Yesterday, New York Times health care reporter Margot Sanger-Katz, whose work I very much respect, entered the debate on the costs of Sanders’ single payer plan in a piece I find problematic, headlined “A Single-Payer Plan From Bernie Sanders Would Probably Still Be Expensive.” I should first concede, however, the central argument of her article: it is true that a US single payer system would still be relatively expensive as compared to other single payer systems. We would, that is to say, continue to spend more than the United Kingdom or Canada if we transitioned to single payer. At the same time, there would nonetheless be enormous savings from such a transition, and these savings would allow us to affordably achieve real universal health care. This, in my opinion, would still be an excellent deal.

The background to this debate are two analyses of the Sanders’ single payer proposal—the first by economist Kenneth Thorpe and the second by the Urban Institute—both of which claimed that the actual costs of Sanders’ single payer plan would be significantly higher than what his campaign has predicted. The assumptions of each have been convincingly contested by colleagues David Himmelstein and Steffie Woolhandler: among other points, they argue that both analyses underestimate administrative savings and overestimate the cost of increased health care use resulting from a coverage expansion.

Anyway, without delving into the details, there is something rather puzzling when looking at the analyses of Thorpe and the Urban Institute from a broader perspective. How is it that single payer would massively increase costs in the United States, as these reports contend, even while countries with single payer-type systems—like Canada and the United Kingdom—have much, much lower health care costs than we do?

To answer, a quick side note: our total health spending is, by definition, equal to the quantity of health services delivered multiplied by their price. The US does not consistently use more health services than other high-income nations. Therefore, the fact that we have higher health care costs is mostly explained by higher unit prices for services, as Sanger-Katz and others note. Now us single payer advocates cite lower administrative costs (and lower drug spending) as the major sources of savings under US single payer (effectively lowering the “price” side of the equation). But Sanger-Katz argues that this would be insufficient: prices would have to be slashed across the board, and some services would have to be cut:

Making the American health care system significantly cheaper would mean more than just cutting the insurance companies out of the game and reducing the high administrative costs of the American system. It would also require paying doctors and nurses substantially lower salaries, using fewer new and high-tech treatments, and probably eliminating some of the perks of American hospital stays, like private patient rooms.

Such a transition would, she notes, have some scary sounding downstream consequences: “…making big cuts all at once to doctors and hospitals could cause substantial disruptions in care. Some hospitals would go out of business. Some doctors would default on their mortgages and student loans.” My understanding is that we aren’t really allowed to effectively default on student loans, but admittedly this all sounds rather dicey.

But this frightful health care meltdown isn’t even in the cards. She is correct in a narrow sense: it’s true that immediately lowering US health care expenditures to, say, that of the United Kingdom — i.e. from 16.4% to 8.5% of gross domestic product — would require major, disruptive reductions in spending across the board. However, nobody is contending that we do that. The central claim for US single payer is more modest. Use the enormous administrative savings generated under single payer financing in combination with pharmaceutical savings to cover everybody with comprehensive benefits and no cost-sharing. Overall national health spending would, it is true, remain roughly the same (though we could better control cost growth moving forward). But this scenario of widespread hospital bankruptcies and the end of private (or semiprivate?) hospital rooms is a fantasy: nobody wants it to happen, and it’s not happening.

It’s worth noting that there is also a jarringly inconsistent aspect to single-payer critiques that warn of the threat to health care workers’ income. As Woolhandler and Himmelstein note in an article in the Huffington Post, the Urban Institute simultaneously asserted that the coverage expansion under single payer would lead to an enormous increase in spending on physician services — by $1.6 trillion over a decade!—while simultaneously asserting that physician salaries would be “squeezed.” Whatever one thinks of how much physicians should be paid, it’s hard how these would both happen at the same time.

Transitioning to single payer will not mean reducing our health care expenses to British levels: that is probably not possible, and is certainly not desirable. But that’s not to say that the savings from adopting a single payer financing system wouldn’t be substantial—we’re talking hundreds of billions annually on administrative savings alone, plus more by reducing drug prices to European levels. With that money, we’ll build a much more decent health care system for all to use without having to worry about the cost of being sick, of being pregnant, or simply of obtaining preventive care. No wonder a majority of the country wants it.

Yesterday was an important day for the single payer movement.  We launched the “Physicians’ Proposal for Single-Payer Health Care Reform” at a 1 PM press conference at the National Press Club in Washington.  Dr. Robert Zarr, president of Physicians for a National Health Program (PNHP), presided.  Participants (from left to right in this photo tweeted by AMSA President Kelly Thibert) included co-founder of Public Citizen’s Health Research Group Dr. Sidney Wolfe, National Nurses United Co-President Karen Higgins, Dr. Claudia Fegan, Dr. Zarr, myself, and Dr. Steffie Woolhandler:

Everybody in, nobody out! #SinglePayer #HCFA @AMSANational @PNHP pic.twitter.com/zatk4WtF5e

— Kelly Thibert (@KTOTUS) May 5, 2016

The Physicians Proposal is a detailed blueprint for a single payer system, as well as a comprehensive critique of the shortcomings of our current system.  It was formulated by a 39 member working group, co-chaired by Dr. Marcia Angell, Dr. David Himmelstein, Dr. Steffie Woolhandler, and myself.  It was published yesterday alongside an editorial we wrote in the American Journal of Public Health.  The proposal is available here (and is open for more endorsements), and the AJPH editorial is open-access and available here.

