for Democrats, and indeed would presumably be vetoed by Obama if passed.  However, as noted by Greg Sargent at the Washington Post in May, this would then provide Republicans with a potentially potent political line: “Claim they offered a reasonable “compromise” designed to spare all those millions of people from getting thrown off of insurance, while lamenting that Obama refused to go along with it …”

All in all, some rather sordid scheming, given all the lives on the line.  From the perspective of the progressive health care agenda, however, strategizing how to move beyond the ACA in the months and years ahead is far more important than the post King political jostling.