Why Single Payer Would Control Costs

If we put aside the minutiae, the case for single-payer national health insurance is simple. Single-payer systems, such as Canada's, provide universal coverage at a fraction of the economic cost and have the same (or even better) health outcomes.

Because the overall economic costs are lower, the average person would save more money on premiums than they lose in higher taxes. In addition to the lower costs, because the insurance is delivered as a public entitlement, people would not lose coverage when they lose their job or when their income takes a dive. This means that the insurance actually functions the way it is supposed to: as seamless economic security against ill health.

Single-payer health insurance controls costs by, among other things, reducing administrative expenses, reducing unnecessary healthcare utilization, and reducing the prices paid for medical labor, devices, and drugs.

One of the skeptical takes on single-payer (rehashed most recently by Matt Yglesias at Vox) questions whether single-payer would actually control costs in the US. In particular, this take questions whether single-payer would reduce the prices paid for medical labor, devices, and drugs:

The problem, politically speaking, is that doctors and hospital administrators like money. When politicians try to take away their money, they complain and they lobby. And it turns out that most people have more confidence in doctors than they do in members of Congress, so not only does the lobbying cash count but the complaining is extremely effective.

On sufficiency, consider the case of prescription drugs. Medicare pays lower prices on virtually everything it buys than do private insurance plans. The big exception is prescription drugs, where Medicare is required by law to pay the open market rate. Lots of liberals (including Bernie Sanders) don't like this and have proposed changing it. But they haven't won the fight. And the case of Medicare's prescription drug program should be a cautionary tale to anyone who thinks adopting a single-payer model somehow automatically leads to cost savings.

Before discussing my issues with this argument, it's important to note what this argument does not say. It does not say that single-payer wouldn't reduce administrative expenses (estimated at hundreds of billions of savings per year). And it does not provide any reason why we should not prefer single-payer even if the rigging of the political system means you can't get unit costs down. After all, if outrageous unit costs are going to rob us blind either way, it's still the case that single-payer achieves universal seamless coverage at a lower cost (just not as low as we could get it).
 
More importantly, there is every reason to believe that single-payer would cut unit costs (i.e. prices of medical labor and drugs). Yglesias notes that Medicare has done precisely that for labor but says we should be skeptical because it has been politically prevented from doing that for drugs.
 
The problem with the Medicare drug example, however, is that the mechanism by which it pays unnecessarily high prices for drugs would not be available in a full-fledged single-payer system. Medicare is required right now to pay market rate for drugs, but under a competely single-payer system there would be no market rate for drugs. The same is true of medical labor as well. A single-payer system would completely destoy the market-rate peg, meaning that the government would have to affirmatively set the prices for everything.
 
It's true that, even when the market peg is destroyed, the government could affirmatively set the prices unnecessarily high. But, especially as the years passed, it's difficult to see why they would do so. The old market peg would become fainter and fainter over time. All the pricing board needs to do is grow prices at a slower rate than GDP for a while and you'll see the share of the national economy going to health care shrink back to a more normal developed-country level.
 
By requiring all price hikes to be covered by revenue and taxes (which is what single-payer would do), you make it institutionally harder for politicians to stomach. It's one thing to let unit costs go wildly out of control and have people pay for them in private premiums (often "paid" by their employer). It's another to intentionally set them unnecessarily high and then jack taxes or divert revenue to do so. That's not going to be as easy a sell, even if there will be some successful lobbying wins here and there. At the same time as the doctors are screaming in your ear for more pay, you'll have anti-tax and anti-spend groups screaming in your ear for keeping unit costs at a reasonable level.

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