Lessons from Other Countries: Single-Payer and “All-Payer” Rule!

I was going to write a long series of posts as a run-up to policy recommendations by carefully examining the nature of health care and its relationship to health in general, to review economic theories of health care and health care finance, etc.  But time and events are racing ahead of my wish to be as systematic as possible.  Also the the passing of Teddy Kennedy makes pressing on with health reform at this point in time symbolic.

I am hoping that Ted Kennedy's will and spirit to improve access to healthcare in the US will endure more than the specifics of his latest policy proposals. The Senate HELP committee's proposal, as are most other proposals in Congress, is not based on the realities of designing a universal health care access system, about which we can learn so much from other industrialized countries.

Instead, like many health policy advocates of whom I am critical, I am going to offer an endorsement a set of policies prior to laying the groundwork for that policy recommendation.  These two models of policy have become the standard ways to reimburse, to guarantee access and to control costs in healthcare in various countries around the world.  I would prefer to first establish, in a leisurely run-up, the scientific and analytic context for why these are the stable forms of universal healthcare in industrial democracies but will have to explore these issues later on.

For what it’s worth, I am endorsing two existing models of health (finance) design because, unlike most of the proposals that are being considered by the Administration and the Congressional leadership currently, these systems already have a long track record in other countries in providing universal or near-universal access to health care at affordable rates for the population, in providing a level of care equivalent to or better than that already enjoyed by the American middle class, and providing this care at an overall social cost well below our current health care spending.  We also already have the a very large instance of one of the systems in the US, so at least one is not totally “foreign” to us.  We may not reproduce exactly these results if we adopted these systems in total but it is quite foolish for us to look away from the mechanisms that actually work.

Single-Payer Systems

Single-payer is a system where there is a single health insurer, usually a government agency or an independent authority mandated and funded by the government either on a regional or a national level.   Single-payer is a not very attractive label and, in the US context, should be called something like “Medicare for all”.  The government may have excluded private insurance entirely from the market or it might cover all basic insurance needs while health care system users able to buy optional private plans to supplement.  The single payer is usually funded by a combination of premium payments and tax dollars with the assumption that the richer in society pay a portion of the costs for the poorer members of society (or in the case of the truly indigent, all the costs).  A single-payer system is by definition non-profit.

In a single-payer system, health care itself is delivered by private, public and non-profit entities that are reimbursed by the single-payer.  The payments in a single payer system can be standardized a number of different ways depending on how the single payer law has been structured: some may be paid on a fee for service basis while others may be paid a capitation fee (by the number of people for which they may be responsible).  Amounts for these payments have been determined by national or regional contracts, which are the result of negotiations between providers and the single payer/government.  Medicare is a single-payer system in the US for seniors only, where providers are reimbursed on a fee for service basis.

Tommy Douglas, a Baptist minister and the one-time Premier of Saskatchewan, was voted the "Greatest Canadian" in 2004, in part because of his key role in creating Canada's single-payer health insurance system. The slogan of his left of center Cooperative Commonwealth Federation that later became part of the current New Democratic Party, was "Humanity First". Instituting either a single-payer or an all-payer system requires a similar ethic of putting sustaining human life during times of illness before private material gain in the fundamental design of a health care finance system.

While to conservatives in the US, a single payer system (that is not Medicare) may seem radical, single-payer systems are not socialized medicine, i.e. public ownership of healthcare delivery itself.   In socialized medicine, the government actually owns most of the clinics and hospitals.  The most famous example of a socialized medical system is the British National Health Service.  Italy, Spain, and some Scandinavian countries also have substantial government-run health services.  The Veterans Administration system in the US is socialized medicine.  By contrast, in a single payer system, clinics and doctors are independent economic entities as they are in the US, though they mostly deal with just one insurance company, the single payer.  Socialized medical systems tend to be even less expensive than single payer systems though, on international comparison, single payer systems generally have higher patient satisfaction ratings.  However, recently, in response to the inflated claims of the cruelty and inefficiency of socialized medicine by US conservatives, Britons have been provoked into defending their NHS, which a vast majority would not trade for the US system.

Canada, Australia, and Taiwan all have single payer systems which have been instituted within the last 40 years.

