Single-Payer Health Care Thought Experiment

collapsedsquid

Single-Payer Health Care Thought Experiment

simonpenner

Today I saw this

http://khn.org/news/tab-for-single-payer-proposal-in-california-could-run-400-billion/

I’m working on a higher quality blog post for the main site on this, but for right now I’d like to point out a novel idea. Consider this quote from the article

A single-payer system likely “would be more efficient in delivering health care,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation. (California Healthline is produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.)
But the proposal expands coverage to all and eliminates premiums, copayments and deductibles for enrollees, and that would cost more money, Levitt said. “You can bet that opponents will highlight the 15 percent tax, even though there are also big premium savings for employers and individuals,” he added.

We always hear this. “Single payer health care will save so much money because of all the efficiencies that you can get from central management”

Is this true? Well it just so happens we have a real-world example: HMOs. For example, Kaiser Permanente, the entity referenced in the above quote.

(an aside for non-US readers: in the US, health care is generally privately provisioned, and fee-for-service. That is, if you want a doctor to do a thing, you give them money, and they do the thing. Most people have some kind of health insurance, and this tends to take one of two forms: HMO or PPO.

PPOs are standard, and flexible. In a PPO, the insurance company develops a “network of providers”, a set of doctors who have agreed to work with the insurance company. You are strongly encouraged to go see one of these doctors. If you choose to see a different doctor, “out of network”, your insurance will cover a smaller fraction of the cost. This remains fee-for-service, it’s just that insurance pays.

HMOs, on the other hand, take a very centralized approach. They are one large company responsible for catering to your health needs. In an HMO, you can only go to doctors at facilities run by the HMO. If you need a specialist, you must get a referral to a specialist who works for the HMO. Since everything is integrated, it’s easier for multiple doctors to coordinate and work together. However, your choice of doctor is severely limited. With a PPO, if you don’t like your doctor you can get a new one. Under HMOs, your choices are limited)

The description of HMOs sound a lot like single-payer health care writ small. You give lots of money upfront to an organization like Kaiser (you pay lots of money in taxes to the government to support health care), and in return you go to Kaiser-affiliated facilities (government-funded hospitals) where all of your care is provided to you by one entity. The centralization facilitates efficiencies as bureaucracies are cut, and your needs are taken care of as best they can.

So, approaching the problem from a different point of view: Single-payer government-provided health care is more-or-less the same as if everybody signed up for Kaiser.

This gave me a deliciously trollish idea, an argument to bring out whenever relevant. Let’s say you’re arguing with some commies who insist that single-payer is the best/only solution. Pose to them this hypothetical:

“Would you be in support of a law that gave $HEALTH_INSURANCE_COMPANY a legally-mandated monopoly in health care, at the cost of forcing them to become a non-profit organization?”

Imagine one way to implement single-payer government-provided universal health care:

1) Give Kaiser a legal monopoly on health insurance

2) Legally require Kaiser to be a non-profit.¹

I suspect that most of your commie friends would be incredibly opposed to this idea, and yet it is fundamentally the same thing as a state-run single-payer health, with two caveats

a) You aren’t legally required to opt-in. You can still pay expenses out-of-pocket instead.

b) Instead of the health system being run by whoever is friendliest with our elected representatives, it’s run by people with a proven track record of success in that field.

I suspect this argument generalizes, too. You could apply it to any realm of government service provision that you can think of. It might help a handful of the smarter, more intellectually ethical folks see things from a different perspective.

1. Kaiser IS ALREADY A NON-PROFIT. So much for “greedy health insurance corporations ruining everything in their greedy corrupt quest for more profit”

collapsedsquid

The way single payer works is that it negotiates prices with providers which it can do because it’s the only buyer. It’s the same way Singapore does it, it’s just there they set legally prices but don’t pay them. Maybe you should look at how this shit works instead of just imagining how it works.

mitigatedchaos

I still laughed. TBH I don’t understand why the Repubs don’t spring for healthcare vouchers. Well, okay, I understand why but …

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instead people realize that Marx was wrong about something and the Soviet Union killed people and then go become tankies but for capitalism

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The vast majority of Communists I’ve encountered in person or online don’t seem to be trying to avoid the known problems. They either ignore/don’t know/pretend to not know about the historical issues, or they consider eg. genocide a feature rather than a bug.

