A Layman's View 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With the likelihood that the Affordable Care Act will be modified or perhaps repealed altogether, some citizen groups and legislators have expressed a preference for a single-payer health insurance plan akin to the European and Canadian models.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 even and 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 would like to 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 basic to 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. In addition to rent, utilities and typical office supplies, medical equipment capital costs are very high 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 doctor can take less, with results being, for example, that a physician who treats large numbers of Medicaid, uninsured or underinsured patients can have trouble making payroll and some have even had to close down. Again, Fact 1 points out 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 not for long when they do. Consider:

So, how do doctors or hospitals keep their doors open in communities with many poor or uninsured citizens? They do, of course, charge uninsured patients, but often such patients are unable or unwilling to pay, especially for truly 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 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, and we intend to keep it this way, there has not been a partisan or political statement made. 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. One way or another, even if the store has considerable shoplifting, the store's expenses will be accounted for via your purchases at the time of the purchase. But societal norms dictate that doctors and hospitals provide most medical services without advance payment or even any "down payment." In many cases prepayment isn't practical or even legal and collection rates are often far less than billings. 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. (Baker ASC estimates that in 2015 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 assume a proportionate share of the group's expenses. Add to that the cost of malpractice insurance, this being discussed 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. We will talk later about the effects of inequities in income in the various specialties. Does having an insufficient supply of health care providers result in increased medical 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 donít shrink just because our checkbooks donít 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 existed or was created to allow for cheaper health care.

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; 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). It'd be nice, but you know that your insurer is not doing this out of the goodness of their hearts. You know that this works because you, along with subsidies from your employer, have been regularly paying 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.

Insurance companies intend to win, with the alternative being 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 they get 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, next, let's alter these odds. 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 great 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 turned against them, so they increased the price of our premiums to keep the pipe full on the input side of the pipe. 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 the set of patients provided will be paying their bills. The larger and more stable the pool of potential patients, the more likely a provider is to join the health care provider "network" Indeed, the larger the network, the more patients are likely to join. Providers have also proven willing to accept reduced payment in the likelihood they will have busy exam rooms and filled hospital beds. You know this as 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'll 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 additionally becomes more expensive care wherein we find we need to seek care outside of the provider network.

As 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 pay out must be sufficient to on average 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 got 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 more 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 a function of 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 costs. There is enough consumer and provider fraud occurring 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 ďpre-authorizationĒ for necessary medical services, this adding time to care and a time 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. And anything that can decrease the costs can be used to decrease the price of their premiums, thereby allowing the insurer a competitive advantage. It seems obvious enough that lower health insurance costs to our employers and to us have a way of driving more of us 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, as we have seen in some states, let's reduce competition to the point where it is nonexistent. What happens with a profit-motivated company, in any industry, where there exists no real competition for profit-based insurers. 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.

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

Fact 2 said that the dollars paid in 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 a business, each with their own expenses associated with the normal trappings of any 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, for whatever reason, do not want to take on the expense of providing health insurance services to any but well-defined pre-existing pools of people, perhaps because they perceive insufficient benefit given those costs. (Why is that? What increases their costs of individual insurers given even pre-existing technology?)

Insurers set premium levels to compensate for risk, 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 and investors looking for dividends and increases in share value. It is the very definition of the CEO's job. We may assume that the secondary goal of providing a cost-effective, successful insurance product that keeps costs to employers and patients 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?

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. The service that they 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, and additionally provide 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 number's precision if you like, but understand that the payer's 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 payment 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 Health 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 Businesses portion is largely the health insurance subsidies many – but not all – employees receive, decreasing each employee's personally perceived cost of health care. We'll look at just why such subsidies exist at all shortly, but if these subsidies appeared instead as just basic income, those of us benefitting in this way would then need to privately purchase health insurance and would see the full cost. (We'll look at the private health insurance market shortly as well.)

Let's also observe here that those of us finding ourselves temporarily and long term unemployed, or even self-employed, also find ourselves unable to take advantage of this fringe benefit and so do see the full cost of purchasing health insurance.

(And as a question for our readers, given that business wants a flexible work force, one willing to act as self-employed contractors or even to accept being laid off, perhaps shortly to find a new position with a risky business venture, 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, what, if any, responsibility does society have to help motivate it? As usual, your editors here are not going to attempt to answer a question like that for you.)

As an interesting historical fact, such fringe benefits became more of a norm during WWII. At that time, because employers were prevented by wage controls from raising pay rates to attract more workers during the labor shortages brought on by those controls, they instead resorted to increased "fringe benefits" to achieve the same results. At that time, these benefits were not taxed, so their value to the workers exceeded the costs to the employers. So, sans tax benefits, and given a more normal ability to recruit needed talent, would such health care subsidies have been available then? And will they continue to be available in our own future?

