Physician Compensation Public Policy Supply of Medical Services

Adverse selection and single payer systems

In single payer systems, the problem of adverse selection in health insurance is solved because the single payer must cover all people. Because the single payer cannot avoid covering any individual, there is no strategic gaming on coverage decisions. There may, however, be strategic decisions made on the treatment of patients. Consider the case of a recent report on the mental health care provided by the UK’s National Health Service (NHS):

block contracts…provide a set payment for delivery of services over a certain period of time.
…Disturbingly the system can “cherry pick” patients, avoiding those with more complex needs that might consume more budget and resources,

Single payer systems could avoid this outcome if the payer reimburses providers on a fee-for-service basis. However, if they reimburse providers with a capitation or block contract, than physicians, hospitals and other providers will have an incentive to avoid treating the sickest patients. In short, while single payer systems will guarantee health insurance for the sickest patients, it is possible that patients may face challenges accessing care if providers are paid via capitation.

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