The Smart Money: Why even the smarter guys in the room are wrong about single payer

Posted Monday, January 18, 2016 in Analysis

The Smart Money: Why even the smarter guys in the room are wrong about single payer

by Gina Hamilton

Someone is missing the point.  A lot of someones.

During the Democratic primary run up, Hillary Clinton and her various mouthpieces, including her daughter Chelsea, are making the same mistake about the cost of health care that even brilliant, Nobel prize winning economists have been making. They are saying that the cost of a single payer health care system, as suggested by candidate and Senator Bernie Sanders, would cost trillions.

Presumably, they are suggesting that the cost would be trillions in new spending, at least that is what they are trying very hard to convey. But there wouldn't be trillions in new spending. Most of that spending would be offset by existing spending on health care. No one is suggesting that health care would be free, only that the best way to pay for it is a socialized system like Medicare that would cover everyone, especially those who wouldn't be ill all the time.

Like young, healthy people, those most likely not to be covered by health insurance at all.

In 2013, per capita health care spending in the U.S. was $9,255, and there were still some 11 million Americans not covered by health insurance at all. The total spending was about $2.78 trillion dollars, a huge sum.  But those trillions were and are already being spent; they are not the phantom trillions that Chelsea Clinton warned about. Or rather, they are the same, but they haven't been considered in the terrifying numbers that the Clinton camp is using to try to discredit Sanders.

But this is not really about Sanders and Clinton. Sanders is much closer to being right, but it doesn't matter, because this is a question about the sheer survival of health care in the United States.

In the same year that the per capita cost exceeded $9,000 in the U.S., in Canada, the cost was $4,351, and every citizen was covered. What does Canada do differently and why can't we do that, too?

Well, first, Canada is not paying huge salaries for insurance company executives or paying anyone in an insurance company at all, for that matter. Because they have a single payer system, at the province level, Canada's 10 provinces collect the fees for their citizens from the taxes that everyone pays, and pays for health care from a single centralized office in the provincial capitals. The people who work for the health care system are civil servants, making whatever civil servants make, a living salary no doubt, but nothing like the billions that American insurance company CEOs bring in. They might just as easily be working for the film board or the ministry of agriculture.

So the overhead cost is lower, just as it is for Medicare in the United States. The overhead costs for Medicare are about 4-5 percent, as opposed to between 11-30 percent in private insurance companies. So that is a major way by which Canada saves money on health care. But it's not even the biggest line item.

In the United States, except for the Veterans Administration, agencies are forbidden from setting prices for things like drugs and durable equipment. The rationale, according to the government, is that allowing drug manufacturers and durable goods manufacturers to set their own prices will encourage the companies to invest in research and development, making new drugs and better machines and so on.

This may be true, but it's also double dipping.

Every company in the U.S., no matter how humble or grand, can deduct whatever it spends on research and development, as a line item on their tax returns. By allowing companies to take this deduction, and to sell their products for whatever they'd like, they are getting two bites at the apple. First, a major deduction against whatever tax liability they might face, and second, free rein on prices that every U.S. citizen except for veterans will have to pay.

In Canada, that's not true.

Canada sets specific prices for drugs, durable goods, and services. Manufacturers still do business with Canada, of course, but at the price that Canada sets, not at whatever price they want to charge. 

So without paying through the nose for necessary drugs and durable goods, and by fixing prices for services, and by skipping the expensive middlemen that the United States insists on paying, Canada is saving almost $5,000 per citizen, per year.

Now, we can keep being goobers and letting the pipers call their own tune, and paying whatever they want for it, or we can do what every other civilized nation on the planet is doing and set limits and pay through a single payer system.  There aren't going to be new trillions to worry about; right now, it's the same old dreary trillions we are paying now through our piecemeal system. But if we get smart, we can save thousands per person, per year.

The question is, will we?

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