Government – Federal, State, and Local taken together account for a relatively significant 44%. Since this is a discussion on the notion of single-payer options, some such being based on government's direct involvement, it is worth noting here that government – which also means us – is already paying a rather significant portion of all health care. Since much of this discussion concerns whether a single-payer option is feasible, it is also worth noting here that we are already part of the way there.

We all know, or should know, that the government funding does not come for free. Whatever it pays is money that had come from somewhere else, such as personal taxation. Some of this taxation is roughly earmarked for one type of health care, Medicare; those of us employed find a part of our income routed for the purpose of Medicare. Unfortunately, a rather significant percentage of all federal government spending is funded by debt, today via an increasing debt. It follow that a significant portion of what the federal government spends on health care is also funded via debt. This being a discussion on the feasibility of having single-payer health care, it would seem necessary for any single-payer program to generally cease needing to be funded via debt.

As you know, Americans can sign up for Medicare as they turn 65. Medicare Part A covers hospitalization and is generally premium-free. Medicare Part B covers outpatient care, such as doctors' visits, x-rays and tests, and costs $134 a month (a nominal $1608/year) for people who enroll in 2017 (or 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 consumers buy supplemental health insurance to fill some of Medicare's coverage holes. In as much as even Medicare consumers have deductibles and copayments, most people buy this supplemental (Medigap) policy to pay those costs, plus Part D prescription-drug coverage because Medicare generally does not cover drugs.

Our governments also support Medicaid(s) of 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 of it is that if an individual is perceived to be eligible for other government-funded supplementary income, they are also 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."

Before going on, you have likely already picked up on the fact that today government funding of health care is not evenly distributed throughout American society. It instead focuses on sets of relatively at risk sets of people.

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

As to the negative side of Medicaid :

One reading on this suggests that health care financing fraud exists, no matter what institution(s) exist to pay for health care. The trick is to have associated mechanisms to most efficiently combat it. So the question for single-payer would seem to be, is it any more or less capable of minimizing such fraud. Some of the observations made above would suggest that it could be more efficient.

We had also previously observed that health insurance companies are financial pipes. You, your employer (with luck), and the government, pay into that pipe. The health insurance companies, after rerouting some of that input for business expenses and profit, use the rest to pay for your actual health care. But the service provided is just that of a financial pipe; it has worked because they take the risk away from the individual. But, in actuality, because they know the game they play very well, your risk which they took on is not really a risk for them. And those that don't know the rules for efficient play, well, they are out of business or get bought up by those that do. And there are hundreds of companies being relatively successful at it, each with their own hierarchy, most by definition making a profit at it. Very roughly speaking the largest 125 of them account for very roughly $1 Trillion dollars in premiums, with the top 25 of those accounting for about 2/3 of that. We had also observed earlier that the larger the pipe, the greater the opportunity for influencing costs. Still, together they are just one large financial pipe, pushing through one very large flow of money to themselves, their investors, and, of course, the health care 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. You also believe that you need health insurance during this time. 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 and are certainly not now part of a group. Said differently, you are on your own.

For whatever reason, this is the market that health insurance companies have desired to exit, leaving available to you less choice and, in effect less competition controlling the price of health insurance.

On that same line, we find a positive approach being advocated in Alaska. (How Alaska fixed Obamacare) In essence, Alaska is back stopping some of the risk incurred by the health insurance companies, found that they could get help from the federal government in doing so, and are actually showing as a result that premium costs are decreasing. Indeed, given that insurance companies find that now they can be more profitable, more companies could rejoin Alaska's – and so other state's – markets.

Contradicting that, though, 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. You, having been forced into this marketplace – perhaps due to no direct action of your own – have no other choice to purchase the insurance that you need. Or consider the self-employed, or individual contractors as additional examples. Indeed, much of the modern computer software industry exists because of people willing to move between jobs. They would seem to be damaged by this prospect. Why would our government dis-motivate the willingness of people to move between positions?

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

As some 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 the following 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? Through whatever means that insurance coverage is to be provided, also 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, of course, successfully point out that there exists some inefficiency in this flow of money. For example, as mentioned earlier, very roughly 12% of the money into this pipe does not make it out to the medical service providers, simply because that is what it costs to manage the company managing this money flow.

Still, we ultimately also want that money flowing in to be smaller than it is since that represents part of our own and our government's health care costs. One very general way to decrease the money flowing in is to address the costs of health care, for that represents the money flowing out. Said differently, whatever our government does relative to reorganizing the responsibilities for paying for health care, the government – and all of us – should carefully be looking at the larger picture – taking a holistic view if you like – of health care costs as well. We are not talking here in terms of "laying down the law" on such costs, but instead looking at what it is that is really driving those costs and addressing that.

