Is an all-payer system what U.S. health care needs?
By Jon Gabel and Thomas Rice
May 29, 2019 | 11:35 AM
Dreaming of a state-run single-payer healthcare system? Want universal healthcare for all Americans? Supporters say Medicare for all is the answer.
Medicare-for-all through a single payer system has become a centerpiece of progressive and presidential politics. But the odds of enacting it, even under a Democratic administration and Congress, are steep. We suggest an alternative way to contain health care spending based on standard negotiated prices by all payers acting collectively.
U.S. health care is more expensive than other nations, not because Americans see doctors more often or spend more days in hospitals; the opposite is true. Instead, higher unit prices are the culprit, which reflect greater reimbursements for hospitals and higher incomes for physicians — especially sub-specialists — and health care workers. Moreover, brand-name prescription drug prices are far greater than in other nations.
Payment rates by private insurers are significantly greater than Medicare’s, historically averaging 15 to 20 percent more for hospitals and 25 percent more for physician services. Recent Government estimates put the current figure at 50 percent. Total spending per person, adjusted for inflation, moreover, grew far more rapidly in private insurance (16.9 percent) than Medicare (1.2 percent) between 2007 and 2014.
Due to greater purchasing power, Medicare obtains deeper discounts than private plans. Because Medicare constitutes large shares of revenues for hospitals and doctors, it can set economical rates.
Several other countries have been far more successful than the U.S. in controlling health care spending, while preserving private insurance. These countries use an all-payer system, in which all insurers — both private and public — pay the same fees to hospitals, physicians and other providers. (Maryland is the only state in the nation to use an all-payer system.)
France has among the lowest rates of death from causes preventable by timely medical care. The government sets an annual target for health care spending, and fees are set through annual negotiated agreements between a government agency and representatives negotiating for providers.
Life expectancy in Japan is longer than in any other major country. At the same time, health care expenditures are low, which is particularly surprising given that Japan leads the world in the availability of high-tech equipment. Japan’s fee schedule is set by national government, and, as in France, must conform to overall budget targets.
Most proponents of all-payer systems point to Germany, which shares a number of characteristics with France and Japan, including the need to keep within a budget. What sets it apart is that fees are negotiated between consortia of insurers and regional associations of providers — not government. Physicians who are more profligate in provision of services eventually receive lower payment per service.
The German model would be hard to implement here. If consortia of insurers and providers negotiated rates, it would smack of an antitrust violation. The French and Japanese model, where government sets fees, makes more sense for the U.S., and Medicare is the obvious body for carrying this out. Rates would apply to all insurers: Medicare, state Medicaid programs, private payers, and the uninsured as well. The system would apply to physician, inpatient and outpatient hospital care, and pharmaceuticals.
Maryland is unique in having implemented an all-payer hospital system similar to France and Japan. The state’s Health Services Cost Review Commission establishes global budget and standard rates for all payers at each hospital. Between 2013 and 2016, hospital growth in spending was 4 percent less in Maryland than the nation.
All-payer systems control spending in two ways: First, unit fees can be adjusted to meet budgetary requirements; second, administrative costs would fall because insurers would no longer negotiate individual rates with a large array of providers, who would also not need armies of staff to negotiate with a multitude of plans from different insurers.
America leads the world in health spending, and our proposed solution would address the principal reasons why — high prices and administrative costs. It has already demonstrated superior performance in other nations, as well as right here in Maryland.