Column: Here’s Why a Single-Payer System Won’t Save U.S. Health CareSW

A few weeks back, I wrote a commentary on Vermont’s adventures in single-payer health care (“Vermont Single-Payer: Show Me the Money,” April 17).

“So this is going to be expensive. So expensive that I doubt Vermont is actually going to go forward with it,” I concluded. “This should be instructive for those who hope — or fear — that Obamacare has all been an elaborate preliminary to a nationwide single-payer system. It isn’t. The politics are impossible, and even if they weren’t, the financing would be unthinkable.”

I was inundated by complaints from proponents of more government intervention in the health-care system. Permit me to summarize the many individual exchanges I had with these interlocutors.

“Why are you ignoring all the evidence that single-payer works?” they demanded. “If single-payer is so expensive, how come America spends twice as much as civilized nations, for worse outcomes?”

Let’s start with where the proponents re right. The U.S. spends a lot more on health care than, well, anyone else. There is indeed a strong, though not perfect, correlation between how rich a country is and how much it spends on health care. But that alone can’t explain why we spend so much.

The implication that many people draw from this is that the U.S. could realize fabulous savings from switching to a government-run health-insurance system.

Well, let’s think about the general theories of why government makes health care cheaper. The first idea is that you get big discounts for buying in bulk. Because governments cover a lot of people, they can negotiate the best prices, which can’t be matched in America’s fragmented market.

The problem is that U.S. health insurers already buy in bulk. They cover more people than many of the countries cited as cost-control models for the U.S. Furthermore, we already have a public option; in fact, we have several. And Medicare doesn’t control costs noticeably better than the private sector does. Prices are set the way that other governments set them — by a centralized committee. And they’re set high, because seniors vote and politicans are reluctant to tinker with reimbursements.

There are two potential outcomes for a “public option” health insurer: It could set rates high, in which case it wouldn’t control costs, or it could jam them down to Medicaid levels, in which case no one but the very healthy or the very desperate would buy that insurance.

That brings us to the most sophisticated version of the argument: that we can use monopoly power to bring our health-care spending in line with that of other countries. As long as there is private-sector competition, the argument goes, prices will stay high, because doctors can refuse to accept government reimbursement. But if the government is the single provider of health care (or at least, the single price-setter), then we can drive down reimbursements and drug prices to something approaching European levels.

What you don’t see is any government cutting health spending by any significant amount. Oh, Germany managed, once. Canada kept it level for a while. But no one has cut by anything like 35 percent or 40 percent — which is what we’d need to get our spending in line with Canada’s. When you dig into the Organization for Economic Cooperation and Development data, you don’t see any government, anywhere, making sustained cutbacks in the health-care system, except for Greece, which cut back substantially in the middle of an economic meltdown and a sustained run on its government debt. Absent the impetus that a whopping financial crisis provides, at best, you see them hold down cost growth.

Holding down growth rates is feasible, but cutting spending is absurdly difficult because it means cutting people’s incomes. Incomes that they counted on to help make their mortgages and car payments. Maybe you don’t feel so bad for rich surgeons who have to sell the BMW, and I don’t, either. But America’s cost inflation is not just about fancy surgeons. It’s everything: surgeons, general practitioners, nurses, respiratory technicians, private hospital rooms, MRIs, CT scanners — and I haven’t even gotten to drug prices.

We might be able to hold down future costs, but there is no evidence that we can cut existing costs to the level of those European nations that single-payer advocates like to cite. In fact, I’d say there’s quite a bit of evidence to the contrary.

Well, that’s something, isn’t it? Let’s get a government system in there, get our cost growth down to the level of other OECD countries instead of the insane rates that our inefficient private system produces. Eventually, as the economy grows, health care will shrink relatively, if not absolutely, and the proportion of national income that Americans spend on health care will come to resemble that of the rest of the world.

Here’s the problem: We are not a nation that has a cost-growth problem; we’re a nation that used to have a cost-growth problem, in the 1970s and 1980s. That is why we cannot count on financing single-payer with the fabulous cost savings to be gained by making our system more like Europe’s. Europe didn’t gain fabulous cost savings. Nations with single-payer started from a lower base, and held down cost growth, but they did not actually use single-payer systems to cut what they were spending.

Once spending is in the system, it’s hard to get rid of. I’ve already covered the political difficulties with using government power to take income away. But those aren’t the only problems. For example, in the middle of the last century, the U.S. decided that private or at most two-person rooms were best, because they made it easier to control infection and to let patients rest. For decades, we built hospitals to this standard. Private rooms drive up costs in a lot of ways: They take up more space, you have to duplicate equipment, and because the nurses can’t see the patients, you need more monitors and/or staff circulating. Basic hospital rooms in many other countries look spartan and overcrowded compared with what most Americans are used to, because they have more people and fewer beeping machines.

But even if we got a single-payer system tomorrow, we would not be able to do what those other countries have done, which is not build expensive single hospital rooms in the first place. Those hospitals were built over time, as funds became available and as the old buildings wore out. Trying to replace them all at once with semi-private rooms or wards would cost more than just sucking up the extra expense of the hospitals we have.

Of course, there are ways in which single-payer might be better. Whether the strengths outweigh the weaknesses is an argument best left for another day.

I’ll finish by reiterating the point I made at the outset: The financing is impossible, in part because the politics is impossible. And the politics is impossible in part because the financial hit would be too big. Single-payer would have to be paid for at the extremely high prices that Americans pay, not the lower European prices that we’d rather have. And when you look at the taxes needed to finance a government takeover, you quickly realize that most people just aren’t willing to pay the price.

Megan McArdle writes for Bloomberg News.