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

Toward a Single-Payer Plan

The story so far

From this level, the medical industry would seem to be doing very well, even supporting those who are not paying or not really paying enough.

Additionally, with taxpayer support via the likes of Medicare payments and taxation,

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

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

Not everything, though, is good news. But interestingly much of the bad news seems to be largely due to spiraling up healthcare costs, something that had been allowed to continue for a long time, but, fortunately, something that can also be limited and, with thought, controlled at multiple places within the system. What we can not do is leave things essentially as they are. First, though, let's look at at least part of a process – a feed back loop – causing that spiral:

  1. Health insurance cost are going up, largely because health care costs are going up.

  2. Because health insurance costs are going up, the percentage of a family's budget used for health care appears to increase and, additionally, companies limit or end their employee subsidies for health insurance. Of those still buying health insurance, these effects result in many of them ceasing to pay health insurance premiums.

  3. Some of those now with no or insufficient insurance, but also deciding that they must still take advantage of health care, find themselves incapable of paying for that health care. Additionally, those who should be 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 their health care.

  4. Health care providers pass these unpaid expenses onto those who are paying.

  5. Because the pool of those paying for their health care is shrinking, health care costs are increased for those capable of paying.

  6. Recalling that those health care payments are largely sourced from the health insurance companies, with higher health care costs, health insurance companies must increase the price of their insurance products. (Loop back to Step 1.)

It's a bit like an inflationary spiral. And it's only going to grow worse the more that we ignore it (and point fingers at each other).

But there is also more to this.

The governments, both federal and state, act as health insurers and payers of health insurance. As a result, the governments are directly connected into this same loop. As health care prices go up, and with our government(s) paying for – using our taxes and "contributions" – such a large percentage of the nation's health care, our governments find themselves in the same state as the insurance companies, being incapable of handling the increased costs without more income. And to make it worse, largely because of an unwillingness by our governments to address their own expenses over now decades, we find that a rather large percentage of these health-based expenses are being covered to some extent by buying still more debt.

So, how do we insert ourselves into the middle of this unfortunate feedback loop and get control?

Fortunately, we can. In what follows, I am not going to attempt to sell you on any one given approach. In fact, I am 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 out by picturing some single entity, an entity which has the job of distributing money for the purpose of paying a significant portion, but not necessarily all, of our health care expenses. We are not saying here whether it is a government entity, a government-directed entity, or even a non-profit corporation. Its purpose is to pay large portions of medical bills, ensuring as well that the bills paid are appropriate. Continuing with our earlier "financial pipe" metaphor, these payments are the output. It ensures that medical providers are being paid for their services. Payment sufficient for all service removes the provider-side requirement to transfer costs from those not paying to those that are, which, as you saw, results in the perception of higher medical provider costs.

[Yes, for those thinking ahead, this is a bit of a pipe dream, solutions for which will be addressed soon, but it is necessary to create a mental image from which the rest can be built.]

Clearly, this financial pipe also requires input-side funding. The pipe does not generate money, it just pumps it, leaking some of it. The mechanisms for this funding exist and largely have existed for some time. As examples:

Up to here, aside from insisting that all who get health care also pay for some portion of their health care, the only change is to the entity representing much of the financial pipe.

Keep in mind again, that the health care providers, health care institutions, and drug companies are largely financially successful today. They are being paid now and they will continue to be paid, just not with the expectation of externally-driven inflationary price and cost increases.

We should add that these providers remain independent, perhaps though having been motivated by other government means to alter their current organization and processes. There is no assumption here concerning the nationalization of health care.

Notice that, unlike what many perceive single-payer health plans to be, this is not simply the government paying for all of this via increased taxation on everyone. At some level, all that this simple mental model did was remove the input feeding the financial pipe(s) from today's many insurance companies and transferred it to some yet undefined financial entity which ensures that all receiving health care have assistance paying for all their health care.

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

Single-Payer Option 1A

Just as a point of comparison, let's compare Option 1 (what we just went through) to a single-payer health plan pictured by most people. In this other model, it is only government taxes that are feeding the input to the pipe. If that really were the case, that would also mean that

In such a model, the taxation rules would be adjusted (we are not here saying how) to ensure that there exists sufficient money coming into the pipe to handle the amount flowing out. In some ideal world, it would be a zero sum game. If you like, if taxes are the approach, one way of picturing this is that what you would have called payments for health insurance before would become taxation; think Medicare payments "taxation" for example. This is by no means precise, but you get the idea. Whatever you call it, either way or whatever way, it is still money leaving your budget for reasons of health care and its insurance.

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 all pay an equal amount into the pipe, an amount sufficient, when multiplied by all of us paying the same, to equal exactly the amount being required to pay for health care needs of all those requiring it.

