Friday, May 31, 2013

Single-Payer Health Care Is a Single Pain in the You-Know-What

I was looking at my Facebook feed yesterday, and I noticed that a former colleague of mine was kvetching about the current health care system in America. He said that there were too many lengthy and confusing policies, that there is over-administration, and that the current health care system is an overall waste of resources. At least with that, I can agree: the status quo, even with the infamous Obamacare in place, is inadequate. It was his conclusion that I found troubling, which was that in the name of simplicity and efficiency, we need to switch over to a single-payer health care system. In a single-payer health care system, there is a single entity, i.e., the government, that would collect all the health care-related fees and pay out on those health care costs.

My initial reaction was the following:  Whether it is the War on Drugs, Social Security, or something as seemingly innocuous as postal services, the government performs so many functions at a sub-standard level, and typically with unintended consequences that exacerbate the situation. Additionally, two major forms of health care spending in this country are currently Medicare and Medicaid, which is to say that the government already has interfered plenty in the health care decisions of the American people. Why would I relinquish the remainder of that control to an entity that already does such a bang-up job? Do I want to trust the government with an individual's personal life-and-death decisions?

Similar to previous blogging, it would be pointless, as well as aprioristic, to say "less government is better" without backing up my argument, so here we go:

A single-payer health care system grants the government a power that is known as, in economic terms, the power of monopsony (also known as the buyer's monopoly). The monopsonist has the power to dictate terms to its own suppliers, which in this case means that the government is able to mandate lower prices to health care providers than would take place in a competitive market. The plus side is that the artificial depression of prices allows for more providable services. However, like with any attempt at price controls, governmental distortions of this sort create unintended consequences. In this instance, the profit margins are diminished, which means that incentive to innovate in the health care market is also diminished. This would also mean that if doctors do not feel like they are being adequately paid, it will disincentivize people from entering the medical field.

Innovation is not the only factor diminished with a single-payer health care system. The overall economic welfare [in comparison to a competitive market] is also diminished. When the government sets the price below the competitive market level, the monopsony creates a price wedge that causes there to be too little of the good to be produced, thereby creating deadweight loss and subsequently reducing economic welfare (see diagram below).


One of the arguments that proponents of the single-payer health care system like to use is that there is no impediment to receiving health care in a timely fashion, and that choice in provider will not be an issue. However, that ends up not being the case. In order to keep costs from exploding, the monopsony has to decrease the quantity in services provided, as is illustrated above. In addition to decreasing the supply, the increased access causes an increase in demand for health care goods and services. As a result, waiting times for health care procedures increase, as can be observed in Canada and the United Kingdom. Such waiting times make it more difficult for patients to receive the required health care when they need it.
   
Since access to health care increases under the single-payer system, prices increase because this access causes increase in demand (i.e., "free-for-all" system). Another way to say this is that supply and demand are not static, and will thus cause decrease in supply and increase in demand. Proponents would like for us to believe that the administrative simplicity of a single-payer system helps offset costs, or even that the health care is "free." So why is it that even when adjusting for both inflation and population increases, health care costs for Canada (Canada Institute for Health Information, Table A.3.1.1) and the United Kingdom (Her Majesty's [HM] Treasury, Tables 1.4 and 9.11) have increased since their implementation of the single-payer system? Even Taiwan's single-payer system is under financial strain and has to borrow from banks.

It was Lenin who said that "medicine is the keystone of the arch of socialism." The last thing we need to do is diminish the American health care system by injecting further socialism into society and creating further dependency on government because as Cato Institute scholar Michael Tanner illustrates, the grass is not greener on the other side. As we already can observe with Obamacare, the ability to provide universal coverage is an arduous task, much too difficult for the government to pull off. If the government's health care expenditures are increasing over time (CBO, Figure 1.1) to the point where there are $38.6T in unfunded Medicare obligations (Medicare Trustee's Report, Table V.F2), why would I trust the same entity with more control over health care if the parts that the government already controls are being run into the ground? Insurance companies are hardly perfect, but at least if they run short of money to pay claims, they have a greater incentive to reform than the government does. The problem here is not that there is enough government, but that there is already too much government involved in health care. Is the American health care system imperfect? Yes, it is. Even so, when adjusting raw data to make it more standardized (i.e., something closer to an apples-to-apples comparison), our health care system is comparable to those of other developed countries. If we want to really improve health care in this country, we should treat health care like a good, instead of treating it as a right. Only when health care is treated like a good and opened up to a competitive health care market will we see the improvements in health care that we seek.

August 19, 2014 Addendum: In case you think that longer waiting lines under a single-payer is not a problem, take a look at this Fraser Institute publication.

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