A Layman's Study of Single-Payer Health Insurance

With the likelihood that the Affordable Care Act will be modified or perhaps repealed altogether, some citizen groups and legislators have expressed a preference for a single-payer health insurance plan akin to the European and Canadian models. We, too, are interested in what this is really all about, but getting accurate and indeed simply factual information about the advantages and disadvantages of any single-payer plan and how it functions has been frustrating. Based on what we have found, we've tried here to clear up some of the confusion, hopefully also showing how single-payer can be fiscally feasible and better in many ways than what we have now.

We recommend setting aside preconceived political and fiscal beliefs, for that is what we have been trying to achieve as we wrote this and to look closely at the concepts underlying single-payer health insurance. Ours is decidedly a layman's view, but one that may help you to consider how health insurance and health care delivery affect YOU. You might find here some unintentional partisan attitudes, but ultimately this is all about providing the background for YOU to decide.

Some Things We Can Agree Upon

In our current political environment, it is hard even to agree on facts. So let's start with basic ideas we are likely to agree upon.

Fact 1:Health care providers whose income is less than their expenses will not provide health care for long.

Interestingly, a lot of people believe that emergency room care is free, perhaps largely because emergency departments do not ordinarily turn people away. But health care is never really free is it? All the expenses must be accounted for. Fact 1 simply says that all expenses, including those not being paid by some consumers, must be less than the total income. So let's dig into these expenses to see what we all are actually, or at least are supposed to be, paying for.

There are many layers of health care costs from direct service providers like doctors, to medical institutions like clinics or hospitals, to background organizations like research centers. For this purpose let's stick to providers we pay directly, our out-of-pocket payments to doctors, hospitals, and urgent care centers. Highly specialized physicians tend to have higher income than primary care doctors, the ones most of us see on a regular basis, so we'll focus at first on primary care doctors (family practice, internal medicine and pediatrics) in this section. Since pharmacies function quite differently from direct service providers, we'll separately consider them.

A physician practice is expensive to operate. Aside from the reasons for your visits – that of the doctor's and nursing staff's physical exam, a diagnosis, and then an action plan – there are clerical and insurance specialists in every office. All expect to be paid. In addition to the costs for rent, utilities, and typical office supplies, medical equipment is expensive and must be maintained. As equipment becomes dated or obsolete, you expect that the practice will replace it. Costs add up quickly and the $70 bill we incur for an office visit quickly becomes $35 or less to the practice. All told, successful primary care physicians report office overhead somewhere in the 40-60% range. Said differently, very roughly half of your doctor's visit bill goes for reasons other than your direct medical care.

When we see a doctor or doctor's assistant, most of us rely on insurance to pay a rather significant portion of the bill. For every insured patient, the physician is likely to be paid something, but often does not receive full payment. Insurer's HMOs require reductions in billed charges (write downs), and patients donít always pay deductible and co-pay amounts. Medicaid (insurance for people with limited income) has a reimbursement rate lower than private insurers. All of a doctor's expenses must be accounted for by the total income from all patients that the doctors sees. Yes, a health care practice can accept less reimbursement than it bills, but the results may be, for example, that a physician who treats large numbers of Medicaid, uninsured, or underinsured patients may have trouble making payroll and find that they need to close down. Again, it is clear in Fact 1 that to avoid this, the income must be sufficient to continue serving.

Switching gears to medical institutions like hospitals, they too have a wide array of expenses. Hospitals have profit margins of 1-5% depending on location and patient mix. Some run chronically in the red, but clearly they cannot do this for long. Consider:

So, how do doctors or hospitals keep their doors open in communities with many poor or uninsured citizens? As with any patient, they expect payment for services rendered, but such patients are often unable or unwilling to pay, especially for large and unexpected bills. It follows from Fact 1 that, to make up for uncollectable or insufficiently paid charges, health care providers effectively inflate their charges to their insured and relatively wealthier patients. (All patients may see the same inflated charges, but ultimately it is only those who can afford to pay – typically via insurance, which is directly affected and which we will outline soon – who feel the effect.) Who has not heard of a hospital bill showing a charge of $10 for an aspirin or $25 for a box of tissues? This is the transfer of expenses to those most able to pay. This is a model doomed to failure over the long run, for as the pool of those capable of paying shrinks, the transfer of expenses to those paying increases. And, worse, rather like inflation, this has been going on now for decades to the point that, as we all have seen, the effects are approaching critical proportions.

Notice that, so far, we have not made a partisan or political statement. We intend to keep it this way. This, for as little as we've discussed up to here, is just the reality of things. And there is much more to come.

To explain further using a metaphor, when we grocery shop, one way or the other we pay for our purchases at the store. Even if the store has considerable shoplifting, the store's expenses will be accounted for via your payments at the time of the purchase. But societal norms dictate that doctors and hospitals provide most medical services without advance payment or even any "downpayment." In many cases prepayment isn't practical or even legal and collection rates are often low. Does it weigh on doctors and hospital administrators when they know they may fall short on overhead costs and possibly be forced out of business? Does it harm communities when that occurs? You bet it does.

Rather than all the doom and gloom, let's switch topics for the moment, but stay on essentially the same tack. Many health care providers, especially physicians, finish their training with prestigious academic degrees and similarly imposing thick portfolios of loans. Typically in their 30s when they start or join a practice, they begin their careers at an older age and more deeply in debt than other professionals. (The AAMC estimated in 2015 that almost half of newly minted doctors were $200,000 in debt before they start their internship and advanced training.) And the typically extended internships do little to quickly help pay down those debts. Later, setting up practice is no small expense and physicians who ultimately become partners in larger practices are expected to ďbuy inĒ to the practice as well as assume a proportionate share of the group's expenses. Add to that the cost of malpractice insurance which we will discuss later. While, later in life, more experienced physicians practicing in lucrative specialties enjoy healthy incomes and comfortable lifestyles, primary care physicians struggle to make ends meet, especially if they practice in poor or rural areas. Do some give up their goals of caring for everyone regardless of payment? Sadly, yes. Does having an insufficient supply of health care providers result in increased medical care costs and delays in health care? Yes, again.

