Why a Single Payor National Health Care System Would Be Better

Health insurance obviously does not take care of all of the "Arrow uncertainty problems" I wrote about in my recent post on why free markets do not work adequately in the health care market for treatment. Insurance can use the mathematical law of large numbers somewhat to ameliorate some of those uncertainty problems, but that does not correct for the remaining lack of competition in treatment or the other problems I describe here. Serious issues remain, as does the fundamental problem of a relative lack of competition among health care providers and also as well among health care insurers.

Also, health insurance does not deal with those who can't afford insurance and the attending "free rider" problem of those not insured getting treatment. This, in turn, requires cross subsidization at the provider level and increases insurance premiums for those with insurance. Doctors, even with their numbers badly restrained by the AMA, usually want to treat everyone, regardless of whether they can pay. Many of them believe treatment care is a fundamental human right. The law requires treatment care if the ill or injured can get within 600' of an emergency room hospital entrance. Doctors believe in that and so should we. The sick and injured should not go untreated in a civilized nation, regardless of those few who think any taxes for any reason are unconstitutional thefts. (Yes, there are a few such "crazies.")

Also, health insurance does not eliminate the monopoly rents in the provider system but instead creates new ones in its own industry. Insurers, like some providers, have high overheads with big CEO and upper management salaries and a huge 22 percent profit margin, on average, on top of that. There is essentially no antitrust enforcement as to insurers except by the states, which do little useful there. The MaCarren Ferguson Act cut the federal government out of antitrust enforcement in this area on the theory states adequately regulate insurance and insurers. Of course, that simply is not true. States do little well and are easily snookered or bought off.

The solution to this problem in our country is to apply a Band-aid. US federal rules will soon require health insurers to spend 80%-85% of their revenues on health care treatment and collateral benefits such as drugs. This is a radical approach to a free market failure. In effect it regulates insurers' profits and overhead, a charge or duty that was supposed to be left to the states.

To better understand the issues, imagine Medicare became our national single payor health care system, covering everyone in America in need of health care treatment. First, health insurance overhead would drop to near zero. Medicare has extremely low overhead, comparatively. (Health insurance profits and rents would disappear from the system. Right there is probably about 30 percent of health care costs, guesstimating. Of course, the desire to hang on to that money by those receiving it is a principal reason we don't have a single payor system in America. But regulations will compromise on that desire so perhaps then resistance to a national single payor system will abate somewhat.)

Continuing, the law of large numbers would most strongly kick in under a Medicare universal system, competition by treatment providers would be compelled to increase, drug costs could be negotiated down with the drug companies, economies of scale would increase in several quarters and there would be no need for the entire insurance industry. Over charges by providers could be controlled by Medicare compelling greater competition among providers, the free rider problem would disappear and human treatment needs would not go unmet or not well met. On average, health care treatment would be much more available and there would be more of it. It is the monopoly elements and rents in the present system that push prices up, curtail services or output and provide less care and worse outcomes, on average. A single payor national health care system would correct these problems.

While these issues seem difficult for Americans to understand, in other countries they are obvious. For example, a Spanish court recently held that a legal effort to privatize the national health care system in Spain was unconstitutional, no less. The Spaniards understand and recognize the universal human right to health care treatment. We just don't seem to get it, yet.