The release has gotten some good coverage so far, including in:

US News & World Report (“Doctor Group Pushes for ‘Single-Payer’ Model”)

The Guardian (“‘We need fundamental changes’: US doctors call for universal healthcare”)

The Washington Post (“2,000 doctors say Bernie Sanders has the right approach to health care”)

The Hill (“More than 2,000 doctors join call for single-payer healthcare”)

Morning Consult  (“More Than 2,000 Doctors Back National Single-Payer Proposal”)

I also had the opportunity to discuss single payer on Thom Hartmann’s show “The Big Picture,” which aired at 7 PM last night:

The fight for universal health care in America continues.

Does single payer save money? Matt Yglesias had a piece in Vox today headlined “The single-payer debate we should be having,” in which he admits that Hillary Clinton’s recent anti-single payer (SP) attack is “questionable,” but contends that we’re missing the main point about SP: namely, that it saves money by reducing reimbursement to health care providers like physicians.

Such a move would be politically very difficult, he argues, and in any event we could very well cut payments without moving to SP – and save money all the same. It’s best to quote him at length:

Single-payer systems save money by squeezing health care providers — doctors, hospitals, and ultimately everyone who works for them — which would be very difficult to accomplish ex post facto. If the political consensus did exist for enacting large, across-the-board cuts in doctors’ fees and hospital charges, then there would be no need to shift to a single-payer system in order to accomplish the cuts. In the absence of such a consensus, the switch to single-payer actually wouldn’t save money, and the costs would become exorbitant.

Thus, he contends that “a single-payer structure is neither necessary nor sufficient” to reduce health expenditures in this fashion. He says a lot in this article, some of which is fair, but this specific point is incorrect.

In passing, Yglesias briefly mentions that SP would be administratively simpler, yielding some increased efficiencies. But this is entirely inadequate: reduced administrative expenditures would be a primary source of potential savings under SP. This may sound wonkish, but it’s a point of great importance in this very high-stakes debate.

There’s a whole literature about administrative inefficiencies of the US health care system, but I’d ask Yglesias to have a look at this paper by Jiwani et al., Billing and insurance-related administrative costs in United States’ health care: synthesis of micro-costing evidence, published in BMC Health Services Research in 2014 (note: two of the co-authors [DS and SW] are colleagues/collaborators on other projects). The paper provides an estimate for “billing and insurance-related” (BIR) costs for the US health care system, and compares it to Canada, which has a single-payer system.

The potential estimated efficiency savings are enormous. In comparison to the SP system in Canada, “added BIR costs” were estimated at $49 billion/year for physician practices, $54 billion/year for hospitals, and $69 billion/year for “other health service and supplies.” Using US Medicare as a benchmark, added BIR costs were estimated at $185 billion/year for private insurers and $18 billion/year for public insurers.   Depending on the exact assumptions used, the investigators produced a “plausible range for overall added BIR costs in the US of $254 – $507 billion in 2012…”

The implications of this are clear: the efficiencies of a SP system – which could reduce or eliminate the need for a whole range of administrative and billing activities at the level of insurance companies, hospitals, and doctors’ offices – could be a substantial contribution towards expanding coverage under SP. To quote the investigators:

Implementation of a simplified financing system offers the potential for substantial administrative savings, on the order of $375 billion annually, which could cover all of the uninsured and upgrade coverage for the tens of millions who are under-insured.

This might sound farfetched for those who are unfamiliar with the enormous administrative inefficiency of the US health care system. Hospitals, for example, currently tabulate complex patient-by-patient bills, sometimes for every service or supply utilized (and often chase down those with unpaid bills using debt collection agencies). Under SP, they could instead be paid “global budgets” to cover all operating expenses and all patients; the need for hospital billing departments would thereby shrivel. Physicians practices’ likewise must bill (and jostle with) an ever-changing roster of insurance plans, requiring significant staff and/or time.

In short, Yglesias’ analysis of the current SP debate almost entirely neglects how increased administrative simplicity could pay for a SP system that eliminated both uninsurance and underinsurance. Even if overall health care expenditures were unchanged at the end of the day, this would be quite a bargain.

An article published in the Wall Street Journal today, headlined the “Price Tag of Bernie Sanders Proposals: $18 Trillion,” seems intended to induce what I might call “single payer sticker shock.” After all, the article states, $18 trillion not only “alarms conservatives,” but also “gives even many Democrats pause.” $15 of that $18 trillion is attributed to Sanders’ proposed single-payer health care reform. It sounds like a forbiddingly high number.