Should a physician enjoy a comfortable, if not lavish, lifestyle? Do any of us disagree? We might agree that many years of expensive education and long hours of additional training, burdensome expenses like malpractice insurance, and tremendous responsibility for patient well being ought to result in at least an upper middle class lifestyle. A doctor who struggles to make ends meet becomes disillusioned and many move into other fields, perhaps related to medicine, but not in direct care of patients. We all lose when our doctors burn out because costs exceed revenues. Later we will discuss strategies to relieve some of these problems, but just like our mortgage and utility bills don't shrink just because our checkbooks don't balance, neither do the costs of running a medical practice.

Again referring to Fact 1, they ultimately don't and can't absorb all of these expenses. The total of all of these expenses – including their deserving a financially secure life – are passed onto those of us using this health care provider's services. Without this balance in the doctor's favor, we don't have doctors. Agreed?

Later, we will include some discussion on decreasing these expenses, but these expenses don't just disappear because we want them to or because we today think they are too high. They decrease because some environment exists or was created to allow for cheaper health care.

We would like to end this section by observing, with thanks, that many hospitals and clinics enjoy the financial support of both small and large benefactors. This kindness speaks for itself.

Fact 2: Health insurance companies are like financial pipes, where the flow of money in must exceed the flow of money out.

How are health insurance premiums set?

Health insurance companies are financial pipes. Such an odd way of characterizing them, right? Still consider, if you are employed, insured, and a patient, you know that some insurance company is going to pay most of your medical bills (sans deductibles and copays, of course). You know that your insurer is not doing this out of the goodness of its heart. You know that this works because you, along with subsidies from your employer, have been regularly paying premiums to the health insurance companies, whether or not you ever have them pay your own medical bills. For some folks, hopefully folks like you, the insurance companies win and keep your money. With other folks, the companies pay more for their health care than they ever received from them in health insurance premiums. Insurance companies know this, and average out this natural difference in risk by pooling lots of people. As you can see, money in via premiums must exceed money out for health care.

Insurance companies intend to win; the alternative is that they go out of business if they lose long enough. That's just the game they are in, and they play it well, so well that they work to influence the probabilities in their favor. It is beneficial to the insurer, and ultimately to the cost of their insurance, to increase the number of people paying more into the pipe than is paid out; this being relative to those less healthy individuals consuming more in health care than they are paying in. Of course, each of us as health care consumers don't really know from day to day where along this line of people we will be or even really are. This is not a matter of insurance companies being good or bad or even caring. This is their business and they intend to make money doing it.

So, via an example, let's alter these odds to go against the insurance companies. Let's change things up such that the pool of people requiring health care – and so pulling money out of the pipe – increases relative to the number of – say – more healthy people. The result for the insurer is greater expense, more money is flowing out. To stay solvent, the insurance companies must enforce an increase in the price of that health insurance. The odds of success has turned against them, so they increased the price of our premiums to keep the pipe full on the input side. This is not immoral or even unethical; the most we can call it is amoral. These are just the rules you and they play by when you buy health insurance. Fact 2 rather demands it.

How do insurers attempt to control the potential for increases in costs? If the insurer is large enough and can provide an adequate volume of patients to providers, they have some negotiating power. They offer specific, guaranteed contracts to physicians and hospitals where payments for services are predictable, and indeed rather guaranteed. Said differently, a set of health care providers can be motivated to decrease their prices to the insurer simply because they can depend on the insurer to keep up its side of the bargain by paying patient bills. (Keep in mind Fact 1.) And the larger and more stable the pool of potential patients, the more likely a provider is to join a health care provider "network". Indeed, the larger the network of providers, the more patients are likely to join so the system builds on itself. Providers have also proven willing to accept reduced payment if they are more likely to have busy exam rooms and filled hospital beds. You know all this as a Preferred Provider Organization or a Health Maintenance Organization (HMO). Of course, we patients are the bargaining chip between the insurers and providers. We, via our employers, limit our insurance plan choices in exchange for lower costs. In effect, we also give up flexibility in exchange for lower health care costs.

We observe quickly, though, that this flexibility trade-off can be a double-edge sword. Health care providers, people and institutions familiar with our care, come and go from networks based on any number of factors, one being that our employers change plans altogether with the intent of decreasing their and our costs. Some providers are dropped by insurers and others opt out of networks voluntarily. This leads to less stability in care for affected patients. Less consistent care leads to more expensive care – as a result of repeated testing, for example – as a patient and new provider get used to each other. The alternative, wherein we find we need to seek care outside of the provider network, additionally becomes more expensive care.

