All-Payer Systems Maintain Healthcare Profiteering; Single payer is the way to go

All-Payer Systems Maintain Healthcare Profiteering; Single payer is the way to go

By Margaret Flowers, MD and Eric Naumburg, MD, co-chairs of the Maryland chapter of Physicians for a National Health Program and members HOPE steering committee.

As support and pressure grow for a National Improved Medicare for All (NIMA) healthcare system in the United States, another proposal under the category of “we have to compromise for less than NIMA” is making its rounds in the media. This is expected. There are powerful forces who are profiting greatly from the current market-based system, and they are working to convince the public to ask for less when it comes to addressing the healthcare crisis in order to protect their bottom line.

This time, the proposal is offered by Marshall Auerback, who advocates moving to a national  “all-payer system”, as there is in Maryland, rather than a single payer system such as NIMA. As co-chairs of the Maryland chapter of Physicians for a National Health Program, we can tell you that Maryland’s all payer system has not solved the healthcare crisis.

What’s the difference?

A single payer healthcare system, such as National Improved Medicare for All, would create a single national insurance, like original Medicare, only it would cover everyone from birth to death for all medically-necessary care and be paid for upfront through taxes. Every person in the United States would be able to seek care at whatever facility and provider they choose without having to first consider if they can afford it or not. The system would save money overall through simplified administration, which currently makes up one-third of our healthcare spending, and by negotiating fair prices for goods, such as pharmaceuticals, and for services, such as hospitalizations, procedures and doctor visits.

NIMA currently has the support of the majority of the public, including most physicians, nurses and hospital administrators, and growing support from the business community. In Congress, there is broad support by Democratic lawmakers and a new Medicare for All caucus. NIMA has already become a major topic in the 2020 presidential election.

All-payer, in Maryland, is a system in which the state negotiates and sets standard prices for all inpatient hospital services. This was done initially to lower the very high hospital prices in Maryland, and in exchange, Maryland received higher than average reimbursement rates from Medicare as long as hospital prices fell more than 2% per year.  After 35 years, Maryland was no longer able to lower costs for hospital services and has been under a new more complex Medicare waiver since 2014, which still includes rate setting.  In spite of this, healthcare expenditures per capita are still well above average in Maryland compared to other states. 

The all-payer system that Auerback proposes goes way beyond the Maryland system in setting prices for all goods and services. It would also provide a separate fund to reimburse care that was given but for which the patient could not pay. This is called uncompensated or charity care.

Maryland provides public funds for charity care to its hospitals through its all-payer system. This turns out to be financially lucrative for Maryland hospitals. A recent report from National Nurses United found that Johns Hopkins Hospital received $33 million more in public support for charity care than it spent over the period of 2013 to 2017. It is no surprise that other hospital systems might look at that and want to get in on the action.

All-payer only works as part of a single payer system

There are several problems with the assumptions that Marshall Auerback makes, but he got one thing correct. He writes, “Decades of ‘reform’ in this country have demonstrated conclusively that simply tinkering with the existing system won’t work.” It is surprising then that he would recommend a proposal that essentially leaves our complex multi-payer system intact by tinkering with price controls. Simply put, adding price controls to our complicated system won’t result in the universal, affordable healthcare system that we need.

Auerback points to countries such as Japan, Germany, and Switzerland, where there are multiple health insurances and price controls, as evidence that all payer systems might work in the United States. The problem is that health insurances in those countries are completely different than health insurers in the US. Insurance in these countries are designed to pay for health care; they are heavily regulated; and, they are part of a universal healthcare system. None of these factors exist in the United States.

Health insurances in the US are essentially financial tools designed to make a profit for their investors or to make a “surplus” if they are “not-for-profit,” both operate the same way. They make money by charging high premiums, receiving large government subsidies, shifting the costs of care onto their enrollees and denying payment for care, even when they are required to cover it. They have successfully evaded regulation at every turn.

A case in point is the Affordable Care Act (ACA). The ACA required health insurers to cover everyone regardless of pre-existing medical conditions. In return, health insurers created ultra-narrow networks of health facilities and physician practices to push patients out of their networks, where costs of care are not covered.  The ACA also ruled that health insurers couldn’t drop enrollees, but it allows them to drop out of geographic areas, which is exactly what health insurers have been doing. That’s why in 2018, people in 64% of counties only had one or two health insurers to choose from.

