This won’t work, and it’s self-evident why.

by w3woody

Would Californians Be Better Off Under Single-Payer Healthcare?

A proposed single-payer health system in California would cost about $400 billion annually, with up to half of that money coming from a new payroll tax on workers and employers, according to a state analysis.

The report by the state Senate Appropriations Committee, issued Monday, put a price tag for the first time on legislation that would make the state responsible for providing health coverage to all 39 million Californians.

To understand the size of this proposal, the entire size of the currently-proposed California State budget is $183.4 billion.

To be honest, there are some advantages to this plan. For example:

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.

The thing is, most employer-provided health care plans are handled by asking employees to pay a fixed co-pay–in essence a highly regressive payment towards health care. If you work for an employee and have a co-pay of $200 per pay check (or $400 a month) towards your health care plan–that amount remains the same if you are making $30k/year or $300k/year.

So this proposal would shift upwards the amount which employees current contribute to their own health care plans from the poorest to the richest. And as I’ve noted elsewhere several times, if you propose a tax, make it progressive rather than regressive: VATs and sales tax are regressive (as they land disproportionately on the poor as a percentage of income), while income taxes and property taxes tend to be more progressive (as they land on those who have the income to spare).

The biggest problem with the current California proposal, as with all single-payer proposals is not that it eliminates choice. It’s not that by placing all doctors under a single-payer umbrella you effectively nationalize the entire health care system. It’s not even that by nationalizing the health care system you effectively remove incentives to consumption unless you create so-called “death panels” whereby you force those who have certain conditions to either pay out of pocket or perish. And it’s not even that you’ve politicized medicine–and by politicizing medicine you’ve made altering or changing the doctor/patient relationship an inherently political process rather than one that is driven by science or by consumer concerns.

These are, by the way, all valid concerns.

No. The biggest problem is economics. Or more specifically, the fact that a single payer system only addresses the demand side of the supply-demand curve, and does not deal with the supply side.

As I noted elsewhere, basic economics suggest that if something is expensive and getting more expensive, it’s because there is too little of that thing.

Diamonds are expensive because there are too few diamonds thanks to a monopoly by De Beers. Housing in many areas of the state is expensive because there are too few houses to go around. Whenever there is a shortage in a particular food, we see it go up in price–from bananas in Greece to Oranges in Spain.

Don’t believe me? Her’s the International Monetary Fund talking supply and demand: Supply and Demand: Why Markets Tick.

By simple examination of the idea of supply and demand, if you only influence the demand side of the curve, there are only two fundamental ways in which you can lower prices.

You can lower demand.

Falling Demand Curve

As demand falls from its former level to the new level (a), the price falls (b). Also note the quantity falls (as the intersection point between supply and demand, where markets find an equilibrium, shifts leftwards as well as downwards).

(Note: As this applies to health care, this means as people get sick and get hurt, they simply choose not to see a doctor–even if that means they go off and die without getting the care they need.)


You can hold a gun to the head of the suppliers and force them to sell at a lower price than the natural market equilibrium.

(This is effectively what happens when you rob someone else, or when governments set price ceilings. The morality and the mechanism is different, but the net effect is the same: the price that the market would naturally settle to is interrupted by an outside force.)

Now you may think this is an okay thing to do. After all, it is the mechanism that government has been doing to lower prices paid for medical procedures supplied to Medicaid patients. However, this has created a situation where private payers and private insurance companies are now expected to make up the gap in the cost to doctors and hospitals to provide health care.

And, more fundamentally, this creates shortages–and shortages leads to rationing as sure as night leads to day.


Price Floor Creates Shortage

Because when we set a maximum price (a), we get a gap in the quantity (b) from what people would want to buy (on the right) to what suppliers are able to supply (on the left).

This is why we got gas lines in the 1970’s: the U.S. government placed a price cap on the price of gas, but the OPEC oil shortage drove up natural prices by restricting supply.