Something different than a traditional fee-for-service model is a capitation model. In a capitation model, a primary care provider is paid a set amount per month for each patient in a defined group whether or not they actually see that patient. For example, a physician with 800 patients in the plan is responsible for the care of all 800, but one month they may see 35, the next 175 – say – during a severe flu outbreak. As a variation, some capitation models pay the primary care provider an extra amount per month for each patient in the covered group, but may require the primary care physician to cover the cost of specialty and hospital care for these patients. In a capitation model, both the insurer and provider are necessarily playing with probabilities and risk. The total capitated payment to the provider must cover the costs of caring for the patients as well as the normal overhead discussed earlier. It is apparent that this model will work better for large groups of providers, together handling thousands of covered patients. As an example of the down-side, one single-doctor practice in Michigan lost every penny paid to him in an entire year by a capitation insurance plan when two of his patients developed leukemia and needed extraordinary hospital-based care. Capitation models have undergone a variety of iterations, but volume and accurate prediction of needs are key to managing risk. For the insurance companies, one benefit is greater predictability of the output end of their financial pipe, but in doing so they have also punted some of the risk onto the providers. Given that the providers understand this trade-off, it is worth asking how that influences their primary product, the decisions that go into maintaining or improving our health. We assume that health care providers make the best decisions possible for any given condition, including us in the decision when trade-offs need to be made. We, though, who are unaware of such an agreement, don't question whether our doctors are our allies in our care. But, as with the example case earlier, might it be possible that our care – often our insured care – will become influenced by the provider's financial responsibilities?

We are not going to comment much on this next issue, but it is worth noting that insurers do not and should not want to pay for invalid claims. Quite appropriately, they want to minimize their own expenses – primary of which is paying medical claims – by working to pay only each health care consumer's justifiable health care costs. Enough consumer and provider fraud occurs that we would all likely agree that insurers are justified in working to avoid making such payments. But there is a negative side to this as well, one which actually increases medical costs. We all have heard of instances where the insurers increasingly insert their own interests between those of the provider and the consumer in an attempt to ensure that the health care costs which they will be paying are truly necessary. Such efforts result in medical practices incurring very considerable expense maintaining staff who do nothing but get "pre-authorization" for necessary medical services and appealing denied payments, which adds a time and cost burden to the primary providers. On top of that, each is talking to a paid employee on the insurance side to resolve competing demands. Support entities now exist which sell their services to insurers solely to manage routine calls as well as address disputes about what is necessary and not. Each of these businesses has attendant costs. None of this is free and every bit of it is added to our national health care bill.

The question that society needs to ask itself is, given that we had such power, to what extent do those controlling the purse strings have the right to dictate otherwise required healthcare?

Most, but not all, health insurers are profit motivated. We all know that anything that can decrease company costs could be used to decrease the price of their premiums, thereby allowing the insurer a competitive advantage as it promotes its product. Lower premium costs to our employers and to us will influence purchasing decisions toward the lower priced insurer. Higher profits in a competitive environment is the motivating influence to pass cost decreases on as lower premium prices. But what happens when competition is reduced to the point where it is nonexistent? What happens with any profit-motivated company, in any industry, where there exists no real competition for a highly desirable product? Take, for instance, the Epi-Pen story of 2016! What then is the motivation to pass on lower costs to the consumer? Profit alone motivates higher premiums, at least until these profit margins later motivate a more efficient insurer to enter the market and undercut these profits.

Insurance companies are experts at managing risk. Their entire game is to make a profit by ensuring that their total income exceeds their total expense. Much of that risk stems from having to determine the probabilities that their clientele will need health care and, of those, how expensive will that health care be. It's a massive probability problem and they are good at it. But there are other forms of risk as well. How will a government's actions help or hinder their profitability? What is the probability that a government action will increase or decrease the number of their income-producing clientele? If they perceive risk is increasing, they take that as an indication that they will need more income to cover all expenses. A perceived need for more income means higher health insurance premiums for their clientele, clientele which includes the employers subsidizing their employee's health insurance. Conversely, a stable environment, stable government policy, decreases their risk, stabilizing health insurance premium prices. (Interestingly, when the health insurance companies win on that bet, when risk turns out to be lower than assumed, profitability improves and their stock holder's see the benefit; their stock holders also expect that profitability to continue indefinitely.) Just basic economics.

Health insurance companies have expenses other than paying for your health care.

Fact 2 said that the dollars paid into the financial pipe must exceed the dollars paid out. Clearly, of the dollars paid out, a majority of that is to cover your medical care. Insurance companies, though, are businesses, each with its own expenses associated with the normal trappings of any other business. Insurers set premium levels to compensate for health care financial risk, but also to manage mega-businesses with all the attendant costs of real estate, capital and other equipment, and personnel costs. But in the case of for-profit companies, the CEO's first priority is to meet the expectations of a board of directors who in turn are responsible to investors looking for dividends and increases in share value. It is the very definition of the CEO's job. Many incent executives via bonuses of rather significant size to achieve these ends. Multiply these amounts by the vast number of insurance companies and related support entities and we are talking real money siphoned out of the pipe. We may assume that the secondary goal of providing a cost-effective, successful insurance product that keeps costs to patients and their employers as low as possible is necessary to achieve the first goal, but is that always true? What balancing acts are necessary to achieve what are decidedly competing goals?

According to the American Medical Association, on average, private health insurance plans spend about 12% of premiums on such administrative costs. Interestingly, this rate is versus about 6% spent by public health programs. As a further comparison, Canadian provincial single-payer plans have an overhead of about 1%. Some use technology to cut these costs and to "improve the customer experience", thereby increasing their insured pool, often at the expense of others. Many, though, do not want to take on the expense of providing health insurance services to any but well-defined pre-existing pools of people, as would be found as employees of large firms. Insurers decide not to serve the individual health insurance market, perceiving the additional costs of managing individual accounts to be relatively excessive and therefore less profitable. But as a question to our readers, why is it that the individual health insurance market is deemed to be unprofitable or unservicable, but other insurers are capable and willing to serve other individual insurance markets such as life or auto insurance, both requiring tools and processes needed for serving individuals. And, yes, it may be a matter of determining risk, but any sufficiently sizeable pool of individuals can with time have a known level of risk from which to determine premiums. This, too, is true for life and auto insurers as well.

