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    Greg and Beth

    the political and personal musings of two
    mountaineers living in west-central Florida
     
    Single Payer Healthcare Comment
    Nick, 8/6/09 10:09:49 am
    Warning: Long Post

    Two notes before I begin:
    1. I'm still working on adding and revising, so if this seems at times a little awkward or incoherent, that is why.
    2. I'm not saying the proposed healthcare overhaul being discussed in Congress is a single payer system, as I haven't read the bill, if there is a completed formal bill yet. I only intend to discuss a term that has come into fashion of late that I find a bit odd and somewhat impractical.

    That said: Here goes!

    Healthcare reform is now talked to death. But in order for me to make a point that most don't bother with (because their partisan bickering gets in the way), I must proceed to beat a dead horse (both with a different stick than most and more thoroughly).

    A term that has recently come into vogue is "single-payer health insurance." The term, much like the also-in-vogue "democratic socialism" means several things to several people, all of which are ideologic and many of which are contradictory or poorly (if at all) analyzed.

    I will need to briefly discuss what a single payer system is and as it will be brief, readers will need to excuse the lack of nuance in said brief description.

    From wikipedia: "Single-payer health care is a term used in the United States to describe the payment of doctors, hospitals, and other health care providers from a single fund."

    So, what single payer health care is is a system under which costs to individuals (read: payments to doctors, hospitals, etc.) are dispersed among the group (read: a single fund). Proponents suggest that in doing so, this single fund could bring down costs by having the government (read: single fund, with sole buying power) negotiate prices of said costs downward. For a more detailed discussion of this idea, see monopsony (look up monopsony anywhere you like).

    I do not intend here to discuss monopsony and its potential deadweight losses and other technical inefficiencies associated with for-profit businesses. What I intend to discuss is something more broad, but something also more pertinent to monopsony in the hands of politics (in a non-profit organization such as the government).

    First, a note. It seems by definition there is little difference between a government single payer system and a private insurance system, with the exception of two points (the first of which I think of as minor and the second as fundamental). The first is the scale or the lens through which one looks. To suggest a single payer system is different is to merely look under a different lens of magnification. Under the, say, 10x lens we see ten insurance providers. Under the 100x lens, we see one insurance provider. Under the 100x lens, the insurance provider is pooling money from dispersed individuals (read: a single fund) to pay out the costs to an individual(s) (in other words, under the smaller scale each insurer is something of a monopsony or single payer). Under the 10x lens, we see ten insurance providers, each pooling money from those dispersed individuals under their sphere of influence to pay to those private individuals within their influence (in other words, we can see 10 different local single payers). Under the 1x lens, or the naked eye, we see a hundred local single payers. The second difference relates to how contract disputes are worked out and is discussed below.

    Government has several uses, one of which is to be a disinterested (government disinterest can be disputed, see works on political economy and rent-seeking behavior in politics, but for the purposes of this argument a third party interested or disinterested works almost as well) third-party arbiter of contractual disputes. Private health insurance is a nothing more than a contract between an individual and the provider for the provider to pay for certain medical treatments, given compliance by the individual (Of course, the current US system is distorted by the fact that law enhances an employer's position to provide health insurance to the individual employee; to be discussed later). Under a system of private healthcare insurance, government acts as an arbiter of contractual disputes. If the provider refuses care promised by contract to the individual, government has the authority to enforce the contract (in other words, government courts can make the insurer pay out to the insured). If the individual fails to in some way meet their obligations under the contract, either by failing to pay the agreed amount or some other failure to meet the terms of the agreement, government has the authority to side with the insurer's refusal to pay out to the individual. In other words, contract disputes are resolved at the individual level.

    On the other hand, assuming a single payer system (either government as a single payer or a private entity, effectively controlled by government, as a single payer), contract disputes no longer have a third party to arbitrate. The government, which under a private system was the arbiter, now finds itself both the arbiter and the insurer. To whom does one redress their grievances when the insurer fails to uphold its contract? Under the social contract, one has two options: vote in the ballot box or vote with one's feet. In other words, if a contract is broken by the "single payer," you can vote out your representative or you can leave the country. In either case, the cost of arbitrating a contract dispute is very high. While an initial claim of breach of contract can go entirely unresolved without a third party to arbitrate, one's best options are to resort to politics, which requires one get the majority of opinion to agree either in the next election or by lobbying a majority of representatives. In other words, contract disputes, if resolved at all, are at the group level.

    When it is suggested that a single payer system is drastically different from a private system, these are the two differences in a theoretical sense. So I consider a public, non-competing single payer versus private, competing single payers. Remember, they both pool money from a group and pay out to individuals, just on different scales.

    Much focus in common debate regards practical differences. Since that's a little more interesting to most, I will move on to the practicality of a single payer insurance system.

    There are two conflicting problems any system will face (these are the same for economic systems). The first is how to collect and interpret dispersed information. The second is how to provide incentives.

    In terms of collecting and interpreting dispersed information. In a market, prices (exchange ratios) perform this task. In healthcare it is the same, but for specificity's sake, the particular information a healthcare provider needs is who will receive service and how much are their costs.

    Private, competing single payers solve the question of who receives care by determining who has paid for care and what are the terms of the contract with the individual who is paying for the care. Costs in private, competing single payers are determined by contracts with doctors, pharmacies, and other actual providers of healthcare. To reduce these costs, private, competing single payers negotiate contracts with these providers and write policy contracts with individual care receivers.

    For a public, non-competing single payer, who receives care is ultimately decided through politics. What then are the political questions to be answered? First, the idea of public healthcare is to create healthcare opportunities for the 20-50 million without health insurance. Second, costs are a consideration; How can a public, non-competing single payer afford the care it needs to provide to all citizens? How can system-wide costs be reduced?

    How does a democratic political system determine who will receive care? By vote-seeking. If the idea is to see that everyone has care, how can a vote-seeker refuse care to people in their district? It may be possible in a political system to refuse care, but unlikely when the goal is to maximize votes. If care is refused a public, non-competing single payer is little different from private, competing single payers in that there are still x number of people not receiving care.

    What are the costs to a public single payer and how are they reduced? Like private, competing single payers, a public one would negotiate contracts with healthcare providers. The argument goes that they would have more influence to decrease prices as the only purchaser (again, see monopsony). In a competitive monopsony, this would to an extent be true. However, in a competitive environment, a monopsony has market incentives to do so (threat of competition, decreased costs means increased profit margins, and others). In a non-competitive environment, instead of market signals providing incentives, politics, or the market for votes (elective votes can be seen as more or less costless, especially when compared to the voting form of an individual choosing a health insurance provider), create incentives for a monopsony.

    These two points lead me to question 1 (or call it my first doubt) about the practicality of a public, non-competing single payer: At once, no one can be refused care and total cost must decrease.

    [Comments are closed after a month.]

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