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

Today, for example, health insurance companies provide us a number of different products at different price points, some allowing us to essentially gamble on our need for and expense of our own health care. Believing that you won't need health care or that you can handle more or less of the expense if and when it does occur, you make an agreement with your insurer to increase or decrease your personal upfront health insurance costs. Where you are wrong and need the health care, you personally are responsible for the costs.

For related reasons, the health insurance companies also offer you HMOs, each with the intent of trading off your health care flexibility for lower insurance costs; you can choose against such an option, but then you are also choosing higher insurance rates.

The point is, partly because of the cost of personal insurance, we have bought into complex options to lower our health insurance costs.

The rich, of course, are more capable of handling both the expected and unexpected costs of health care, even to the point of accepting that gamble and optionally choosing to have no health insurance at all. When they are wrong, they pay their expenses, having lost on that bet, but truly risking little. As a result, they might even today prefer not to contribute to a health insurance pipe.

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, of course, is when the gamble fails, the financial downside is so much greater. But as we've noted all along, someone nonetheless still pays.

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, some of it progressively based and some not. The pipe must be filled, it is up to us as a society to decide how that is going to be done, with everyone each paying a portion that society deems "fair".

For example, portions of our personal contribution could be based on an income tax, or a health tax, or even some form of sales tax, or all of the above. Consider, that which we all require, food for example, could have some tax component used to pay into this pipe. Or, if society so decides, a tax on high end clothing would focus on another group. Note that we are not suggesting any given approach. Part of the game here is for society to determine just how it is that everyone contributes. Although equal contribution might be some ideal, reality is a lot more complex and society must decide how this pipe should be filled.

Further, to aid in controlling over utilization of health care provider services and thereby control costs, all those using health care are expected to pay copayments. If you do use health care services, as with Medicare Part B, you have some required minimum to pay.

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

So, What is "Poor" Relative to Health Insurance Costs?

Nope, this one is a question that you get to answer for yourself; after all, you are likely to have your own definition and that is fine. We intend to start with what we hope you agree are facts.

The following graph represents a set of today's average costs for health insurance if we were all required to go out on the private market and buy it. Or, said differently, suppose that you find yourself just temporarily unemployed, what might it cost for you to continue to stay insured at your current age?


Is it affordable? That, of course, is a function of one's income. 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, what is the distribution of yearly income for Americans in 2016? See the following graph. To help get your head around this graph, notice that roughly 1/3 of our households (most with multiple people needing to be insured) are making $35,000 per year or less. Half the households – the median income – are at $56,500 and less. 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).


It's worth noting that if our country had taken actions years ago to work to limit the spiraling up of health care costs and the resulting health insurance costs, at the same time having incomes increase at the rate that they had, this relative expense would be less of a problem. Or said differently, the situation by your own definition of relatively health care poor is going to also be an increasing problem.

As mentioned in the previous sections, everyone – rich, poor, working, temporarily employed, single, or with a family – everyone should be paying for health insurance, it is up to all of us to determine just how much, under what circumstances, and how. And, again, whatever is needed to actually pay for our nation's health care, must be closely approaching or exceeding what we and our employers, all as members of our nation, pay into the pipe.

Single-Payer Option 3

Again, in what follows, we are not advocating a solution, only what is possible and from there allow society to decide.

Although our society does not explicitly say it is occurring, we do have today a multi-tier health care system in this country. Some simply get more complete and more frequent health care than others. Some only request health care under the most extreme of circumstances. That is what we have today. Like it or not, our health care today is composed of multiple tiers.

So if, even after a time where we have single-payer health care, some form of multi-tier approach is still considered acceptable by society, yes, that too can be more formally instituted.

Rather the "multi-tier", let's simplify for the moment and call a single-payer-based approach Basic Funded Health Care and Enhanced Funded Health Care. Rather than defining what constitutes the difference here, let's instead say that Basic Health Care is that which will be guaranteed to be paid by the single-payer program. Still, the Basic Health Care would be mandated to provide a sufficiently broad benefit package and would not refuse membership or otherwise discriminate on an actuarial basis.

Anything over and above this pre-defined base is paid directly by the individual using that health care service or by that individual having purchased additional insurance; this last is the Enhanced Funded Health Care. Although this additional insurance could also be provided through a single-payer institution, it could also be purchased from a private health insurer.

As a variation on this theme, today Medicare only offers basic coverage as public insurance (Parts A and B). Private insurers control the supplemental market (Parts C, D, and Medigap) making it an example of a mixed delivery system.

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 Cons and attempt to think through their validity.

OK, 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 or beds or whatever. In effect, when you need a service, is that service going to be available at that time. So what would cause excessive utilization, increasing the queueing time?

In Conclusion

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