There are multiple reasons why an all-payer system at the national level will fail to remedy the healthcare crisis. First, Auerback correctly assesses that the cost of goods and services in the US are high, but he misses the fact that pharmaceutical and health insurance corporations operate in fundamentally different ways. It would make sense to set prices for pharmaceuticals because they are selling a good. It is a simple exchange of a product for a price. But health insurance corporations sell a product that is designed not to deliver what it promises. A person purchases health insurance and then the health insurance company works to not pay for care. It profits when it reduces what it calls the medical loss ratio, the amount of money spent on care. Setting prices for services won’t change that practice. No matter what the price, health insurers will still strive to avoid paying for health services.

Second, Auerback argues that an all-payer system would result in “minimal overhead and complexity,” but there is no evidence for that outside of a single payer healthcare system. Currently, at least a third of our healthcare dollars are spent on administrative costs, mostly because of our multiple insurance plans. For each patient and each healthcare encounter, administrators must determine what insurance plan a patient has, where they can go, what is covered, how much they pay in co-pays and how much of their deductible has been met. They must also get prior authorization for care and often for prescription drugs and then fight with the insurance company to get paid. Patients must spend time-fighting with insurance companies when payment for care is denied. Employers must spend administrative time and money finding plans to offer their employees and interacting with insurance companies when an employee’s care is denied. None of this goes away in an all-payer system. The complicated multiple profit-driven health insurers remain.

Third, under all-payer people must still choose their insurance plan every year and the cost of premiums continue to go up, along with out-of-pocket expenses such as co-pays and deductibles, annually. The average cost of health insurance plus these out-of-pocket costs for a family of four was over $28,000 in 2018. That included $20,000 for the health insurance premium and $8,000 for co-pays and deductibles before the benefits even kicked in.

All of the complexity of the current system and the incentives to put profits before the health of patients would continue to exist. It might lower overall healthcare spending, but how likely are any of the savings to be passed on to people?

All-Payer experience in Maryland

Maryland’s all-payer system has been in place for more than 30 years. Compared to other states, the all-payer system has not had a significant impact on health spending, the price of health insurance or health status.

  • When states were ranked by the cost of insurance from cheapest to most expensive in 2016, Maryland came in 30th as a state with higher than average insurance costs.
  • In 2017, the percentage of people without health insurance in Maryland was 6%. There were 18 other states with similar or lower percentages of people without health insurance. Maryland has a higher than average percentage of people with employer-sponsored health insurance, which may be due in part to the high percentage of federal employees.
  • Health outcomes and life expectancies are right around average, even though Maryland is the wealthiest state in the nation.

Despite the all-payer system in Maryland, hospitals are prioritizing more profitable care over essential services. MedStar, a private corporation that owns ten hospitals in Maryland, as well as physician practices, long term care facilities and more, has been closing its pediatrics, obstetrics and psychiatry departments in community hospitals, especially in areas where there are high numbers of people on Medicaid, and expanding lucrative cardiology and orthopedics departments. In 2017, Maryland’s not for profit hospitals generated over $1 billion in profits.

Maryland abandoned the all-payer model in 2014 for a complicated “global budget” approach, which is very different from the global budgets that would be used in a single payer healthcare system. Budgets are set for hospitals but the money still comes from multiple payers, both public and private health insurances. There is no evidence to show that it has had any significant impact on hospital admissions or the growth of hospital spending.

This system is currently undergoing more transformation by expanding to include physician practices and adding incentives for “activities and processes that aim to improve quality of care and reduce the growth in total cost of care for Maryland Medicare beneficiaries.” Of course, this sounds great, but similar attempts at this have had negative consequences for both patients and physicians, as Kip Sullivan, a health policy analyst, describes on his blog. He writes that the incentives punish physicians who care for patients who are poor and sick. Like insurance companies, which cherry-pick the healthiest so they can make a profit, schemes that put the risk onto physicians may cause them to cherry pick those with the mildest conditions and the best ability to follow treatment regimens.

National Improved Medicare for All is the solution

The healthcare crisis is worsening. The percentage of people with health insurance is decreasing and the quality of health insurance is declining. More than 87 million adults in the United States are underinsured, spending more than ten percent of their income on out-of-pocket costs for care. This is why more than fifty percent report avoiding or delaying necessary health care and why over sixty-five percent of people who go bankrupt do so because of medical bills and/or illness.

This is not the time to propose unproven experiments. Instead, we must move rapidly to a national improved Medicare for All healthcare system. Single payer systems, like national improved Medicare for all, have been proven to save money, cover everyone and result in better health outcomes.

Support and momentum are growing for NIMA. Let’s stay focused on achieving it and not get sidetracked with distractions that are less than what we need.

Leave a Reply