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Friday, August 10, 2018

Single Payer Health Care: The Theory

Democrats are getting ready to push single-payer health care as their big issue in 2020. They will make the presidential election a national referendum on killing off the remainders of a private health-care system that has given Americans access to the world's best medical services.

In this article I will discuss the theoretical aspects of single-payer health care. In a follow-up piece next week I will work through the evidence suggesting that America would be making the mistake of a century if we allowed the last parts of our private health care system to be wiped away by an all-out government system.

I grew up under the Swedish health care system. It is completely run by government; the private system was killed off by the heavy government hand back in the 1950s. Government regulates everything, from what doctor you can see to what surgery you can receive or what medications you can get prescription for.

By the same token, government decides how long you must wait to see a doctor, when you can be denied surgery and when it is not worth spending taxpayers' money on a medicine for you. These rationing measures are a reality in countries with single-payer systems, and they lead to death and suffering that, in many cases, would not be tolerated here in America.

Personally, I have experienced how the difference between a single-payer system and the U.S. private-based model can be the difference between, on the one hand, suffering and possibly death and, on the other hand, timely access to world-class medical services.

However, personal anecdotes are not what makes the difference here. The theoretical aspect of single-payer health care (again leaving the empirical part to a sequel) is instead a matter of understanding how a government-run health care system operates compared to a private one. That is what we are going to look at today.

First and foremost, the discussion has to focus on the appropriate systems. Proponents of government-run health care like to compare a theoretical ideal they have concocted with the reality of today's over-regulated, semi-private American system. This is like comparing a perfectly fresh apple with a half-rotten orange and conclude that apples are always fresh while oranges are always bad.

The appropriate comparison is between two ideals - the theoretically best single-payer system and the theoretically best free-market system - followed by a similar comparison of existing systems. The theoretical comparison provides the map, so to speak, for the comparison of observable systems, hence the discussion of theory precedes the empirical analysis.

Like all health care systems, government involvement in health care consists of two parts: financing and provision. The financing part includes, but it not limited to, health insurance. Provision, of course, is about actually producing - providing - health care.

There are three steps of involvement:

1) Selective coverage. This type of involvement is restricted to the insurance side This is the kind of government-run health care we have in America today. We have selective systems for the elderly (Medicare), low income families (Medicaid) and veterans (VA). In two cases, Medicare and Medicaid, government is restricted to financing only; the VA system includes both financing and provision, de facto making it a microcosm of a single-payer system.

2) Universal coverage. In this step, government pays for everyone's health care - sometimes referred to as "Medicare for all" - but the provision of health care is still in private hands. Since government pays for all health care, it also decides the total budget that is supposed to give all Americans all the health care they need. Thereby, government also becomes the final authority on what health care we need; what government does not want to pay for, nobody can get. Likewise, government sets the price of health care services.

3) Single-payer health care. In addition to universal coverage, this system also transfers ownership of all health care providers to government. Every health care professional will be an employee of the federal government. Those who want single-payer health care and call it "Medicare for all" should really be talking about "VA for all".

In the third step, there is no longer any private health insurance and no private health care providers. Furthermore, private payment of health care is banned; just as you cannot pay an IRS employee to process your tax return, you cannot pay the government-employed doctor for his services. This has two consequences for the provision of health care, the first of which is that the federal government will create a separate agency that will run the entire American health care system. The next article will discuss the budget for a single-payer system; for now, it is worth noting that this agency would be not only the largest government agency in the United States, but likely the largest government bureaucracy in the world.

The second consequence for health care provision is that all decisions on health care, except the diagnosis of actual health care conditions, will be governed by the new federal health care agency. Since every part of health care is paid for by this agency, it also has to decide what health care professionals can do for their patients within that budget - and what they cannot do. These decisions will be based on three economic factors:

a) Demography and population density. Government will decide how large a population there should be for every health care professional. For example - to use a random number - there can be one primary-care health care clinic per 20,000 residents. If population increases in an area, government will assign more health care professionals; if population drops, government will budget for fewer providers.