In effect, we are just talking about basic finance and economics of the health insurance industry. Agreed? All of the above follows completely normally from the use of for-profit health insurers. Even the non-profit insurers like Blue Cross and Blue Shield have tremendous business overhead and pay their executives healthy salaries and bonuses. The service that insurers provide is that of a financial pipe, wherein they mitigate the financial risk for us of unexpectedly needing to pay for health care, and in return we all agree – healthy or not – to pay their insurance premiums, a part of which additionally provides most of them a healthy profit for providing this service. It all sounds daunting and it is. The management of financial risk has traditionally been the responsibility of the insurance company, and as we have seen many have shifted some of that risk to providers – physicians and hospitals. And, of course, many of us find that we are assuming more of the risk ourselves in the form of higher deductibles and co-payments and non-covered services. Is this sustainable? Perhaps we have alternatives.

So Who Is Really Paying?

According to Centers for Medicare and Medicaid Services, US health care spending is financed roughly per the following mix. Be our guest and argue with the numbers' precision if you like, but understand that the payers are roughly as in the following:

If we are reading this right, the Households would represent

  1. Personal contributions to health insurance,
  2. Personal copays and deductibles.
  3. Direct payments by the uninsured.
  4. For a few lucky ones, self insurance (i.e., direct payment by the few capable of taking on for themselves the risk of needing to directly pay for health care).

Some folks also sign up for Flexible (Health-related) Savings Accounts which have the intent of committing personal funds for the sole purpose of personally paying for health care, thereby taking a tax benefit (in effect, shifting some of the medical expense onto the government). (An interesting, perhaps odd, side effect of these accounts, for people with balances still available at the end of the tax year, such consumers tend to use the balance in these accounts to seek additional health care (e.g., eye glasses).

The Business portion is attributable to the health insurance subsidies provided by many, but not all, companies for their employees. For those fortunate enough to receive such a fringe benefit, the employees themselves are responsible for what tends to be a small fraction of their health care insurance premiums; their employers are picking up the large majority of this cost. It is fair to say that such a benefit significantly decreases each employee's perception of his/her own health care costs. You can see this in a 2015 study called Employer Health Benefits. For a family's average annual health insurance premium totalling $17,545, the employee pays $4,955 (and the business $12,591); this is average, individual cases vary widely, with non-family employees paying a lesser percentage. In my own case, my employer is paying roughly 90% of this cost. Further, as can be seen from the pie chart, this alone accounts for an appreciable portion of all health care costs.

Additionally, businesses pool their employees, allowing insurance companies to offer less expensive group plans. If, instead, this fringe benefit had appeared as basic income, those of us benefitting in this way would be expected to purchase health insurance at full cost on the individual health care insurance market.

Not all of us are able to enjoy these benefits. These include those of us

These are employed and employable Americans who are not receiving this subsidy and who find themselves paying the full cost of insurance purchased in the private health insurance market. As a question for our readers, given that American business benefits from such a flexible work force, one willing to at least occasionally forgo the benefits of such subsidies, what is the responsibility of society to ensure that those in such transitions remain able to take advantage of health care? If such flexibility is beneficial to society as a whole, does society have an obligation to ensure that workers in transition have health care options? As usual, your editors donít attempt to answer that question for you.

As an interesting historical fact, such fringe benefits became more of a norm during WWII. Employers experienced labor shortages when the government imposed wage controls. Businesses resorted to increasing "fringe benefits" to attract badly needed workers. Since fringe benefits weren't taxed to the recipients and costs were deductible by business, their value to the employees far exceeded the cost to employers. In more normal times such as today, given a normal ability to recruit needed talent, would today's employers have added this fringe benefit? And will the benefit so deeply entrenched in American life continue to be available as governmental priorities change?

On this last point, and without your editors stating a preference, in our continuing intent to state facts, others will note that these subsidies are a non-trivial portion of every businessí expenses. They will point out, with merit, that large or small, these fringe benefits must be factored into the pricing of their products. This further means that, if their products compete on the world market, they come in at a competitive disadvantage against countries without this support.

As one additional observation on this point, notice again that government provides businesses a tax deduction for providing it. Since this effect decreases governmentís income, it might be useful to think of a portion of business' portion of the above pie as belonging instead to government. As another way of thinking about this, those of us benefitting from such subsidies are also benefitting from our governmentís largesse. Those that donít arenít.

Government – Federal, State, and Local taken together account for the payment of a relatively significant 44% of health care costs. Since this is a discussion of single-payer options, some of which are based on government's direct involvement, it is worth noting that government (which also means us) is already paying a rather significant portion of all health care costs. We are already part way to some kind of single-payer option!

Government funding of anything does not come for free. Whatever it pays, it uses money that comes from somewhere else, such as personal taxation. Some of the federal taxation is roughly earmarked for one type of health care, Medicare. With Medicare, those of us employed find a part of our income (1.45% of your paycheck, matched by your employer) routed for the purpose of funding Medicare for our seniors and ourselves when it is our time. But it is also true that a significant portion of government-funded health care costs are paid for by government borrowing. This is definitely something we must minimize. Any single-payer solution needs to address this fact.

As most of us know, Americans can sign up for Medicare as they turn 65. Medicare Part A covers hospitalization and is generally premium-free to recipients. Medicare Part B covers outpatient care, such as doctors' visits, x-rays and tests. It costs recipients $134 a month, a nominal $1608/year for people who enroll in 2017 (or somewhat more for high earners). Cost is on par with that of much younger people buying health insurance on the individual market (as you will see later). Over and above this, many Medicare recipients buy supplemental health insurance to fill some of Medicare's coverage holes since even Medicare consumers pay deductibles and copayments. Medicare recipients also must purchase Part D coverage for prescription drugs generally not covered on an outpatient basis; if they fail to purchase Part D coverage in a timely manner, penalties accrue.

