Authored by Drs. David Himmelstein and Steffie Woolhandler:
Professor Kenneth Thorpe recently issued an analysis of Senator Bernie Sanders’ single-payer national health insurance proposal. Thorpe, an Emory University professor who served in the Clinton administration, claims the single-payer plan would break the bank.
Thorpe’s analysis rests on several incorrect, and occasionally outlandish, assumptions. Moreover, it is at odds with analyses of the costs of single-payer programs that he produced in the past, which projected large savings from such reform (see this study, for example, or this one).
We outline below the incorrect assumptions behind Thorpe’s current analysis:
1. He incorrectly assumes administrative savings of only 4.7 percent of expenditures, based on projections of administrative savings under Vermont’s proposed reform.
However, the Vermont reform did not contemplate a fully single-payer system. It would have allowed large employers to continue offering private coverage, and the continuation of the FEHBP and Medicare programs. Hence, hospitals, physicians’ offices, and nursing homes would still have had to contend with multiple payers, forcing them to maintain the complex cost-tracking and billing apparatus that drives up providers’ administrative costs. Vermont’s plan proposed continuing to pay hospitals and other institutional providers on a per-patient basis, rather than through global budgets, perpetuating the expensive hospital billing apparatus that siphons funds from care.
The correct way to estimate administrative savings is to use actual data from real world experience with single-payer systems such as that in Canada or Scotland, rather than using projections of costs in Vermont’s non-single-payer plan. In our study published in the New England Journal of Medicine we found that the administrative costs of insurers and providers accounted for 16.7 percent of total health care expenditures in Canada, versus. 31.0 percent in the U.S. – a difference of 14.3 percent. In subsequent studies, we have found that U.S. hospital administrative costs have continued to rise, while Canada’s have not. Moreover, hospital administrative costs in Scotland’s single-payer system were virtually identical those in Canada.
In sum, Thorpe’s assumptions understate the administrative savings of single-payer by 9.6 percent of total health spending. Hence he overestimates the program’s cost by 9.6 percent of health spending — $327 billion in 2016, and $3.742 trillion between 2016 and 2024. Notably, Thorpe’s earlier analyses projected much larger administrative savings from single-payer reform — closely in line with our estimates.
2. Thorpe assumes huge increases in the utilization of care, increases far beyond those that were seen when national health insurance was implemented in Canada, and much larger than is possible given the supply of doctors and hospital beds.
When Canada implemented universal coverage and abolished copayments and deductibles there was no change in the total number of doctor visits; doctors worked the same number of hours after the reform as before, and saw the same number of patients. However, they saw their healthy and wealthier patients slightly less often, and sicker and poorer patients somewhat more frequently. Moreover, the limited supply of hospital beds precluded the kind of big surge in hospitalizations that Thorpe predicts. In health policy parlance, “capacity constraints” precluded a big increase in system-wide utilization.
Thorpe bases his estimates on what has happened when a small percentage of people in a community have had copayments eliminated or added. But in those cases there are no capacity constraints, so it tells us little about what would happen under a system-wide reform like single-payer.
Thorpe does not give actual figures for how many additional doctor visits and hospital stays he predicts. However, his estimates that persons with private insurance would increase their utilization of care by 10 percent and that those with Medicare-only coverage would increase utilization by 10 to 25 percent suggest that he projects about 100 million additional doctor visits and several million more hospitalizations each year – something that’s impossible given real-world capacity constraints. There just aren’t enough doctors and hospital beds to deliver that much care.
Instead of a huge surge in utilization, more realistic projections would assume that doctors and hospitals would reduce the amount of unnecessary care they’re now delivering in order to deliver needed care to those who are currently not getting what they need. That’s what happened in Canada.
3. Thorpe assumes that the program would be a huge bonanza for state governments, projecting that the federal government would relieve them of 10 percent of their current spending for Medicaid and CHIP — equivalent to about $20 billion annually.
No one has suggested that a single-payer reform would or should do this.
4. Thorpe’s analysis also ignores the large savings that would accrue to state and local governments — and hence taxpayers — because they would be relieved of the costs of private coverage for public employees.
State and local government spent $177 billion last year on employee health benefits – about $120 billion more than state and local government would pay under the 6.2 percent payroll tax that Senator Sanders has proposed. The federal government could simply allow state and local governments to keep this windfall, but it seems far more likely that it would reduce other funding streams to compensate.
5. Thorpe’s analysis also apparently ignores the huge tax subsidies that currently support private insurance, which are listed as “Tax Expenditures” in the federal government’s official budget documents.
These subsidies totaled $326.2 billion last year, and are expected to increase to $538.9 billion in 2024. Shifting these current tax expenditures from subsidizing private coverage to funding for a single-payer program would greatly lessen the amount of new revenues that would be required. Thorpe’s analysis makes no mention of these current subsidies.
6. Thorpe assumes zero cost savings under single-payer on prescription drugs and devices.
Nations with single-payer systems have in every case used their clout as a huge purchaser to lower drug prices by about 50 percent. In fact, the U.S. Defense Department and VA system have also been able to realize such savings.
In summary, professor Thorpe grossly underestimates the administrative savings under single-payer; posits increases in the number of doctor visits and hospitalizations that exceed the capacity of doctors and hospitals to provide this added care; assumes that the federal government would provide state and local governments with huge windfalls rather than requiring full maintenance of effort; makes no mention of the vast current tax subsidies for private coverage whose elimination would provide hundreds of billions annually to fund a single-payer program; and ignores savings on drugs and medical equipment that every other single-payer program has reaped.
In the past, Thorpe estimated that single-payer reform would lower health spending while covering all of the uninsured and upgrading coverage for the tens of millions who are currently underinsured. The facts on which those conclusions were based have not changed.
Drs. David Himmelstein and Steffie Woolhandler are professors of health policy and management at the City University of New York School of Public Health and lecturers in medicine at Harvard Medical School. The opinions expressed here do not necessarily reflect the views of those institutions.