International Health Care Systems Public Policy

Single payer commentaries

Tyler Cowen has interesting piece in The New York Times (“Abolishing the Middlemen…“) in which he states that a single-payer system’s cost savings from the reduced administrative and overhead cost may be illusory. The article’s arguments are sound and are similar to the one’s I made in the post titled “Medicare’s (true) Administrative Costs.”

The Economist’s View blog has some rebuttal comments from Paul Krugman. Tim Worstall’s blog makes the point that even if there are low administrative costs for government health insurance, one must take into account the deadweight loss which is incurred in order to raise the money (through taxes) to finance a single-payer system.

Overall, I think we could in theory design a superior single-payer system to that of the private market. I am skeptical, however, that a single-payer system will work in reality in the long-run for the following reasons:

  1. No competition. Competition breeds innovation and new ideas. Mr. Cowen makes the point that “Private insurance…provided earlier access to prescription drugs — an expensive yet effective form of medical care — for 20 years or more before Medicare did. The competition among private insurers may appear wasteful, but over time it stimulates better and more complete coverage.” Without the threat of competition, it is likely that single-payer systems will lag in terms of innovation.
  2. Government Bureaucrats. Is having government bureaucrats making medical allocation decisions worse than having private sector insurance company bureaucrats making medical allocation decisions? I would say probably so. Individuals with political connections will always receive top care when government bureaucrats make decisions; on the other hand, private sector bureaucrats will generally give treatment to anyone who can pay the insurance premiums they require.
  3. Consumers have less choice. If the government mandates that individuals have a specific level of government-financed insurance, this will reduce an individual’s scope of choice between consumption of medical services (or health insurance), consumption of other goods and savings.