Will a single payer health system save money for consumers?

Today the overseers of Social Security and Medicare reported that these programs are now closer to insolvency due to the recession and falling tax revenues.  Medicare is already pulling in less tax revenues than it pays out in benefits and will no longer be able to pay 100% of benefits in less than 8 years.  It seems that these programs would need to either increase tax rates or cut back benefits to be sustainable.  At the same time, many Americans are calling for single-payer healthcare, which means that the government alone would set up a health insurance system that pays all medical claims and negotiate rates with care providers.  Essentially, people are clamoring for universal healthcare, but how much would it cost?  Here are some of my thoughts on the issue.

First of all, I agree that healthcare expenses are  quite ridiculous in America.  If you ever get an itemized bill from a hospital where you were treated you would see that some small items such as bandaids are charged at exorbitant rates.  If you have adequate insurance from your workplace then the out of pocket expenses are not so bad.  For example, I will be paying $100 total for my upcoming delivery and hospital stay.  However, if you do not have good insurance having a baby could cost tens of thousands of dollars.  One of my friends said that a doctor was in her room for about half an hour while she was delivering her baby, and in the itemized bill she got the charge for that service was over $3000.  It is really no surprise to me that unexpected medical expenses are the number one cause of personal bankruptcy.

The biggest problem I see with the current system is that there is not much transparency in how much each hospital and care provider charges for various services.  Every care provider sets their own price for the uninsured and then another set of prices for each insurer they deal with.  There is pretty much no way for a consumer to get a decent discount without going through an insurer.  Basically, there is this extra layer of medical insurance consumers have to wade through.  Consumers are forced to shop between medical insurers, and not medical servicers and the priorities of medical insurers and medical servicers are vastly different.  Medical insurers do not want to pay for claims if they don’t have to, and so they have an incentive to reject applicants who need care the most.  As a result,medical insurance is prohibitively expensive for those with existing conditions or need constant care.

So what happens if the government takes over the healthcare system completely?  If that happens consumers will not have the choice of choosing between insurers and the government will have to negotiate prices with the care providers.  It would cut down a lot of overhead, but  it may not cost less than the current system for the individual consumer and here is why. Currently most people in America have some form of employment sponsored private insurance that costs very little out of pocket. Even without an employer, there are high deductible plans available with low premiums for most healthy people that individuals can choose from.   Some young healthy individuals even skip health insurance to save money because they have the choice to do so.    However, if we switch to a completely government based system it would be paid out of taxes, and there would be no choice but to pay it.   Currently Medicare is 2.9% of payroll, and it is not enough to insure just  the elderly and disabled.  It is estimated that Medicare taxes needs to be nearly 7% of payroll to be sustainable.  Just imagine if the program has to cover everyone in the United States and you will see that the tax may be well over 10% of someone’s pay.  Do you currently pay 10% of your yearly income on medical insurance?  I certainly don’t, and I think most people don’t.

I think a better way to healthcare reform is to let consumers have more transparency into the costs of services and allow a bit of comparison shopping.  I know how much it costs to fix my car, so why can’t I know how much it costs to remove a mole? It is possible that some people do not need insurance if they just want some basic preventive services that can be provided by care providers directly at reasonable rates provided that they stay healthy.   Insurers also shouldn’t be able to reject or price gouge patients based on existing conditions because everyone should get the care they need.  Perhaps universal healthcare could work here, but  many more relatively healthy people will have to pitch in much more money than before, and they won’t have a choice in the matter.  Once such a system is in place it would also be very difficult to remove, and it would only get more expensive as people live longer lives.

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