Does a Single-Payor Health Care System Save Money?

Written by Samuel Metz, MD

Contrary to what talk show hosts may tell us, single-payor health care was not created by foreign socialists intent on destroying the fabric of our American free enterprise system. Henry J. Kaiser, an American capitalist watching his construction workers labor in the wilderness of the Pacific Northwest, had three innovative ideas (in reality, Sidney Garfield, the company physician, initiated these ideas)¹:

1. If he kept his employees healthy, they would be more productive and he would make more money.
2. If he kept his employees plus their families healthy, he could attract and keep productive employees and make more money.
3. If he paid physicians directly without an intervening insurance company, he could reduce his costs and make more money.

Kaiser (or rather Dr. Garfield plus Harold Hatch and Alonzo B. Ordway, other executives who worked for Kaiser) was correct on all counts. The Kaiser single-payor health care system (also known as “self-funded”) became the preferred health care model for almost every large American corporation plus all U.S. government programs. As of 2013, approximately 75 million Americans received care through private single-payor systems²and 107 million more through public single-payor systems.³ In both private and public populations, single-payor health care provides better care to more people for less money than private health insurance⁴—and that’s why single-payor programs are popular.

Single-Payor Efficiencies

Single-payor health care is built on a few simple but critical concepts. A community of families pools resources they would otherwise spend on insurance premiums and out-of-pocket health care expenses. They divert this money to a common fund, administered by their representatives and, sometimes, their providers. This common fund then provides the same benefits to all families. Physicians, hospitals, and clinics are paid directly, bypassing insurance companies.

Increasing the number of participating families, creating comprehensive benefits, and recruiting as many physicians as possible—all these strategies enhance the efficiency of this system.

Communities using single-payor health care include the employees of large American businesses (over 90% of employees of businesses with more than 5,000 workers use single payor),⁵ large geographic districts (e.g., each province in Canada uses its own discrete single-payor system) and entire nations (e.g., Sweden, Taiwan and Australia).⁶ Once a covered population exceeds 10,000 people, the efficiencies of single payor overwhelm that of private health insurance.

Those efficiencies are substantial. Of premiums paid to private insurance, for example, 20% are spent on administrative costs before paying physicians.^7,8 Of the money received from insurance companies each year, office-based American physicians spend, on average, $80,000—each—to collect from insurance companies.^9-11 And no wonder: This industry denies 30% of all first claims.¹²

In contrast, private single-payor systems pay less than 6% to administrative fees. Public systems pay even less—some as low as 1% (Taiwan).^13-16

Excessive spending on administration not only makes the U.S. health insurance industry unique in the world, it makes the American health care system the most expensive in the world. If the United States established a national single-payor system, we would recover $350 billion each year in unneeded administrative costs (some peer-reviewed estimates are higher).^17,18 The added cost of providing comprehensive care to everyone in the country, including those currently uninsured and underinsured, is $100 billion less—about $250 billion.¹⁹

In other words, changing from multiple private insurance companies to a nationwide single-payor system would provide better care to more people for less money than we pay now. A lot less.

Note that the single-payor concept does not attempt to save money by paying physicians less. The universal care plan in Vermont (now cancelled) would have expanded care to everyone in the state at lower cost without decreasing average physician income.²⁰ In fact, every one of the two dozen studies of single-payor health care in the United States, either nationwide or statewide, confirms that single-payor health care provides better care to more people for less money without decreasing average physician payment.²¹

But single payor does not solve all problems. Every health care system in the world, including our American private insurance industry and all single-payor systems, face increasing health care costs and a decreasing willingness of patients (and taxpayers) to pay for them. In addition to the considerable political challenges in instituting a single-payor system, the difficult decision of which benefits to offer and how to collect money to pay for them remains. The advantage, however unconsoling, offered by single-payor systems is that responsibility for these life-and-death decisions moves from insurance companies to patients and providers.

Single-payor health care is not alien, not experimental and not creeping illicitly across our national borders. Single payor was created, perfected and embraced by American businesses. It is a method of financing health care that redirects its massive administrative savings into expanded benefits for the 55% of Americans who currently get care through a private or public single-payor system.

Take a tip from “Uncle” Henry J. Kaiser: Single payor is as American as apple pie—and it’s better for your health.

Dr. Metz is a private practice anesthesiologist in Portland, Ore. He is a member of Physicians for a National Health Program (www.pnhp.org) and a founding member of Mad As Hell Doctors, both of which advocate for universal health care.