Less often discussed but equally important is that, relative to the US healthcare status quo, single payer represents a philosophical turn towards a health care system and industry that subordinates the search for profits to healthcare as a social commitment, the financial accessibility of healthcare and the containment of its costs.  A single-payer system banishes profit from basic health insurance coverage and puts the profit-seeking of providers, and drug and device makers directly in negotiation with the government’s health budgets.  The system-wide cost savings from single-payer come in part from the confrontation between people’s wants for care with the budgetary limitations of government;  a richer package of benefits means more taxes.  Still single-payer has not “solved” the question of how to control costs in the face of ever more sophisticated and expensive treatments for illnesses both bothersome and life-threatening.

For physicians who are primarily concerned with helping patients this would be, depending on the design of the single-payer system, a relief.  For other American physicians, who have designed their careers and practices around profit-maximization or princely compensation, single-payer or other thorough-going reform represents a challenge.

All-payer Systems

A less well-known designation than single-payer is an “all-payer” system, which is a label known to various health care wonks and few others.  ”All-payer” systems are diverse but usually consist of highly regulated independent insurers that all offer a standard basic universal medical plan, determined in its coverages and cost by law, as well as additional plans that are supplementary to that basic plan.  The key to all-payer systems is the standardization of provider reimbursement schedules between all insurers, allowing all-payer to achieve almost the same level of efficiency as single-payer.  Furthermore, in all existing all-payer systems there is system-wide risk pooling on the level of basic insurance:  if higher risk patients are concentrated in one insurer or area than another, there is a balancing of revenues between all the insurers in the system.  All-payer systems are considerably more complex than single payer systems.

The largest "sickness fund" in the German all-payer system is the 125-year-old Allgemeine Ortskrankenkasse or AOK, which provides a third of Germany with the mandated basic health care package. In Germany, basic health insurance is an entirely different "market" than other types of insurance, including supplementary and optional health insurance, which are provided by for-profit insurance companies. In an all-payer system, non-profit organizations like AOK still market themselves to maintain and grow their base of insureds, in this case AOK attracting clientele by branding itself the "Health Fund", a reversal of the generic "sickness fund" label.

All-payer offers more potential for small differences in branding and also suggests more explicitly than single-payer that on top of basic coverage will be various supplementary plans that may offer insureds different or better services that are not part of the mandated package.  All-payer also does not necessarily exclude profit making in the insurance industry though most all-payer systems abroad regulate non-profit insurers for basic health insurance coverage provision.  However, unlike the proposals currently considered in the US Congress that involve the regulation of insurers, none remotely resemble the structure of all-payer systems, within which independent insurers are in the area of basic insurance basically delivery vehicles for a government-structured insurance package.

All-payer, which is a fairly uncommon term, is actually a much older type of system than single-payer systems, which are are at most 40 years old.   In general, all-payer systems are built piece by piece as various groups are brought into the mandated insurance system, so do not stem as often from a single government health care bill or a grand policy strategy, as can single-payer.

The first legally mandated health care system which became an all-payer system, the non-profit German Krankenkassen, were instituted by Bismarck and Kaiser Wilhelm I in 1881, as a response to a rising workers’ movement and the Social Democratic Party.  Gradually in Germany over a almost a century, various social groups were brought into the mandated system, which covers all residents of Germany since the 1970′s.  In Germany now there is a basic mandated public insurance offered by a slew of non-profit Krankenkassen, as well as private insurance that offers more deluxe accommodations, greater choice of providers, and priority for certain elective procedures.

The French all-payer system, which is closer to single payer than the German system, has multiple non-profit insurers which ultimately receive most of their revenue via taxes.  The Dutch had prior to 2006 more of a combination of a socialized and single-payer system but in 2006, however, decided to go more towards an all-payer system, though it might be considered it’s own hybrid between a single payer and socialized long-term care system and a competitive but subsidized and risk-equalized market for basic insurance and “curative” medicine.  The Dutch system is attempting to harness the competitive pressures of a market to cut costs and also improve access to some of the costlier procedures, for which in the previous system there had been long waiting lists.  It is still too early to use the Dutch system as a model as it only in its 3rd year of existence.

All-payer, like single payer, is not just a technical payment mechanism but represents relative to the US standard, a subordination of profit-seeking to universal access and affordability both to individuals and to the society as a whole.  Profits may not be entirely banished from the provision of basic insurance (though often are) but throughout the system are constrained by government’s ultimate authority in defining a basic package, equalizing risk between insurers and price-setting for products and procedures.   Relative to single-payer, there is in the looser design of an all-payer system more “niches” available for potential profit-seeking by insurers, but physicians, for instance, may actually see lower (though still substantially above average) income in an all-payer system (Japan and France) than in single payer (Canada).

