No, Single-Payer Reforms Won’t Curb Hospital Costs

Reforms that eliminate barriers to hospital competition are a much smarter option.

.. In an attempt to quantify the rough fiscal impact associated with having the federal government take up all health-care costs currently borne by private insurers, employers, and individuals, Blahous accepted the assumption made by Senator Bernie Sanders and other single-payer proponents that the reform could save billions by purchasing services from hospitals at Medicare rates.

Although Blahous’s study estimated that Sanders’s “Medicare for All” proposal would impose a fiscal burden of $32 trillion (yes, trillion) over ten years and a likely annual tax increase of $26,000 per American household, single-payer advocates have been thrilled by its publication, seizing on its comparison between the estimated cost and expected private health-insurance spending over that ten-year period to argue that it would actually save Americans $2 trillion.

This “finding” is merely the result of a preposterous assumption: that because Medicare currently pays 40 percent less than private insurers for hospital services, the cost of delivering hospital services to the privately insured could be proportionately reduced simply by having the government rather than insurers pay hospitals for them.

.. Hospital prices do not reflect marginal costs involved in treating each patient, so much as attempts to spread daily running costs over all patients. It is therefore possible for Medicare to pay hospitals 87 percent of their average costs so long as private insurance pays 144 percent of their average costs. But such an arrangement would clearly not be sustainable if all rates were brought down to Medicare levels, as Medicare rates are below average costs at two-thirds of hospitals.

Although it is true that hospitals are often able to reduce their costs across the board when payment rates are cut, reducing costs means cutting staff and closing departments, which unsurprisingly tends to come at the expense of quality and access to care. For instance, following the reductions in hospital-payment rates made by the 1997 Balanced Budget Act, relative heart-attack mortality rose at the facilities subjected to the steepest cuts. Hospitals across rural America are already struggling financially, and it is fantastical to imagine that substantial savings can be gained without widespread closures. Americans, 77 percent of whom are happy with their own health-care arrangements, are unlikely to tolerate the collapse of services at their local hospitals.

.. While it is hard to imagine that a majority of the House and Senate will ever vote for a comprehensive rationing scheme that would also more than double federal taxes for most households, incremental proposals such as a Medicaid buy-in may be likely if there is a Democratic landslide in 2020.