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I don’t actually think they have that model, so I don’t see myself supporting Communism over Boring Welfare Capitalism any time soon.

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xhxhxhx

collapsedsquid reblogged your post: collapsedsquid reblogged your…

You’re showing plots and data from the Great Leap Forward, I believe the point that Chomsky’s making is that it ended. Killing people was not effective in developing the country. Actually doing public health is.
I said “industrialization“ when I probably should have said “development,“ because it’s not industrial capacity they needed but medical infrastructure, but in all this you have to ask the question “Why was India unable to accomplish even this?“

Like @mitigatedchaos, I don’t think India is the relevant comparison. I think China is better compared to other centralized, authoritarian states in East Asia, like Taiwan and South Korea, rather than a decentralized, democratic state like India. But that comparison does suggest an answer to the question “Why was India unable to accomplish even this?”

Democratic, decentralized states have more trouble coordinating public resources and marshaling public effort. Amartya Sen, comparing India to China, thought that there was “no mystery in explaining these failures” in public health. It wasn’t because India didn’t have egalitarian goals. India’s National Congress was an admirably egalitarian and social democratic party, with a 1955 manifesto commitment to “planning with a view to establish a socialist society in which the principal means of productions are characterized by social ownership or control.” India didn’t fail because it didn’t have the right goals. India failed because it lacked the means.

Sen writes that India failed “because of the extraordinary neglect of these goals in choosing the directions of planning and public policy”. Sen describes the failures not as failures of substance – although he concedes that India should have focused on export promotion, agricultural development, and economic incentives rather than import-substitution, industrialization, and state-directed planning – but failures of will.

The picture is, however, quite different when it comes to means using failures. There is a surprising amount of tolerance of low performance precisely in those areas, vital to the living standard, that had grabbed the imagination of the nation at the time of Independence and that, in the ultimate analysis, give significance to planning efforts in transforming the quality of life of the masses. There is, in fact, remarkable complacency about India’s moderate record in removing escapable morbidity, avoidable mortality, and astonishingly low literacy rates.

I think this is just the mirror image of the virtues of a democratic and decentralized government, and the pluralism of Indian society, which Sen praised so fulsomely in the context of famine prevention. “No government in India – whether at the state level or at the center – can get away with ignoring threats of starvation and famine and failing to take counteracting measures,” but China could survive years without any change in policy.

But the pluralism that prevents the central government from ignoring threats of starvation – that supplies the powerful opposition pressure to change its policies – is the same pluralism that discourages it from expropriating private wealth, directing public wealth to national programs, prioritizing public health over the preferences of strong interest groups, or delivering the same public investments for decades without democratic control.

Sen says as much:

In China, where the driving force has come from inside the state and the party rather than from the opposition or from independent newspapers, the basic commitment of the political leadership – not unrelated to Marxist ideology – to eradicate hunger and deprivation has certainly proved to be a major asset in eliminating systematic penury, even though it was not able to prevent the big famine, when a confused and dogmatic political leadership was unable to cope with a failure they did not expect and could not explain. The advantages and disadvantages of the different forms of political arrangements and commitments in China and India provide rich material for social comparison and contrast.

China was a totalitarian country. Comprehensive planning meant the Communists were able to coerce individuals into professions for much less than it would cost them if they were free – “the relatively low wages paid to highly specialized medical personnel help keep total expenditures down” – allowing the planners to deliver as many personnel as they needed, at nominal cost.

There are only 2,458 people per (fully qualified Western) doctor in China, as compared with 9,900 in other low-income countries and about 4,310 in middle-income countries. The ratio of population to other medical personnel (including nurses and doctors of Chinese medicine) is even more favorable - 892 excluding barefoot doctors and 365 including them, as compared with 8,790 in other low-income countries and 1,860 in middle-income countries.
In part because the pay of most medical personnel is very low by international standards, this has been achieved at an estimated total annual cost of under $7 per capita, of which $4 is public expenditure. Almost two thirds of expenditures are for drugs. By the standards of low-income developing countries, the level of public expenditure is high - it compares with $2 in India and $1 in Indonesia.