Commonalities between All-Payer and Single-Payer

Both single-payer and all-payer have standardized rate structures and both have a basic, mandated minimum package.  Both also require that the government establish a framework within which health care is a right, carrying basic non-profit insurance is a responsibility, and coverage therefore is universal.  If private health insurers are allowed to operate in the market, in both all-payer and single-payer they must take a backseat to the requirements that an affordable basic insurance plan be made available to all.

Both all-payer and single-payer, relative to either the current US situation or the leading proposals, make the organizational interests of health insurers, including where allowed profit, secondary to the financing and delivery of care.  Most all-payer systems like single payer, exclude profit from the business of basic but not supplementary health insurance.  Both all-payer and single-payer are departures from the idea that it is always best that markets determine the prices of goods and services (though the Dutch system is attempting to apply markets to a portion of the basic insurance premium market).

Both all-payer and single-payer are universal systems and do not create a second-class policy for the poor, like Medicaid; both enable subsidies to be distributed to the poorest and to the middle-classes without differentiating the care that they get.  Both, from the point of view of individuals, remove the “stochastic” or luck-driven element of being able to pay for healthcare coverage and reduce that element in health outcomes if one’s illness is amenable to treatment.  In both single-payer and all-payer, if compensation is designed appropriately, physicians should be able to focus on patient care and very little upon billing, allowing many small medical offices to go without any non-medical staff at all.

Differences between Single-Payer and All-Payer

Single-payer is by its nature a government-run or publicly-run insurer as is U.S. Medicare.  All-payer might include public insurers in the mix but the primary role of government is as regulator, risk-equalizer, and guarantor of the pool of health insurers, not the purveyor of insurance itself.  In single-payer, providers need to negotiate directly with the government for changes in the rate structure. In all-payer, rate and payment negotiations include government, health care providers, and a third party, the non-profit or for-profit insurers who may turn either to the government or to providers to reduce, raise or restructure rates.  Single payer is generally easier for patients and doctors because most transactions are covered through the single-payer system.

From the perspective of convinced single-payer advocates, all-payer looks dangerously like our current US system, while for advocates of only minor changes to our current system, both all-payer and single-payer look like a dangerous departure from the principles of markets setting prices and the belief that competition will of necessity lead to cheaper and better goods.  The famous economist Kenneth Arrow’s contention that for-profit basic health insurance is by its nature a faulty product would tend to support single-payer’s guarantee of an entirely non-profit basic health insurance industry.  All-payer systems may be designed to either reinforce this idea of health care being fundamentally a calling, which secondarily requires compensation, or attempt to provide an area of compromise between profit seeking and the delivery of health care.  All payer systems are much more complex than a single payer system, especially in an era when a large single payer would be enabled by computer databases that can handle millions of records with ease.

Advantages of All-Payer and Single-Payer vs. the US Status Quo

• They both remove a substantial portion of paperwork and financial overhead for providers as rates are predetermined  (perhaps as much as 25-30% reduction in provider costs)
• They largely eliminate the cost-center of underwriting and claims review in basic insurance.
• They reduce or eliminate the role of profit in mandated basic health insurance (not an advantage if you believe that profit has a role in health insurance).  Certainly margins on basic insurance coverage will be either very small or non-existent leading to resistance to either alternative by the US health insurance industry.
• Pool risks across the entire society
• Enable economies of scale in negotiations between payers and providers, drug, and device makers
• Give basic health security to all (people need to worry only WHEN they get sick not IF they get sick).  Eliminates one element of risk in getting ill.
• Increases choice of medical providers and treatments for a vast majority of the US population.

