Current Events

The General Equilibirum of a U.S. single payer system

Megan McArdle has an interesting post (“Putting a price on health care“) about a U.S. single payer system.  If a smaller country like Switzerland decided to have a single payer system, this likely would not create too large a distortion regarding prices or innovation.  The U.S. would still have a (somewhat) private health care and the Swiss could learn the prices they should charge for different medical procedures.  Also, the Swiss don’t have to worry about testing out innovation.  The U.S. can advance new technologies.  If the new medical procedures are valuable, the Swiss will adopt them.  If not, the Swiss won’t.   Of course, basic research in universities can provide much medical innovation, but if there is price control in a single payer system, innovation from private firms would likely decrease.

McArdle notes:

“Europe’s governments operate their health care systems in the context of an existing US market that provides information about demand for new treatments (and of course I would argue, also the new treatments). They don’t use that price information to set what they pay for drugs, but it does filter through to their markets–for example, more widespread use of Herceptin for breast cancer in the US is putting pressure on the British government to provide it. I think an American shift to single-payer would be more problematic than the European example for a variety of reasons related to our government structure. But one important reason is that if we did, we’d have no where left to get prices from.”