Federal and state governments also provide Medicaid in various forms. From the Social Security Administration's web site – "Medicaid is a jointly funded, Federal-State health insurance program for low-income and needy people. It covers children, the aged, blind, and/or disabled and other people who are eligible to receive federally assisted income maintenance payments." Eligibility varies by state, but the essence is that if an individual is perceived to be eligible for other government-funded supplementary income, they are also likely eligible for Medicaid.

Additionally, from Wikipedia (https://en.wikipedia.org/wiki/Medicaid), "Medicaid in the United States is a social health care program for families and individuals with limited resources. The Health Insurance Association of America describes Medicaid as a government insurance program for persons of all ages whose income and resources are insufficient to pay for health care."

As a few more facts on Medicaid (from In Health Bill's Defeat, Medicaid Comes of Age) :

As to the negative side of Medicaid :

It appears that health care fraud exists regardless of our best efforts to eliminate it, or at least to rein it in. The trick is to develop coordinated systems and incentives to most efficiently combat it. The challenge to a single-payer system would appear to be to devote resources up front to forestall fraud, to monitor results and adjust accordingly. The observations above make it clear that greater efficiencies are needed than currently exist. With all citizens covered by basic health insurance, it is likely that patient-based fraud rates would drop, however. Providers, though, who will still remain independent business entities under single-payer, may still require some forms of focus on fraud.

As a conclusion to this section on government's involvement in health care, we bring you this chart sourced orginally from Inside Gov: 2016 United States Budget:

Summing it up, we had previously observed that health insurance companies are financial pipes. You, your employer (if you lucky enough), and the government pay into that pipe. The health insurers, after routing some of that input to business expenses and profit, use the rest to pay for actual health care. But the service they provide is only one of directing dollars from payers to payees, not providing actual health care. Insurers pay legions of actuaries, specialized accountants, all helping them set premiums and provider fees to minimize their risk of financial loss. We, the patients, assume less risk of ruin due to serious health costs with the insurer to back us up. But the successful insurer is also protected by the projections of accounting wizards who ensure there is plenty of income to pay health claims, manage its business and make a profit. An insurer who stumbles in its risk projections will either need to increase premiums, making them less competitive (where competition exists), is soon out of business, or finds itself "bought out" by a more efficient company.

Hundreds of companies are relatively successful in this endeavor. Each has its own hierarchy of employees from CEO to maintenance staff, of buildings and offices, computers and software, office supplies, and the ever-present advertising, with room for profit built into the mix. Roughly speaking the largest 125 health insurers account for roughly one trillion dollars in premiums – the top 25 companies account for about two thirds of that. As noted, the larger the pipe, the greater the opportunity to influence costs. Combined they represent an enormous financial pipe pushing an enormous amount of money to themselves, their investors, and of course, actual health service providers.

The Individual Health Care Insurance Market

We've all been hearing a lot about the potential crash of the individual health insurance marketplace. I've got insurance, surely that can't impact me, right? Well, maybe, but let's start out with the Individual Market (Health Care) Law and Legal Definition:

OK, still a little fuzzy, right? Most of us are employed and most of our employers offer us a subsidy for health insurance under a group health plan. That is most of us. Of the remainder, the government also provides insurance, Medicare and Medicaid options being examples. But that still is not all of us. So, picture yourself temporarily out of work, looking for a new job, ideally one with a group health insurance benefit. Or, imagine you are successfully self-employed, perhaps as an individual contractor, and rather proud of yourself for being so. (Indeed, much of the modern computer software industry exists because of people such as these willing to move between jobs.) Either way, you also believe that you need health insurance. Good and correct. You are then looking for insurance from the individual health care insurance market and, obviously, won't be getting an employer subsidy to help pay for it. Said differently, you are on your own and this is your market for buying health insurance.

As a point of comparison for those of us fortunate enough to have employer-subsidized insurance, notice that this is the reality for a large and working part of our population. For them it is a completely normal, albeit a more expensive, fact of life.

For a number of reasons, tbough, this is the market that health insurance companies have elected to exit. Perhaps they feel there is insufficient profit for the effort, but certainly they are influenced by insufficient stability in determining premiums from undefinable risk, especially if they cannot "underwrite" purchasers. This leaves consumers less choice and, in effect, less competition. Of course this leads to increased cost to the individual.

To make matters tougher for them, we note that this is also the market that our politicians – of whatever political stripe – are playing chicken with. Recall that a number of them are considering playing with the notion of allowing the collapse of this marketplace. These contract workers contribute to our society in ever increasing numbers and would seem to become damaged by this prospect. Why would our government discourage the willingness of people to move among job options?

Along that same line, we find a positive approach advocated in Alaska. (How Alaska fixed Obamacare) In essence, Alaska is back-stopping some of the risk incurred by the health insurance companies. They found that they can get help from the federal government in this program, and in doing so are actually showing a decrease in premium costs. Indeed, given that insurance companies might see ways to become more profitable, there is promise that more of them will rejoin Alaska's market and encourage a similar model in other states.

From your point of view, having just one company – and thus no competition to help control pricing – is not a partisan issue at all; there simply must be some means of purchasing health insurance. In this era of computerization of everything, why does a need for this legal notion of an individual health care insurance market even exist? How is it that we can so easily purchase individual auto insurance and have that industry efficiently manage our claims, but that same cannot be done with health insurance?