Advantages of Single Payer over All-Payer for the US

• We already have a single-payer system for seniors (Medicare) which is well-liked (though needs some changes, as does almost every health care finance and delivery system in the world).
• Single payer can be instituted in a systematic way more easily than all-payer which “happens” more as an accretion of partial measures and events and seems to need a substantial welfare state as a background support and socialized treatment of long-term illnesses and disabilities.
• There already exists a single-payer bill in Congress, HR 676, which has some strong supporters in the House of Representatives.  Rep. Anthony Wiener of New York has gotten the House leadership to agree to a vote on HR 676 this fall.
• Single-payer has the potential to be much simpler than all-payer with a guarantee of low insurance-related overhead for providers.   Simple means that it is easier to sell politically and also provides complexity-weary onlookers relief from the current policy mess on Capitol Hill.
• Single-payer has the potential to be less expensive overall than all-payer because of its simplicity and the exclusion of profit from the basic insurance business.
• - Single-payer sets the powerful insurance lobby outside the main policy discussion which is an advantage if you believe that for-profit basic health insurance is by its nature a faulty product.  The insurance lobby would then not at least formally be in a key position to shape the end product.
• -Single-payer has a greater potential to bargain for lower prices with health supply industries (though some complain that it would have the power of monopsony, a single-buyer market) as a unitary single insurer.
• Single-payer provides a single “account” within which premium revenues, medical expenditures, and tax subsidies can be tracked more easily than in all-payer.  Single-payer then has the potential for greater political transparency than all-payer.
• Some single-payer systems can allow for choice of insurance products where most people want it, in the area of supplemental coverages and more choice in elective procedures, while avoids illusory choice in the area of “commodity” insurance coverage.

Advantages of All-Payer over Single-Payer

• Current international health care system ratings put existing all-payer systems (France, Netherlands) at a slightly higher level than single payer systems (Canada, Australia), though the results from the Netherlands need to be taken with a grain of salt as the current reform is just 3 years old.  As noted above, these countries have a much more substantial welfare state than does the US in areas other than health.
• Access to specialists and wait times for elective procedures are generally better in all-payer vs. single-payer systems.
• All-payer is superficially closer to the current US below-65 insurance system with multiple independent insurers, some of whom are for-profit, some non-profit (could be considered a disadvantage if you think we need a clean break with the past).
• All-payer allows for a maintenance of choice of insurer in basic coverage as well as by nature allows for supplementary insurances, both of which support many Americans’ strong preferences for the ideal of choice on as many levels as possible.
• All-payer systems can coexist and benefit from single-payer (Medicare) and socialized (Veterans Administration) components in a the overall social system; they have usually emerged as part of a comprehensive welfare state.
• In all-payer systems, the independent insurers at least theoretically provide an intermediate layer of “negotiators” between government and providers in addition to competing in various forms for market share of insureds.  This allows for at least the potential of “market-like” flexibility and service-orientation within the health care finance system.

Political Diagnosis:  Which Way to Go?

Right now the discussion of health care reform has gotten sidetracked by the political chamber of horrors that has come out against health reform as well as the demonizing of the person of President Obama as well as of government itself.  This sideshow is a very unfortunate diversion from the main task of getting the policy right.  Defending against these ugly manifestations of ignorance, blind fear, and racism is important but has not that much to do with designing a viable health care system with universal access and controlled costs.  We are seeing a similar phenomenon in the controversies surrounding the very weak and from many appearances retrogressive climate bill now in Congress.  The Waxman-Markey bill has provoked a storm of largely irrelevant attacks from Republicans who deny the reality of climate change which has made debate about the substance of policy difficult in the public sphere:  one is either for or against the “idea” of the policy but cannot engage in a sustained debate about whether it is the right policy for the task.

Some reflexively defend the public option idea, or at least whatever the Obama Administration is currently supporting, as the true or at least the only politically acceptable “progressive” or forward-looking alternative.   As I don’t see the “public option” as advertised,  the public competitor to private plans, as having the necessary effects that the President says it would, and, if “weak”, potentially a policy disaster for the public provision of health insurance, I turn to either all-payer or single-payer as being the only alternatives that we should be considering.  The only function of the public option that I would support would be as an entering wedge for a single-payer system, a function which has been the object of attack by the insurance lobby and conservatives and explicitly disowned by Democrats.  Supporting either of these proposals that reduces the role of profit-making and markets in health insurance, puts this position somewhat to the “Left” of the mainstream debate.  A crude Left-Right scale distorts however, because effective reform rather than reform for appearance’s sake is simply saving capitalism from its own excesses.

The problem with considering both all-payer and single-payer here as acceptable outcomes in the health reform debate is that I am not providing a unified political position from which reformers can bring together some of the warring factions and influence the mainstream discussion.  We can still find health policy wonks who will advocate for any and every position, except for perhaps, what for us would be a “far left” alternative of expanding socialized medicine in the US.