But is it a fair number? A story by David Dayen at The Intercept (“Wall Street Journal’s Scary Sanders Price Tag Ignores Health Savings) and a post by Matt Yglesias at Vox (“Bernie Sanders’ $18 trillion in proposed spending is more affordable than it sounds”) help put this number in context, but I think there are couple more things to be said about it.

As Dayen notes, the article draws from a study published by Gerald Friedman, an economist at the University of Massachusetts at Amherst, to compute the $15 trillion figure. Friedman wrote the study in 2013 in order to estimate how HR 676 – the single-payer bill sponsored by Congressman John Conyers – might be financed. The mix of taxes Friedman suggests is one potential approach to paying for single-payer; others are possible.

In any event, since the WSJ article relies on Friedman’s estimate, it’s worth turning to his report and asking: how much would single-payer cost? There are two ways to answer this question.

In Table 2, Friedman describes the “Estimated costs of health system improvement and transition costs under HR 676 (in billions of dollars),” which I’ve reproduced, verbatim, here:

Thus, according to Friedman’s analysis, the cost of expanding health coverage to everyone in America (i.e. eliminating uninsurance together with most out-of-pocket health care costs) along with various associated costs (e.g. reimbursing owners of for-profit health facilities and assisting newly unemployed insurance workers) would cost $394 billion annually ($51 billion of that would be for transitional costs, so would apply to the first year only).

So should we argue that single-payer “costs” $394 billion a year? No, we shouldn’t. Table 3, “Savings on provider administrative overhead and pharmaceutical costs,” details the various savings associated with a single-payer system. Direct governmental negotiation with pharmaceutical companies over drug prices would result in $115.9 billion savings annually. Reduced administrative expenditures (something I recently blogged about), would, according to Friedman’s numbers, save $476 billion a year.

In other words, at least according to this one study, overall savings under HR 676 would be $592 billion a year, while overall costs would be $394 billion a year. Here is Friedman’s pie chart, which I’ve redrawn:

Now, as Dayen argues, this makes sense: “The entire point of a single-payer health care plan, aside from covering everyone in the country,” he writes, “is to minimize costs, by reducing administrative bureaucracy, the profit motive and middlemen.” Exactly. But if savings > costs, where does the $15 trillion figure come from?

In a universal single-payer health care system, everyone would be covered; all current expenditures on health care would be replaced by taxes. As the WSJ admits, the “trade-off” for such new taxes would be that “employers would no longer have to pay for or arrange their workers’ insurance.” However, this is entirely inadequate. The following additional expenditures would likewise disappear entirely:

1) Employee contributions to their insurance premiums

2) Payments made for insurance premiums for those not covered by their employer.

3) Out-of-pocket expenditures (which are on the rise) on things like copayments, deductibles, and co-insurance

4) Payments for long-term care, which are today essentially uncovered for most (except for those in poverty, through Medicaid)

Yes, all of those payments would have to be replaced by taxes (see note 2 below).  But as Yglesias notes, “[i]f you financed it [single payer] with a broad-based payroll tax (the way Social Security is financed), people with job-based insurance plans wouldn’t even notice the difference — today’s insurance premium line on your pay stub would become a tax line.”

While payroll taxes are only one way to finance single-payer (and, as the 2003 PNHP proposal notes, progressive taxation would actually be fairer), the overall principle holds: replacing current health care expenditures with taxes would be relatively unobtrusive for most of us.

And in return for what is essentially a spending swap, we would have universal first-dollar health care for everyone in the nation. That seems, to me, to be a small price to pay.

Note: Edited for unfortunate name misspellings … Apologies!  Also, my initial figures for administrative (and total savings) were incorrect in the text, though they were correct in the pie chart; they have now been corrected. Finally, I’ve now clarified that of Friedman’s $394 billion per year in costs for health system improvement under single-payer, $51 billion would be for transitional costs which would apply for the first year only.

Note 2: How much would those payments be?  Although the $15 trillion figure is sourced in the WSJ article to Friedman’s study, the study that I linked to doesn’t mention that number. I’m assuming the figure combines the assumptions of the study with projected national health expenditures over the next ten years (figures noted by both Dayen and Yglesias), which are available from CMS here (NHE  Projections 2014-2024, Table 3 “National Health Expenditures By Source of Funds”).  Summing the projected national health expenditures for the years 2014 – 2023 gives us $4.14 trillion in projected out-of-pocket payments and $13.16 trillion for private health insurance.  Those sources of payment would need to be replaced with public funding. Doug Henwood also pointed to this data, and made a similar overall point, at LBO.   

Note 3: I’ve noticed that Gerald Friedman, the author of the study cited by the WSJ, has weighed in on the use of his analysis at the Huffington Post, available here.  He includes his 10-year projections, and confirms that approximately $15 trillion in new federal spending would be required under HR 676.  However, “…by spending these vast sums,” he writes, “we would, as a country, save nearly $5 trillion over ten years in reduced administrative waste, lower pharmaceutical and device prices, and by lowering the rate of medical inflation.”   The bottom line couldn’t be clearer.