Demographic and density considerations guide the provision of government-run health care for the simple reason that the provider network should be as equitable as possible. You should have the same access to care, in demographic terms, if you live in The Bronx as if you live in Alaska. A doctor should have the same amount of patients, thus be able to spend the same amount of time on each patient.

That rural areas require more travel to get to the doctor is a fact that not even government planners can do anything about.

It is important to understand the dynamics of demographic budgeting. When population grows, government assigns more health care providers to the growing area; by the same token, when population decreases, health care clinics may close. If an area loses enough population to fall below the threshold for certain providers, the people who live in that area will have to travel farther to see a doctor.

This budgeting mechanism also works for hospitals. Full-service hospitals that provide emergency, intensive, natal and pre-natal, and surgical medical services, cover a minimum demographic area to be fiscally relevant. If that area grows in population, so will the hospital; if population declines below the demographic threshold, the hospital will close.

b) Effectiveness of care. The main instrument for deciding whether or not a certain health-care procedure is effective is known as Quality Adjusted Life Years, QALY. As I explain in chapter 5 of my book The Rise of Big Government: How Egalitarianism Conquered America, this instrument weighs the expected improvement in a patient's health against the cost of providing the patient with health care.

In order to make QALY work, government needs a metric that can compare the health care improvement a patient experiences, to the cost of the health care needed. That metric has to convert the patient's experience - a subjective variable - into a monetary unit - an objective variable. This is a classic problem in every system where government provides for people's needs; for the most part, it has never become a tangible issue in American politics. Government has not yet become large enough to have widespread effects on the lives of the people it provides for.

The QALY method is developed primarily for government-provided health care, where it comes into play as a cost management instrument. In order to make it work as intended, government needs to convert the subjective experience of health care improvement into a monetary amount that can be placed next to the money that government spends on curing the patient. That monetary amount is related to the improvement in a person's productive life resulting directly from the improvement in health.

Productive life, in turn, can be either his or her increased income, or the tax revenue he or she will be paying over the expected remainder of her life. Regardless of which metric is used, the point is now to compare that improvement for the patient against the cost of the medical procedure he or she is in need of. If the improvement exceeds the cost, the patient will be cleared for treatment; if the improvement does not exceed the cost, the patient will be denied the procedure.

There are also inter-patient QALY comparisons. Since government has a limited budget for health care, there will be situations where two patients will compete for the same procedure. In order to decide who will get treatment first, government would calculate the QALY-estimated benefits for each patient and give priority to he or she whose estimated benefits yield the biggest surplus over cost.

c) The federal government budget. A single-payer system can be paid for either out of general tax revenue, or through a dedicated health-care tax. In the latter case, the budget would be tied to whatever revenue the tax would bring in, but spending would be severed from spending on any other item in the budget. In the former case, there would be priority competition between health care and other budget items, such as defense, help to low-income families, infrastructure spending and education funding.

Governments in countries with single-payer health care have typically maxed out their taxation ability. This means, simply, that all the cost-containment instruments they can apply will be used actively and regularly. As I explain in my aforementioned book, this includes measures that will let government make life-or-death decisions, such as but not limited to:

-Euthanasia for elderly patients, either actively or passively. The passive form means, for example, that no patients over the age of 75 get cancer treatment or other life-saving treatment. 
-Refusal of treatment for babies and children with certain disabilities or diseases. This means, for example, letting children who are deemed unable to live a productive life, starve to death in hospitals.
-Encouragement of abortions of babies with certain conditions. This openly eugenic practice of abortions is directly tied to the need to keep health care costs in check under a single-payer system. 

One reason why single-payer countries appear to have a lower degree of infant mortality than the United States is that government agencies in those countries encourage or mandate abortions and refusal of care in order to to deny babies with certain imperfections or diseases the chance to live. When certain disabilities keep individuals from living as independently as people without disabilities can, there is a cost involved for government. Therefore, government takes it upon itself to decide whether or not it wants to spend that money. If the decision is negative, government can also decide to discard the individual in order to keep its health care costs in check.

In an article next week we will look at how these systems work in practice. 

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