Obamacare Rollout & Struggles (2013–14): Why would a government-run single-payer health care system be better than one that relies on the free market?

Shane and Parker and Jeff and Todd are all correct, and their answer can be distilled into these simple facts: Your health is not "free" (libre) in a "free market".  You are playing with your life, not some arbitrary object of desire.  Your vendor always has you by a barrel. Third-party payer systems of any type have precious little official oversight.  There's no causal relationship to be found anywhere between supplier, payer, and subject.  There's no incentive for responsibility anywhere. Single payer models are the most obvious way to introduce leverage between payer and supplier on behalf of the subject.  The other first-world countries appear to support the claim that this works, but in an country, YMMV. Examples that support one or two but not all three points can be found everywhere, such as the aspirin aisle at your local supermarket, or self-employed workers paying for their own surgical procedures.  But taken all together, a free market would allow people to continue to suffer illness or die, plain and simple. Whether or not it is moral or ethical to allow such death, or whether the government should act as an agent to prevent or delay death, is an issue out of the scope of this question.

It bears mentioning up front that I am a capitalist, that I don't have any particular beef with the insurance industry or the medical industry, and that I am a Republican in the Jeffersonian sense (but with enough Teddy Roosevelt that I don't have a lot of patience for corporate abuse). With regards to the GOP, I don't think they're being particularly Republican anymore, but I'll come back to that later. The fundamental problem with health insurance—and one we would be wise to understand up front—is that it involves an *inherent* conflict of interest, in ways that no other insurance scheme has. Making a profit as a car-insurance company is straightforward. You calculate the risks, charge enough to cover the payouts you are likely to incur, and try to keep your prices competitive while providing drivers incentive not to drive in ways that are likely to result in payouts. People that pay into the system but never get into accidents wind up providing the funds to pay out to people that *do* get into accidents. Ethical insurance companies work this as a relatively straightforward system. Unethical insurers found early on that they could increase their profits by just not paying claims. This led to quite a load of insurance regulation over the years—additional law that applies to a specific industry—and justifiably so, because it cut down on this abuse. But the fundamental model is about balancing risks between those who don't get into accidents and those who do. This doesn't translate well to the health insurance industry, because you can't really balance out those risks. Pretty dang near everyone needs medical care from time to time. A very fortunate few of us can go decades without exhibiting any illness and then suddenly drop dead, but that doesn't describe the experience of most of us. From childhood diseases to accidents to infections to cancer, the vast majority of us are going to incur something that will necessitate medical care. So there's rarely (if ever) a case where the people that never get sick cover those who do—*everyone* is likely to need medical care. So how do you make it as an health insurance company? You're still balancing risks, but your main tactic is (a) to reduce payouts by pushing medical facilities and personnel to take much lower payments, (b) pushing medical facilities to provide the least expensive care, and (c) try to engineer your cash flow so that people wind up essentially paying for their own medical care over time (with the benefit of your fee negotiation), recognizing that some kick off earlier than others. That said, the *very* best way to improve your profits is that good old standby: not paying out even when you should. There are some real advantages to doing this in the health industry, though: if you don't pay out in a timely manner, thus denying treatment to a particularly costly customer, the customer is less likely to sue you because being dead tends to rein in litigation. The case of CIGNA's handling of Nataline Sarkisyan is a case in point. Nataline was a 17-year-old who needed a liver transplant—the only way she could survive. In spite of liver transplants having been done for twenty years with a very good success rate, and that Nataline had a good chance of recovery, CIGNA denied the claim on the grounds that it was an "experimental procedure." They did reverse their stance, after a massive public backlash, but only did so a few hours before she succumbed to liver failure. In the meantime, CIGNA was informing its shareholders that its profits were increasing (22% that quarter). That's what the free-market healthcare system was coming to. The PPACA, for all its flaws, continues to keep insurance embedded in private industry, but imposes further regulations to try to rein in further abuses while at the same time trying to bring down costs so that health insurance is more affordable. This is a reasonable compromise, to my mind, and I'm watching to see how it shakes out, but the positives significantly outweigh the negatives so far. No, it's not a perfect solution (what is?), but it was significantly better than the status quo, which was all that the GOP was offering. Which brings us to the nut of the question: why are single-payer plans so attractive to some people? The main reasons are these: Fee negotiation can be much more effective. When there's a single-payer plan, facilities and equipment manufacturers and suppliers can't really play off one company against another, and the plan can negotiate aggressively. Simplicity for both the consumer and supplier. This isn't to say that it isn't complex, but with only one set of processes, it's easier for everyone to deal with. Streamlining processes helps everyone, not just people with a particular insurer. No conflict of interest—single-payer plans are not profit-driven. That said? I'm not that crazy about a single-payer plan, for one reason: there's no good escalation process. For example, my parents are on Medicare, which is a government-run single-payer plan. It's actually worked out pretty well for them, even though they're both devoted to the Rush Limbaugh School Of Everyone Else Is Evil. They've gotten various parts replaced in a timely manner, and haven't gone broke in the process. BUT, should there be a dispute, there's not really an escalation path. With a normal health insurance company, you could involve your state representation, the state insurance commissioner, and maybe even get your federal representation involved if it came to that. When it's the government, . . . that's pretty much the end of the line as far as dispute resolution. I think the best answer is going to be something along the lines of the PPACA in its final form. Yes, I think it will have to be adjusted over time, but the GOP fantasy of eradicating it (and thus affordable health insurance) is misguided and frankly vile. Come up with sensible regulation and amendment to make it better? By all means. Shut down the government over it? Reprehensible.