In the extremis, we get food shortages in Venezuela, as government-mandated price ceilings cause farmers to be unable to grow food.

Several of his cavernous henhouses sit empty because, Escobar said, he can’t afford to buy more feed. Government price controls have made his business unprofitable,…

Sadly the second option: holding a gun to everyone’s head, is the mechanism the U.S. government has decided to use to control health care prices.

This is what motivates the drive to single payer health care. By centralizing all payments for health care under a single buyer, effectively creating a Monopsony in the health care system, theory has it prices can be controlled as that monopsony can effectively dictate the terms by which a product is obtained and paid for.

This is how Walmart provides its low low prices, arguably to the detriment of the supply chain as we see lower quality products in order to bring products in at the right price point.

Yet somehow we are to believe that, unlike the case with Walmart, and despite basic economic theory, the quality and quantity of health care provided in the United States will increase, and we won’t see the same rationing you see in Canada (where people cross the border to the United States for certain procedures) or in the U.K. (which had its own crisis with people being placed on end-of-life care without their knowledge).

Now there is another way you can lower price and increase the amount of a product available, be it health care or food or housing or anything else.

And that is to consider the supply side of the supply-demand curve: to figure out how to allow more people to supply a product (in a safe and effective manner), and to allow competition amongst those new entrants so they can figure out cheaper and more effective ways to provide that product.

More supply decreases price

As more suppliers enter the market and increase the quantity available (a), we get a decline of price (b).

This is why, in a world where starvation has been the norm pretty much since Homo sapiens first evolved, we now live in a world where we have more obesity than starvation.

And we did it by allowing farmers to compete to increase supply and lower costs to raise crops. We did it, in other words, by allowing “free markets” (a catch-all phrase for suppliers being allowed to enter the market and compete against each other to create more products and profit from their work) to work.

There are many ways in which we can increase health care competition. We can permit competition in the ways and types of health care that is provided to individuals. For example, we can allow certain types of urgent care to be peeled off from the current CMS-defined “urgent care” category and handled by places like Walgreens. (If you have a fever there is no reason the nurse who now administers vaccinations at Walgreens can’t also help to determine if fever is just a cold or something more serious.) We can simplify the process by which new medical centers and hospitals are opened–and do away with the “Accountable Care Organization” concept which wiped out so many doctor practices and led to the rise of health care monopolies. We can allow greater latitude in the scope of practice with medical professionals, such as nurses.

We can allow greater latitude in the construction of non-drug-related medical devices. It shouldn’t take the market clout of an Apple Corporation to experiment with a watch which can monitor blood glucose levels, and there is no reason why sonogram technology from the 1960’s cannot be miniaturized and made cheaper by Silicon Valley.

In other words, there are many places where increased competition can result in increased supplies of health care at a lower price. And competition often means figuring out more efficient business practices, more efficient charting practices, cheaper equipment and larger numbers of people who can provide medical care.

Because ultimately supply-side competition lowers prices and improves quality because it encourages thousands and thousands of people to try to solve the intractable problems of health care, rather than leaving the decisions to a handful of “experts” at CMS and to the political process negotiated between doctor’s groups, hospitals and the federal government.

The more eyes looking at the problem, the more minds experimenting with new ways to deliver health care, the more health care we get, and the lower the price we pay for it.

It’s sad that California has chosen the “gun to the head” approach to controlling costs, because it never works.

Worse, by detaching the incentive to restrict access to health care without increasing the supply to health care, we will get health care lines similar to that of the gas lines of the 1970’s–though it will look like the doctor scheduling you for a pain-relieving surgery six months from now.

And ironically by doing all of this, I predict that the price for health care will simply increase–and $400 billion will seem like trump change in 10 years.

Until we increase the supply of health care, everything we do on the demand-side of the equation (and that includes Republican proposals as well as Democratic proposals) is simply rearranging deck chairs on the Titanic.