Health Reform

Single Payer vs. 300 million payer

Drug prices are in the spotlight of late.  From Pharma bro to EpiPen price hikes to Trump’s most recent press conference high drug prices are getting a lot of attention.  One solution is to have a single payer system whereby the government negotiates drug prices directly with pharmaceutical firms.  Michael Cannon proposes an alternative, the 300 million payer solution.  He writes in USA Today:

To make drugs more affordable, we need not one tough-talking negotiator but 300 million of them. Congress can raise and equip that army by returning to the people the $3 trillion of health care spending that government and employers control, and by eliminating government-imposed barriers to affordable medicine.

When Americans control their health care dollars, they drive health care prices down. In California, cost-conscious patients brought prices for hip and knee replacements at high-cost hospitals down by an average of $16,000, or 37%.

Yet Americans rarely shop around or demand discounts for medical care. Why? We pay directly for just 11 cents of every dollar of medical care. Why shop around when 89% of the savings go to someone else? That will change when consumers control all the money.

Putting more healthcare spending in the hands of consumers is surely a good thing compared to a single payer system.  At the same time, however, this approach does have its flaws.  While it is true that patients can shop for Lasik surgery or breast implants, patients with a more debilitating disease are not able to shop around.  In addition, some patients who must pay for care out of pocket may forego useful preventive care. This could result in higher overall cost if patients are myopic and don’t take into account potential downstream cost.  Additionally, patients actually value having insurance.  Most individuals are risk averse and place a high value of in smoothing incomes across health states.  Thus, simply giving individuals their premiums back will not fully compensate them for the cost shocks that could occur if one falls ills.  While high-deductible plans do provide some form of insurance, it is not full insurance.

Thus, while Cannon’s plan is clearly better than a one-size-fits-all single payer system, it does have its own limitations as well.


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