It is fairly simple my last economics course was 40 years ago but didn't it have to do with efficient allocation of scarce resources? Medical care is not truly being distributed as a scarce resource; it is more like a monopoly operating in two systems, one for the haves and one for the have nots and government forced to subsidize poor people at the worst portal, the emergency room. Supply and demand solutions work when pricing is efficient, that is, people are making decisions about the marginal utility of what is purchased. Almost no such thing occurs in the health field because almost no one is aware of any of the prices, nor sometimes do they care because they are not responsible for paying for its marginal cost. The few cases where competition can said to be occurring is some large employer medical plans which substitute one cost plus system with a slightly cheaper cost plus system. Occasionally employers have cut costs by instituting Health Savings Accounts, where the employee allocates the money. Meanwhile, prescription medicine in America goes for four times the price as Europe, who still pays hundreds times over actual production cost. By the way, who says private industry is always a better determinant? We have had regulated monopolies for many decades and they work well. Look what happened when an asset intensive industry such as the airlines was deregulated. Cut throat competition with some seats going for several times the adjoining seat, inability to make a profit and no one is satisfied that non-hub cities have seen a 50% drop in service and a higher increase in cost.

There are many, many wonderful points already being made here, so I will not try to re-phrase what has been stated. But think of this experiment - there were many sellers, but only one buyer. And the buyer decides that either you pay the price that is determined by the buyer to be "fair" or the sellers - every one of them - take a hike. Yup, exactly. I hear many arguments about how pharma companies would move to other countries, and my question then is - which country? Ones that pay 50% or more lower for every known medicine or medical product than in the US? Oh, you are more than welcome! Oh, oh, but then the healthcare providers will just see less patients - well, you have the example of Japan where people see their doctors thrice more often than here in the US (http://www.npr.org/templates/story/story.php?storyId=89626309), and yet pay much, much less - for obviously far better results. And then there was the wonderful example of how Japan reined down their MRI costs - http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/interviews/ikegami.html. In fact, the entire interview on PBS makes many of the same points I made before.