As additional background,

As still some more background, this requiring some commentary, is the notion of a Minimum Essential Coverage (MEC). From a HealthCare.gov site, we get its definition:

Seems prudent, right? Why have insurance – or more to the point the requirement for personal insurance – if you could simply buy a relatively non-insurance policy for, say, $1/year. Is there really any doubt that if you were to buy such a thing for yourself that the benefit would be similarly meager? If health insurance is going to exist, you want it to cover most of your actual expenses when you need it, right? However that coverage is to be provided, ask yourself what sort of copay or deductible you want to have. If the deductible approaches the cost of the health care, why have the insurance at all?

The Costs of Health Care

It would be unfair to focus only on the mechanics of pushing money through a pipe. We can successfully point out that there exists some inefficiency in this flow of money. For instance, roughly 12% of the money that flows into the pipe is absorbed by the companies managing the flow in normal business costs. Do we not want to reduce the portion of money absorbed by those costs since 12% of a trillion dollars is a lot of money – our money?

It is the total cost of health care that we would prefer to decrease. Decreasing such inefficiencies is great, but is there still more? One obvious way to decrease the flow of money into the pipe is to address the costs of actual health care as distinct from administrative costs. Whatever our government does relative to reorganizing the responsibility for paying for health care, it should also include a careful study of the larger picture – taking a holistic view if you like – of health care costs. We aren't talking about "laying down the law" here, but rather looking at what factors actually drive costs and addressing those.

Consider the following merely as examples; there are many more:

Toward a Single-Payer Plan

The story so far ...

From this perspective the medical industry would seem to be doing very well, even supporting those who donít pay, or at least donít pay enough, to cover their own health care expenses.

And with taxpayer support from Medicare payments and taxation

Further, a large percentage of the employed enjoy, over and above their normal pay, a fringe benefit that is essentially a subsidy for their health insurance coverage.

Again, this would seem a remarkable success, at least as far as this part of that story goes.

You know, though, that not everything having to do with health care funding is good news. Two major negatives include

  1. The spiraling up of health care costs.
  2. The government borrowing on top of existing debt to fund part of its responsibilities toward health care.

Both have been allowed to continue far too long. Fortunately, though, both can be controlled at multiple places in the system. What we cannot do is leave things essentially as they are.

First, though, let's look at a part of the process – an inflationary feed back loop – causing a spiraling up of health care costs:

  1. Health insurance premiums increase as health care costs increase.

  2. As a result of premium increases, the percentage of a family's budget needed for health care increases. The premium increases additionally motivate employers to limit their health insurance subsidies, resulting in family taking on this portion of the increase as well.

  3. Of those families who had been paying health insurance premiums, some cease paying. Or they decide to pay less, taking on the risk of increased deductions.

  4. Some of those now with no or insufficient insurance, but finding themselves suddenly requiring health care, also find themselves incapable of paying for that health care. Additionally, those who should have been taking advantage of health care, find themselves forced to do so when it becomes most expensive. To make the thought process simple, let's say these people are not paying for the health care they had been forced to seek.

  5. Health care providers pass these unpaid expenses onto those who are paying. This, along with the shrinking pool of those paying for their health care, results in health care costs being perceived as increasing for those capable of paying.

  6. Recalling that paying for health care is largely sourced from the health insurance companies, the increased cost of each insured patient's health care is passed on to the insurance companies, meaning that health insurance companies must increase their premiums. (Loop back to Step 1, this time with still higher insurance prices.)

Itís a bit like an inflationary spiral. And it will only grow worse as long as we ignore it (and point fingers at each other).

But there is more to this.

Governments, both federal and state, act both as health insurers and payers of health insurance premiums. As a result, governments are an integral part of this loop. As costs go up, but our taxes and "contributions" increase in less-than-lockstep proportion, our governments find themselves in a similar position as insurance companies but they are unable to arbitrarily increase premiums. To make things worse, since government has failed to address its other expenses over decades, we find that a significant portion of health costs are now covered through the purchase of debt.

So how can we insert ourselves into this unfortunate feedback loop and gain control?

Fortunately, we can. In what follows, we are not going to attempt to sell you on any one approach. In fact, we are not going to attempt to sell you on anything. What follows are merely some thought experiments, some mental exercises if you like, for your consideration.

Single-Payer Option 1

Start by imagining a single entity, one tasked with distributing money for the purpose of paying a significant portion, but not necessarily all, of our health care expenses. This may be a government entity, or one that is government-directed, or even a non-profit corporation. Its purpose is to pay all medical bills, ensuring as well that the bills paid are appropriate and to monitor and deny inappropriate charges. In our financial pipe metaphor these payments are the output. The entity ensures that medical providers are paid for all appropriate services, thus removing the need for providers to transfer costs from those who can't or don't pay to those who do. As you will recall, this long standing-practice has resulted in the perception that medical costs overall are skyrocketing.

It may appear to be a bit of a pipedream to think we can solve this problem, but we start here as a necessary step to create a mental image from which the rest will be built.

Clearly the financial pipe must have input. The pipe doesnít generate money, but rather pumps it through the system with leakage along the way. The mechanisms for funding exist and largely have existed for some time. As examples:

Keep in mind that health care providers, health institutions, and drug companies are generally financially successful today. They get paid for their services and products now and will continue to be paid with an important caveat – the system will not encourage externally-driven inflationary price and cost increases.

In this model providers remain independent, though perhaps motivated by other pressures to alter their current organizations and processes. This model does not assume the nationalization of health care.

Notice that, unlike what many perceive a single-payer health plan to be, this model does not rely on the government to pay for everyone's health care via increased taxation on everyone. All this simple model does is alter the input source to the financial pipe from today's many insurance companies to an as yet undefined financial entity that ensures that everyone who receives health care has assistance in covering all their care.

