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What is Single Payer Health Insurance?

You may have heard the term “single payer insurance” during the most recent presidential campaign or in local politics if you live in California or Colorado, but you may not know what it is exactly or why it is so important. Single payer insurance is when all the residents of a jurisdiction pay a single authority and, in return, is provided health insurance.  In most cases, that authority is a state or federal government, and the benefits apply to all taxpayers regardless of age, income or health.

The most commonly used example of a single payer health care system is Medicare. Almost all American workers pay into the Medicare system through employee taxes, and Medicare begins providing health insurance benefits once you reach age 65. Beneficiaries do not pay directly for medical services and goods, instead the Medicare agency contracts with health care providers on behalf of the beneficiaries. In the case of Medicare Advantage health plans, the agency serves as the funding clearinghouse to pay private insurers to cover beneficiaries.

Benefits of Single Payer Insurance

The success of Medicare is one of the main reasons why some states have implemented or are considering similar single payer insurance models.  Single payer systems would often eliminate much of the costly administrative paperwork that overburdens doctors and patients. According to CNBC, almost $375 billion of the country’s annual health care expenditure is spent on clerical work, primarily to satisfy insurers.  A single insurer, i.e. the government, would reduce or eliminate much of the redundant and unnecessary paperwork, saving patients and medical organizations a considerable amount of money and effort.

Single Payer Health Insurance

The American health care system is a needlessly complicated network of providers, insurers and government agencies.  Much of the wasted money goes to third parties that provide little or no value to patients. Without these intrusive insurers and regulators, the national health care system could cut bloated administrative staff and would be far more efficient.  A single payer system would streamline the payment process, allowing health care providers to focus on patient care.

Having the government act as the primary payer in health care would also lower costs by leveraging its bargaining power.  In the U.S. a multitude of weak insurers typically have to pay what medical and pharmaceutical companies demand.  However, if a single payer set prices, these companies would have to fall in line or lose a huge amount of business. Ultimately, this would lower costs for all Americans.

In addition to cutting costs, many analysts believe that a single payer system would boost the economy.  The average employer pays $18,142 per employee (and family) in 2016, an enormous drag on businesses.  If a single payer insurance system were instituted, companies could use that money to expand their workforce and invest in new business opportunities.  Consequently, the business community would thrive and more money would be returned to the government through taxes.

Finally, Americans would get much better insurance. Instead of getting a bare-bones policy that only provided minimal coverage, typically along with unreasonably high out-of-pocket expenses, beneficiaries would merely pay a portion of their paycheck to the government. In return, they would receive full coverage that would include outpatient, hospitalization, long-term care, dental, vision and prescription drug benefits.  If necessary, the single payer system could be modeled on the existing Medicare Advantage plans, allowing consumers to pick and choose which benefits they would like included.

Costs of Single Payer Insurance

While there are many potential benefits to a single payer system, there are also disadvantages as well. The most important of these is, of course, the cost to Americans. Although it is unknown how much people would have to pay in a single payer model, if we examine such systems abroad, we can get a general idea. Canada has a government-managed health care system which costs about $6,000 per person each year. About half of these funds are collected through income tax with the remainder from sales and corporate taxes.

Another important drawback is the extended wait time for medical services.  Although urgent care would remain immediately available for emergencies, many other services may only become available after a waiting period.  This would primarily be due to the added number of people who need health care—currently almost 42 million Americans do not have health insurance. 

Prospects for a Single Payer System

In addition to Medicare and Medicaid, a number of states have tried to implement a single payer insurance model.  While states like Hawaii, Colorado, and, now Massachusetts and California have toyed with the idea, the state that came closest to passing it into law was Vermont.  Vermont governor Peter Shumlin strongly campaigned for a single payer system that would provide health insurance for all state residents without dismantling the private health insurance market.  Unfortunately, Shumlin couldn’t convince voters to accept an 11.5 percent payroll tax along with a 9.5 percent income tax to pay for the new system.

Additional tax burdens are also likely to hinder other state single payer initiatives.  California has flirted with a single payer system in the past, even sending a bill to then Governor Arnold Schwarzenegger who vetoed it.  The California Senate passed a single payer bill in June of 2017, but it needs to be funded and ratified by the state assembly.  This is a difficult if not impossible proposition given the price tag of the new system which would top $400 billion a year—an overwhelming cost even for the most populous state in the union.

While many states consider how to transition to a single payer model, there may be some possible incremental steps that would soften the blow to taxpayers and businesses.  Some governments are considering limited time tax breaks that would ease the transition, while others are debating a “public option” which would grant governments the ability to sponsor health plans and draw them into the insurance market more slowly. Finally, there is the option of lowering the age to qualify for Medicare; eventually, the entire U.S. population would be covered.

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