References

1. https://en.m.wikipedia.org/​wiki/​Kaiser_Permanente.
2. Chu R, Trapnell G. Study of the Administrative Costs and Actuarial Values of Small Health Plans, Small Business Research Summary no. 224. Washington, C.: Small Business Administration Office of Advocacy; January 2003.www.smallbusinessnotes.com/​pdf/​rs224tot.pdf.
3. Smith JC, Medalia C. Health insurance coverage in the United States: 2013. United States Census Bureau.census.gov/​content/​dam/​Census/​library/​publications/​2014/​demo/​p60-250.pdf.
4. Collins SR, Nuzum R, Rustgi S, et al. How health care reform can lower the costs of insurance administration. The Commonwealth Fund; July 2009.commonwealthfund.org/​Publications/​Issue-Briefs/​2009/​Jul/​How-Health-Care-Reform-Can-Lower-the-Costs-of-Insurance-Administration.aspx.
5. 2014 Employer Health Benefits Survey; Sept. 10, 2014.http://kff.org/​report-section/​ehbs-2014-summary-of-findings.
6. True cost—analyzing our economy, government policy, and society through the lens of cost-benefit.http://truecostblog.com/​2009/​08/​09/​countries-with-universal-healthcare-by-date.
7. Committee on Commerce, Science, and Transportation, Office of Oversight and Investigations, Majority Staff. Implementing health insurance reform: New medical loss ratio information for policymakers and consumers. Staff Report for Chairman Rockefeller, April 15, 2010, Table 1, page 4.pnhp.org/​news/​2010/​april/​implementing-health-insurance-reform-new-medical-loss-ratio-information-for-policymakers-and-consumers.
8. Herman B. UnitedHealth ends 2014 with sizable profits.Modern Healthcare. January 21, 2015. modernhealthcare.com/​article/​20150121/​NEWS/​150129988.
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11. Cutler DM, Ly DP. The (paper)work of medicine: understanding international medical costs.J Econ Perspect. 2011;25:3-25. http://pubs.aeaweb.org/​doi/​pdfplus/​10.1257/​jep.25.2.3.
12. Furhmans V. Fights over health claims spawn a new arms race.Wall Street Journal. February 14, 2007, p. A1. ppocheck.com/​fightsOverHealthClaims.htm.
13. Hartman M, Martin AB, Lassman D, et al. National health spending in 2013: growth slows, remains in step with the overall economy.Health Aff. 2015;34:150-160. http://content.healthaffairs.org/​content/​34/​1/​150.full.
14. Schoen C, Davis K, Collins Building blocks for reform: achieving universal coverage with private and public group health insurance.Health Aff. 2008;27:646-657. http://content.healthaffairs.org/​content/​27/​3/​646.full?sid=b11c111e-8740-40bd-ba18-b⁰⁸a2dc9a4.
15. Reinhardt U. Keeping health care afloat: the United States versus Canada.Milliken Institute Review. 2007;second quarter:36-43. princeton.edu/​~reinhard/​pdfs/​MILKEN%20REVIEW%20CANADA%20vs%20US.pdf.
17. Cheng T-M. Reflections on the 20th anniversary of Taiwan’s single-payer national health insurance system.Health Aff. 2015;34:502-510. http://content.healthaffairs.org/​content/​34/​3/​502.full.
18. Jiwani A, Himmelstein D, Woolhandler S, et al. Billing and insurance-related administrative costs in United States health care: synthesis of micro-costing evidence.BMC Health Serv Res. 2014;14:556. http://link.springer.com/​article/​10.1186/​s12913-014-0556-7.
19. Jiwani A, Himmelstein D, Woolhandler S, et al. High administrative costs: the authors reply.Health Aff. 2014;33:2081. Original article: Himmelstein DU, Jun M, Busse R, et al. A comparison of hospital administrative costs in eight nations: US costs exceed all others by far. Health Aff. 2014;33:1586-1594. http://content.healthaffairs.org/​content/​33/​9/​1586.abstract.
20. Institute for Health and Socio-Economic Policy. Single payer/Medicare for all: an economic stimulus plan for the nation. California Nurses Association. 2009.http://nurses.3cdn.net/​c6fb9a313be501086e_1vm6y1duy.pdf.
21. Hsiao WC, Knight AG, Kappel S, et al. What other states can learn from Vermont’s bold experiment: embracing a single-payer health care financing system.Health Aff. 2011;30:1232-1241. http://content.healthaffairs.org/​content/​30/​7/​1232.full?sid=56ce15de-c1b1-4dcf-8ffb-a7b3a09871b6.
22. Summary of State and National Single Payer Studies. Compiled by Samuel Metz, November 1, 2012.samuelmetz.com/​reference/​121101summary.htm. See also www.pnhp.org/​facts/​single-payer-system-cost.