Monday, April 14, 2014

The problem with single payer

When President Obama was asked about why, during the debate about health care reform, he said "If you like your insurance you can keep it," he had an interesting response. He pointed out the fact that the status quo prior to reform was unacceptable, but that calls for things like single payer would be too disruptive. He took a middle ground that didn't upend the way all Americans get their health insurance - just those who's only choice was to buy it on the individual market.

You often hear the opposite when you talk to the proponents of single payer. Their claim is that the current system of private insurers is the problem and the least disruptive option would have been to insure everyone via something like Medicare for all.

Who's right? We're about to have a test case on that question. The entire country is in the midst of adjusting to Obamacare, so we're experiencing how disruptive that change will be. But there's one exception. The state of Vermont is currently working on putting together a single payer system. As Sarah Kliff recently wrote, its not as simple as it sounds.

In 2011, the Vermont legislature passed a law committing the state to single payer. But they left out one thing.
Now comes the big challenge: paying for it. Act 48 required Vermont to create a single-payer system by 2017. But the state hasn’t drafted a bill that spells out how to raise the approximately $2 billion a year Vermont needs to run the system. The state collects only $2.7 billion in tax revenue each year, so an additional $2 billion is a vexingly large sum to scrape together.
Its important to keep in mind that the $2 billion is already being spent for health insurance in Vermont. So its not necessarily "new" money that is needed for health care. Its that the government needs to find a way for the people spending it to send it to the state for single payer. That's the rub.

Other than government spending on health care via Medicare and Medicaid, health insurance costs are currently a patchwork of spending by employers and employees. The question becomes: how do you tax these entities in a way that covers the costs, is not disruptive to the economy and doesn't unduly burden anyone?

Four years after committing to single payer, Vermont's Governor Shumlin is still working on that.
"We haven’t figured this one out yet," Shumlin says. "Every time you think you have the answer, there are ten people who will point out the flaw with that particular answer. And they’re usually right."
When confronted with this question, the few single payer advocates who have actually addressed it suggest that we simply expand the payroll FICA tax that covers Medicare - which is paid by both employer and employee. That is certainly the most viable solution. But questions there abound as well. The portion of insurance currently covered by employers ranges from O% to 100%. Any fixed percentage payed in a FICA-like tax will result in employers/employees who line up as winners and losers. After that comes questions about how high the new tax will be and wrestling with the fact (at least for liberals) that FICA is the most regressive federal tax we pay.

So I've gone into the weeds with this one a bit. But its the kind of thing advocates of single payer need to wrestle with. Because when/if it ever becomes an actual option in the U.S., these are the political land mines that will blow up...immediately. That is what is happening in Vermont as we speak. Perhaps the best option is to simply watch and see how it goes there.

In the meantime - viva Obamacare!


  1. Perhaps the first step is to get business out of supplying health insurance to employees. What companies currently pay could be given to employees as a pay raise, then that money paid out to the current insurance company as a payroll deduction. Once that is completed, you transition from private insurance companies to the state insurance with necessary (and supposedly lower?) premiums.

    1. That wouldn't change the fact that those whose employers pay more of premiums continue to get more subsidy for insurance. Perhaps that's OK. But it would formalize the inequities currently built into the system we have now.

  2. In a sense, the employer contribution to health insurance is part of the employee "total" compensation. Of course, what normally happens now if an employer drops their health insurance coverage for their employees, they take that saved money as profit rather than bumping the employees salaries.

  3. When I was working in DC back in 2007, we wrestled with that question. How do you upsize a system designed for roughly 25-30% of the country to 100% without massive disruptions and layoffs. How long does it take to hire, train, find space for, design forms, procedures for such a different population, as well as purchasing the physical resources. This became even MORE necessary once the insurance companies indicated they may leave the market.

    How to pay the doctors and nurses until the system can be brought up to speed? How to keep Rick Scott style fraud from occurring while you are building the capacity to locate and investigate it?

    Best is expand the capacity slowly,


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