Now is a time of political opportunity for a new political position to refashion the debate on actual health care reform.  The Administration and members of Congress have been tying themselves in knots with the complexity of the issue and also have been violating the spirit of Mr. Obama’s candidacy in making a few conservative Senators, i.e. those Washington insiders, decide the shape of our future health system behind closed doors.   Mr. Obama’s readiness, as a starting position, to compromise with the major health care industry players while claiming a wavering allegiance to the public plan option makes him seem at least overly pliable if not downright compromised with regard to some of his own stated ideals.

Political Area of Common Ground between Single-Payer and All-Payer

While some all-payer advocates might protest, the political commonality between single-payer and all-payer is that the health insurance industry will come almost entirely under strong government regulation and the pretense of markets and competition setting prices for essential services and insurance premiums in the area of health care are dispensed with.  Profit in health insurance would be either greatly diminished or excluded from basic mandatory insurance coverages.  One way or another the for-profit health insurance industry would be thoroughly refashioned rather than used as the model for a public plan.   Both all-payer and single-payer in their effective forms mean no quid pro quo with the health insurers but simply a sizable contraction in the market for that industry and therefore a political fight with them.

Both single-payer and all-payer offer non-health care related businesses the assurances of a controlled health care costs, which is an area of political opportunity for reformers.  The themes of American competitiveness in businesses other than healthcare and therefore alliances with other business sectors have been largely unexplored by the leadership of the health reform efforts.  Either a single-payer or an all-payer system if not designed to “limousine” specifications would attract the interest of non-insurance, non-health industry businesses.  But the application of a crude Left-Right paradigm within which one is either “for” or “against” business interests by the opponents of reform has intimidated reformers away from this political avenue.

The notion of “keeping insurers honest” by competing with them via a public option is a notion that has been designed for political consumption but has little justification in the economic and practical reality of how insurance and especially universal insurance systems work.  The only acceptable form of a public option is, as the conservatives fear, as an entering wedge for a single payer plan.   The public option as competition is an abdication of the role of government to regulate health insurance as well as collect revenue for that insurance if the twin goals of universal insurance and cost containment in healthcare are held honestly.

Single-payer as the Next Step

Rep. Anthony Weiner of Queens, NY has taken a courageous stand in favor of single payer legislation this summer. He is an articulate spokesman for common sense in the area of health insurance reform. We will see how many in the media and in Washington will listen to his message during the coming weeks and months.

While single-payer is actually the more radical transformation of the insurance industry, I believe it is a political position that is more tenable than all-payer for a number of reasons.   Both positions, though, are substantially outside the current debate and at least in superficial terms to it’s “left”.

• I trust our government to administer a well-designed Medicare-for-all program more than I trust our government to heavily regulate and restructure an existing industry into transformed form required in all-payer.  The Obama Administration and previous Administrations have not shown an ability to enact strong regulations and rein in private industries.
• It is much simpler to talk about single-payer than all-payer, in part due to the existence of Medicare; it should be called “Medicare-for-all” anyway.
• It would be OK if the threat of single-payer convinced the health insurance industry to submit to an effective all-payer system, though their profits would nevertheless be significantly diminished.
• We could transition to an all-payer system later on, if we encounter problems with specialist access or wait-times for elective procedures.
• While President Obama talks about single-payer requiring such a difficult transition (that as some people are happy with what they have through their employers we don’t want to change much), I believe this is a rhetorical decoy; a transition to single-payer would be one of the easier transitions.  A transition to all-payer requires a number of sets of three-way negotiations and the potential for multiple attempts at subversion of its purposes by large industry players.  A transition to public option plus exchanges is equally fraught with complexity and a long period of uncertainty.
• A “rich” single payer system using current levels of health care expenditure (50% more money per person than Canada) and higher than current Medicare reimbursement rates could help convince providers and medical supply industries that their businesses will do just fine.
• Any substantial reform effort is going to be sold via criticism of the existing private health insurance industry and the logical consequence of those criticisms is single-payer.  All-payer requires a greater imaginative leap involving the abstractions of strong government regulation and price setting; it means turning the insurance industry into something it is now not.
• There are existing advocates both in Congress and outside government that advocate for single payer.   All-payer is currently known to only a few insiders.
• With poor public information and media analysis, a counterfeit all-payer system could be presented by the opponents of reform as change but could turn essentially into a continuation of the status quo.  There is little risk that a single-payer system proposal could be so presented or corrupted.  An all-payer system may be too subtle for us as a political culture.

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