You could do the same thing in an open society – Korea and Sri Lanka did, and without spending much – but it’s harder.

I think @mitigatedchaos is right to focus on homogeneity. It’s harder to deliver public goods when you’re a democratic, decentralized, and pluralistic society. It doesn’t mean you can’t do it – Sri Lanka and Kerala did – but it makes it harder to coordinate resources, especially when you’re facing strong incumbents.

China did away with all that. It did away with democracy, decentralization, and pluralism. It liquidated its incumbents. That made it easier for the Communists to pursue their plans to “eradicate hunger and deprivation,” but it also made the Communists liable to reproduce hunger and deprivation – both inadvertently and on purpose.

Look at that malnutrition table again:

Beijing children born after 1965 were half as malnourished as children raised in other cities, and twenty times less malnourished as children raised in the suburbs. (One wonders what happened in the countryside.) In poorer provinces, life expectancies were 10 to 13 years shorter than they were in Shanghai. Communism reinforced that urban bias.

So long as we’re comparing autocracies with autocracies, it’s pretty clear that Taiwan and South Korea have a better record than China – or Cambodia, Laos, and Vietnam – and China has a much better record after 1978 than it did beforehand, notwithstanding Sen’s amusing belief that perhaps Reform and Opening stopped China from achieving first-world living standards.

Taiwan and South Korea had the same insulation from democratic control that was proves such an “asset in eliminating systematic penury” through credible commitments, but they lacked the socialist platform that made China such a basket case. They didn’t liquidate the small farmers. They didn’t nationalize the land. They draft the peasants into work teams. They didn’t centralize food marketing. And they got by without famines. Not because they were democrats – they weren’t – but because they weren’t socialists.

Taiwan and South Korea also dramatically reduced mortality. They just didn’t kill tens of millions in the process.

Which was what that graph was about.

thx xhxhxhx politics the invisible fist the red hammer the iron hand

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Who captures a wage subsidy?

Basically every benefit we give to the working poor ends up being an indirect subsidy for business - see, for example, employers telling their employees how to obtain food stamps.

One of the complaints about a wage subsidy over a higher minimum wage is that it will just be captured by employers, who will pay their employees less by that amount. That’s also potentially true of a basic income, and with a minimum wage, employers may opt to gain non-monetary compensation (e.g. terrible hours).

Now, here’s where the limits of my economics education probably show a bit, in that I’m not familiar with the literature on how, empirically, this works out. (Maybe @xhxhxhx can chime in.)

I realized that this is actually related to the marginal productivity of labor - how much revenue (and thus, potentially, profit) does each additional employee bring in, across the whole economy? There are limits to this based on the amount of equipment/capital needed for a marginal employee or marginal hours, including facility size, as well as the potential customers it might bring in (e.g. why haven’t they hired additional labor already?).

The reason for this is that to determine the leverage of a low-wage employee under a wage subsidy system, we need to know how many potential jobs our wage subsidy can create, and at what quality. How easy is it for an employee to just walk right out of the store, walk right in to another store, and get a new job? Even if the pay is somewhat lower, this creates a much stronger incentive against bad hours, bad bosses, and unsafe practices, about which employees will then either demand higher pay, or just tell the employers to knock it off.

However, that increase in leverage only occurs if enough potential jobs emerge, and this is more or less an empirical question.

The greater the marginal increase in the number of jobs per marginal decrease in minimum wage prior to subsidy, the more of the subsidy that will be captured by the workers. However, if cutting the minimum wage creates no new jobs, then leverage doesn’t change much at all and employers capture the majority of the subsidy.

If the leverage is high enough, wages may even be driven higher than they were prior to the subsidy, depending on employer margins that they were exploiting leverage over against employees.

However, since employers capturing part of the subsidy is potentially true for all subsidies for the working poor, even rental vouchers or healthcare, it has to be compared with other alternatives (such as basic income).

(For my preferred implementation, the accompanying decrease in minimum wage should be lower than the wage subsidy, and the wage subsidy should be paid directly to the employee, thus at least not resulting in a decrease in effective income even if the entire subsidy is captured.)

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collapsedsquid

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