Please continue, for we are still constructing the mental model.

Single-Payer Option 1A

Just as a point of comparison, let's look at Option 1 above relative to a model where the only financial input is derived from taxes collected by the government. If that were the case, then:

In such a model the taxation rules would be adjusted (although we do not address the specifics of those changes here) to provide adequate input to the pipe to handle the amount flowing out. In an ideal world, this would be a zero sum game. If taxes are the approach we settle on, one way of picturing this model is that health insurance premiums by all entities that now pay them would become taxation instead. As a theoretical model, money is still leaving your pocket for the purpose of providing health care payments. Said differently, what came out of your budget before and was routed to an insurance company would typically be routed instead to this single-payer pipe, perhaps as something looking like taxation.

Single-Payer Option 2

Throughout our population, rich or poor, working or not, some of us need health care more than others, some a lot more or a lot less than others. In some ideal world, we would each pay an equal amount into the pipe, an amount sufficient in total to cover our collective medical needs.

Ideally, yes. But reality is a bitch in its complexity and inequality; the real world is by no means simple or ideal.

Today, for example, health insurance companies provide us a number of different products at different price points. Some allow us to essentially gamble on our need for – and expense of – our projected health needs. We opt for higher or lower deductibles and copays depending on our individual perception of need, and those decisions influence our out of pocket costs. If we're wrong, we are personally responsible for the costs, usually to a defined, out of pocket limit.

For related reasons, health insurers also offer Health Maintenance Organization (HMO) plans, each with the intent of trading off your flexibility in choice of provider for lower out of pocket costs. You may decide to choose a more flexible plan with more provider options or with higher levels of coverage, but of course you will pay more for your insurance.

The point is, partly because of the cost of our own personal insurance, given our own circumstances, we have bought into a plethora of complex options in an attempt to lower our own health insurance costs, having traded that off against the probability and cost of our own health care costs.

The rich, of course, are more capable of handling both the expected and surprise costs of health care, even to the point of accepting a real gamble and choosing to have no health insurance at all. When they are wrong, they pay their expenses but risk little in relation to their assets. As a result they might prefer not to contribute to a health insurance pipe at all.

The poor and currently healthy may prefer to take that risk as well, as many are doing today, and similarly decide not to contribute their portion. The difference is, of course, that when the gamble fails, the financial downside is so much greater than for the wealthy or the insured. When these individuals require care and cannot pay, someone else is nonetheless picking up the potentially huge tab. It is also the case that unmanageable medical bills are a significant contributor to personal bankruptcy, where here too someone else is effectively picking up the tab.

So, as you can glimpse here, the simple ideal model of everyone paying an equal share never really was even a realistic ideal. Still, as with income tax, we as a society have decided that equal service does not necessarily require that we all must contribute equally. Even so, some level of contribution is required, perhaps based on a progressive, sliding scale, perhaps using other methods. The pipe must be filled. It is up to us as a society to determine how. Each of us will have to pay a portion that society deems "fair".

Portions of our personal contributions could be based on an income tax, or a health tax, or even some form of sales tax – or perhaps a combination of the three. Food, for instance, which we all need, could include a "health tax". Society might decide that high-end purchases like designer clothing or speedboats might have a special tax devoted to health care. Your editors don't suggest which taxes should be used, but rather want to provoke you to think about the options. Recall again that these are not, for most of us, new contributions; instead they are a transfer of what we and our employers are paying through a different input into the pipe. Clearly, though, societal input will be crucial to determining how to cover costs we are all likely to incur sometime in our lives.

To aid in controlling overutilization of health services, and thereby controlling costs, copayments can be required of all users of health services. How an individual's copayment is calculated will also require societal input. More on this later.

Finally, the input into the pipe really must be nearly equal to the output. Borrowing to feed the input over the long term simply is not an option.

So, What Does it Mean to be "Poor" Relative to Health Insurance Costs?

When is health insurance too expensive for someone to afford? Nope, this is a question you get to answer for yourself. After all, you are likely to have your own definition and that is fine. In an effort to get you thinking about this for society as a whole, we again intend to start with what we hope you will agree are facts.

We start by observing a few things about our costs for insurance:


Is this coverage for your age affordable? That, of course, is a function of one's income and overall financial obligations. In answering that question for yourself and others, keep in mind that when – not really if – you just became unemployed, your ongoing income is not going to be growing for a while and you likely are not receiving a health insurance subsidy. So, for comparison, letís look at the distribution of yearly income for Americans in 2016. To answer that, see the following graph.

As seen in the following graph, roughly 1/3 of households, most with multiple people needing insurance, make $35,000 a year or less. Median income was $56,500 meaning that half of all households made less than that. Please create your own comparisons for determining what is acceptable, but as a single comparison point consider the following:


If you want more detail, consider this following graph with finer granularity from 2014, and adjust for the fact that the 2016 median income went up some to roughly $56,500 (rather than $53,700).


Or from a different point of view, consider average income by age. The median pre-tax earnings for Americans at every age bracket, according to data from the Bureau of Labor Statistics for the second quarter of 2017 is as follows:

What percentage of this should we ask be allocated for the purpose of insuring health care? Everyone should pay, yes, but how does our society want that expense to be allocated?

It's worth noting that if our country had taken action years ago to limit spiraling health care costs and resulting health insurance costs, and if incomes increased at the rate they actually did, this relative expense would be less a problem. In other words, using your own definition of "affordable", without immediate government action, this is only going to be an increasing problem. Simply speaking, your analysis of what is bad is only going to get worse.

