The Urban Institute’s Single Payer Cost Estimate: False Assumptions False Conclusions

The Urban Institute’s Single Payer Cost Estimate: False Assumptions False Conclusions

By David U. Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H. for PNHP

The Urban Institute’s (UI) new analyses of the costs of a single-payer reform, along with other reform options, posits impossibly large increases in the utilization of medical care (ignoring real world experience with coverage expansions in the U.S.), and discounts the vast administrative savings achieved by single payer systems in other nations, and by the U.S. Medicare program. Their estimate that Medicare for All would increase health spending by $719.7 billion reflects these two incorrect assumptions, which are hidden under layers of elaborate calculations, charts and tables.

We focus here on these two assumptions about single-payer reform, but won’t address the myriad deficiencies in the report’s analyses of other reform alternatives, which systemically understate their costs and gloss over the fact that they’d leave tens of millions under-insured.

Administrative savings, Part 1: The UI report assumes that single-payer reform would reduce insurance overhead to 6% of claims ($234 billion) from the current level of about 10.6%. In contrast, overhead in Canada’s single-payer system is only 1.8%, and overhead in the fee-for-service Medicare program is 2%. The UI group justifies its 6% estimate by claiming that a single payer system “…would require a host of administrative functions to effectively operate, such as rate setting for many different providers and services of different types; quality control over care provision; development, review, and revision of regulations; provider oversight and standards enforcement; claims payments to providers; and other functions.” UI’s claim ignores the fact that all of these functions are currently carried out by both Canada’s program and the fee-for-service Medicare program. They never say why we would need 6% ($234 billion) to perform functions that a system like Canada’s or Medicare could perform for 2% (about $78 billion).

Administrative savings, Part 2: UI completely ignores the huge savings on hospital administration and doctors’ billing under a streamlined single-payer system. Every serious analyst of single-payer reform has acknowledged these savings, including the Congressional Budget Office, the Government Accountability Office, the Lewin Group (a consulting firm owned by UnitedHealth Group), The Political Economy Research Institute, and even the Rand Corporation.

These provider paperwork savings are, in fact, likely to be larger than the savings on insurance overhead. At present, U.S. hospitals spend one-quarter of their total budgets on billing and administration, more than twice as much as hospitals spend in single-payer systems like Canada’s or Scotland’s. Similarly, U.S. physicians, who must bill hundreds of different insurance plans with varying payment and coverage rules, spend two to three times as much as our Canadian colleagues on billing.

Overall, these administrative savings for doctors and hospitals would amount to about $250 billion in 2020. About $50 billion more would be saved by streamlined billing and administration of nursing homes, home care agencies, ambulance companies, drug stores, and other health care providers.

In total, the UI analysis underestimates administrative savings by about $450 billion.

Utilization of care: The UI report projects a massive increase in acute care utilization, based on its micro-simulation models. They find, as expected, that people use more care when they get new or better coverage. But those models don’t take into account the fact that society-wide coverage expansions face supply constraints that can’t be discerned by comparing the utilization of the insured and uninsured under the current system.

The UI document does not provide breakdowns of how big an increase it foresees for specific services like doctor visits or hospital care. However, overall, they project a 20.6% increase in spending for medical care, implying an increase of about 100 million doctor visits and several million hospital stays annually. Yet there aren’t enough doctors and hospital beds in the U.S. to deliver that much care. Doctors are already working 53 hours per week, and careful analyses of experience in past coverage expansions tells us that they won’t increase their hours, nor will they see many more patients per hour.

No surge in care utilization materialized when Medicare was implemented and millions of previously uninsured seniors got coverage. Between 1964 (before Medicare) and late 1966 (when Medicare was fully functioning) there was absolutely no increase in the total number of doctor visits in the U.S.; Americans averaged 4.3 visits per person in 1964 and 4.3 visits per person in 1966. Instead, the number of visits by poor seniors went up, while the number of visits by younger, healthier, and wealthier patients went down slightly. The same thing happened in hospitals, as we and our colleagues at Harvard recently documented.  There were no waiting lists, just a reduction in the utilization of unneeded elective care by wealthier patients, and the delivery of more care to sicker, poorer people who needed it.

Moreover the same dynamic occurred when the ACA newly-insured 20 million people, or when Canada implemented its universal coverage program; neither hospitalizations nor physician visits increased.  Instead of a huge surge in utilization, doctors and hospitals reduced the amount of unnecessary care they were delivering in order to deliver needed care to the newly-insured.

But the UI group chose to ignore the evidence from real world coverage expansions that the limited supply of health professionals and hospital beds constrain utilization increases. Instead, to support their assumption that supply constraints are irrelevant they cite a non-peer reviewed report from their UI colleagues who interviewed a handful of health administrators in five cities regarding their organizations’ experiences in the wake of the ACA expansion. That report never collected actual data on the number of visits or hospitalizations, either locally or nationally.

The best evidence from past expansions indicates that the limited supply of doctors, nurses, and hospitals precludes a large surge in the utilization of care when coverage expands society-wide, as it would under single-payer reform.

In summary, the UI analysis grossly underestimates the administrative savings under single payer, and projects increases in the number of doctor visits and hospitalizations that far exceed the capacity of doctors and hospitals to provide this added care. Projections by many other analysts, and experience in other nations that have implemented single-payer reforms, indicate that such reform would provide universal, comprehensive coverage while holding health expenditures steady, or even lowering them.

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