This is a complex issue. I'm not an expert. I'm not going to argue for a perfect solution. However some considerations; 1. With insurance, there's a big push to deny coverage for legitimate claims. While lawsuits can make some of this denial non-cost effective it's different than most markets. Perhaps we would have a partial solution if the government fostered better information sharing so that, when choosing insurance, we could have some notion of how likely a legitimate claim was to be denied. Insurance agencies would have a bit more pushback this way. But even the reputable insurers are often dishonest. My wife has Blue Cross and  Blue Shield. They consistently try to deny legitimate claims. Any insurance market is going to require considerable government oversight of some kind to keep insurers honest. Further, a market in apples works mostly because if someone sells us a rotten apple we can eat the loss (so to speak) and go somewhere else. A car that turns out to be a lemon can be returned. There is not a similar form of response for insurance. 2. Many people lack the capacity to make informed choices about their care. 3. As mentioned by others, emergency situations benefit from regulation. If someone comes into the hospital bleeding, they don't have the capacity to shop around for the best deal. Emergency insurance, at the least, should be universal because we all effectively have it. 4. Many claims about high US healthcare costs are one-sided. American care, on the high end, is some of the best in the world, but there is more disparity of care in america and greater mortality from non-healthcare related causes. (violence, people born in poverty and immigrating, poor diet, etc.) American drug costs are higher. The rest of the world is essentially a free rider on what Americans pay for research, and that puts America at a disadvantage economically. But if we're being honest, America reigning in drug costs will likely mean a slowing of innovation in the pharmaceutical industry. (Which will likely happen anyhow, as patentable small molecule targets become more scarce. Blockbusters like viagra will give way to niche, targeted, injectable medications.) 5. If we had to buy groceries with insurance, apples would be $4 each, and would likely taste terrible. 6. Even unions, who have the power to craft custom solutions, avoid exposing people to the costs of care. People very very strongly want a free lunch when it comes to health care. They're willing to pay, but many are irrevocably morally certain they can and should get $150 out of a system, on average, for every $100 they put in. The inevitable result is a system which hides costs while presenting benefits, front and center.  To give just one example; the cost of collecting fees for service is included in the cost of private health care, but not public health care. The end result is delusion. A friend of my aunt insisted on an investment that consistently provided over 10% annual returns. She refused to listen when told that this was unreasonable. The result was her investing (indirectly) with a fellow named Bernie Madoff.)

1. Lack of understanding of what you are buying. Imagine a person who has never seen a car choosing between a Yugo and a Toyota by a verbal description. 2. Complete and utter lack of pricing transparency. Trust me, I tried to get the prices. With the CPT codes and all. Cash pay, not complicated by the insurance. Impossible.

Many people here have given fantastic answers, and some have covered this in a way, but I'd like to stress something: it's not an issue of how much money you are paying, it is an issue of who is charging you and the ethical implication. In the system currently employed in the US, there is nothing to stop a doctor from prescribing a more expensive treatment or procedure for financial gain as opposed to another one which is as effective but cheaper; nor is there anything to stop you from buying the less effective treatment because it is cheaper. Your health and well being are not the main factor, if they are a factor at all in the current system: monetary gain is. That is indeed the bedrock of the US economy; it is obviously the worst option for the patient. In the US a doctor can legally choose patient's treatment based on financial issues (such as not performing surgery due to lack of funds or insurance, or providing an excessively pricey treatment and offering no alternative). In Israel, for instance, it is illegal to deny insurance to a citizen - every citizen is insured. The insurance companies are supervised in such a way by the government that money is never the main factor: for instance, a cancer victim in need of a pricey new medication has the means to get it approved and paid for, whereas in the US if they are wealthy, they can afford it, and if not, they either go bankrupt or give up. That is inhumane. When the market allows both doctors and the pharmaceutical companies to mooch off the patients, prices will go up and up, as they did - any prescription drug in the US costs a fraction of that price in any other civilised country, and no B.S. about "funding the research" applies on drugs which were never developed by the producing company, or in the US at all (such as many antibiotics and pain-relievers, which while being in use for over 50 years still cost as if they had been released yesterday). When the government is the one that has to pay, it also has the motivation to force the drug companies, insurance companies and doctors to bill fairly. This is not a theory - this is the reality of most of the western world.

Many of the answers here either infer, or outright state, that price controls on medical providers, pharma companies, medical device suppliers, etc. are a major advantage of a single-payer system.   Price controls sound great, but (I think) always end up massively distorting the  actions of the people subjected to the controls, and ultimately being scrapped.   Think of the  efforts of Medicare to "automatically" control Medicare costs by reducing physician payments.   Yet, year after year, we had the "doc fix" legislation which ultimately undoes the reduced payments, and even increases payments.   Clearly, this effort at price control, even on only part of the medical system failed completely.   So, if we can't pull off price controls on only part of the system, how can we possibly pull that off for the entire system? Am I wrong about price controls both being a key to single payer and ultimately failing?   Please comment with examples of price controls working, especially on such a massive scale.   I am eager to learn of successful examples.

It's simple . Because the incentives are aligned around what suits the government and you, not what makes money.  And what suits you and what suits the government, provided the system is well structured are surprisingly similar and the points where there are differences are fringe cases.