As a principle, everyone – rich, poor, working, temporarily or long-term unemployed, single or with a family – should pay for health insurance one way or the other. It is up to us to determine just how much any of us should pay, under what circumstances they should pay, and how much they can afford to pay. We must give serious thought to new models of health care insurance and come to an agreement on a fair, equitable, and sustainable model. Again, what is needed to actually pay for the nation's health care must closely approach or exceed what all parties contribute in total. We are not advocating a specific option but we do want you to know that we have choices and from the possibilities we must fashion a plan acceptable to society as a whole.

Single-Payer Option 3: Of Deductibles and Copays

Let's start out with a couple of definitions:

"A deductible is the amount you pay for health care services before your health insurance begins to pay."
"A copay is a fixed amount you pay for a health care service, usually when you receive the service. The amount can vary by the type of service. You may also have a copay when you get a prescription filled."

Generally accepted and understood, right? The key concept here is that you, not the insurance company, are responsible to pay the health care provider the value of your deductible and your copay.

OK, suppose you donít pay? Who is out? For prescription drugs, no one pays, since you wonít be getting the prescription drugs unless you pay your copay at the time you visit the pharmacy. But for other health care providers who donít, or canít, collect the copay at the time of service, the provider is left with only partial payment. Assuming that that is unacceptable, what are the options?

The single-payer plans all seem to imply that the health care provider will be reimbursed reasonably for all services rendered. Recall again that we are working to control health care costs partially by ensuring that providers donít shift unreimbursed expenses. So what about unpaid deductibles and copays? A previously discussed option pointed out that, to whatever level, via whatever mechanism, everybody is contributing to their own healthcare. There may well be a deductible, but the amount for each individual will be determined by law. So either these deductibles and copays will not exist, or we must find a means by which all health care consumers actually do pay this component of health care funding.

Since the single-payer is paying for all health care, we must ensure that everyone contributes the required payment into the system. How can we guarantee that?

The answer may be taxation, or more to the point, a decrease in refunds at tax time. The consumerís bill to the single-payer remains outstanding indefinitely. So, for those who happen to be fortunate enough to have gained from an Earned Income Tax Credit, the remaining health care bill will be deductible from that. We must also develop a plan to collect contributions to health care from individuals who do not file income taxes.

If this is the way we want it to go, the consumer is responsible for paying the single-payer entity for such deductibles and copays. That means that the health care provider, when billing the single-payer entity, needs a secure and trusted means of also providing the identity of the consumer to the single-payer entity. This, in turn, provides the single-payer entity the means of securely identifying the consumer for billing associated with the deductible and/or copay. In short, support of single-payer also needs a secure and trusted national identity.

That being the case, it then becomes a requirement to determine how it is that those without said national identity access health care in this country. For those of known foreign location – those identified via a passport and visa – and with foreign insurance, either the health care provider or the single-payer entity would seek reimbursement from their insurance company. This is not all that different than what happens when a health care provider seeks reimbursement from a foreign national today. However, it is not clear to this writer what is supposed to happen for the health care of someone without a national identity certificate and without insurance.

Single-Payer Option 4: Tiered Health Care

Although we do not often acknowledge it, today we have a multi-tiered health care system in America. Some people simply get more frequent and complete health care than others. Some present to the doctor or hospital only in the most extreme circumstances when their health is seriously jeopardized and costs are guaranteed to be high. Like it or not, we have tiered health care; this is the situation our present system has yielded.

Even when we do settle on a single-payer health care model, some form of multi-tiered approach may persist. However, we can formalize this option, making it more palatable to those accustomed to and able to afford more than basic health services.

But rather than "multi-tiered", let's simplify for the moment and call a single-payer based approach a Basic Plan and add an Enhanced option in addition to the Basic plan for those who choose it.

We won't go into great detail regarding specific benefits in each plan, but Basic Funded Health Care would guarantee that payment for a broad package of benefits would be paid by the single-payer plan. The plan would not refuse membership or otherwise discriminate on an actuarial basis or pre-existing condition.

Anything above this pre-defined basic care would be paid directly by an individual, or by an individual who had purchased an additional level of coverage either through the single-payer system or from a private health insurer. As a variation on this theme, Medicare offers only basic coverage in its public insurance plan (Parts A and B). Private insurers control the supplemental market and hybrid market (Part C), making it an example of a mixed delivery system.

Or as another way of thinking of multitier, start by observing that health insurance was not always intended to be used the way that it is today. Insurance plans tend to be used as a hedge against major or unpredictable losses. How many of us as capable of paying for the health care stemming from Ė say Ė a major car crash? The health insurance business was based on that model, with insurance sold as a hedge against such unexpected and major medical costs like emergency surgeries. But the general rise in all health care costs have resulted in making health insurance being used differently. Now, a use of health insurance includes defraying the costs of relatively more certain events like regular medical checkups and common medical procedures. As it relates to single-payer options, it is up to us to determine whether there can be such a dividing line and, if so, just where is that dividing line. Everything else becomes the responsibility of those buying insurance from the private market; those who do not have such insurance must first prove that they are capable of paying for such additional service.

Observation: Thoughts on the Published Cons

All of the preceding has attempted to address the financial aspects of single-payer options, steering clear of partisan politics and documented cons concerning the concepts. So let's look at some of the negatives of single payer insurance and attempt to think through their validity.

Are these concerns valid and, if so, how strongly valid? The issue of waiting time would seem to be largely a function of the utilization of available health care providers, whether those resources are doctors, beds or whatever. In effect, when you need a service, is that service going to be available at that time. What would cause excessive utilization, increasing the waiting time?

In Conclusion

Nope, no conclusion from your editors. The decision is yours.

Additional Reading