The Impact of Single Payer on Healthcare Spending

One of the main reasons people are pushing for a single-payer system in the U.S. (termed “Medicare for All” these days) is to achieve universal access to insurance coverage. But what about its impact on total healthcare spending? This is how I think about that question.

First, remember that there are two aspects of spending that we need to be thinking about. The level of spending is how much we’re currently spending, and the trend of spending is how much that amount is increasing over time.

Level of Spending. Even though a single-payer system will increase the number of people with insurance, it’s possible it could still reduce the level of spending overall (although estimates vary widely). How could it save money? The overall cost to administer health insurance would probably go down simply due to sheer economies of scale (of course, this is debated too). Plus, the amount of advertising done by a single government-run insurer will be less than the amount currently being spent by private insurance companies. Single payer allows greater price control as well, so that could be a huge savings (although, if it means paying all providers current Medicare rates, that could be catastrophic).

Trend of Spending. Healthcare spending continues to increase faster than inflation, mostly due to medical innovation, rising prices, and an older and sicker population. Would single payer affect our trend of spending? Well, sort of. It can refuse to increase prices, which is a very tempting spending reduction mechanism that our government has tried in healthcare before (ahem, SGR). But with the relative administrative simplicity single payer would bring to providers, there would be at least some wiggle room for price reductions. Or it could refuse to cover low-yield or really expensive drugs and treatments (rationing), which we generally don’t take well to in this country. Unfortunately, there just aren’t a lot of effective ways single payer can directly impact the trend of spending, which is ultimately the most important one.

I know I’m leaving out lots of other impacts Medicare for All would have on the level and trend of spending, but I think I’ve covered most of the major ones.

So does this mean we are doomed then? Even if we get universal coverage, there’s no way to avoid total fiscal collapse secondary to runaway healthcare spending? No! Implemented correctly, single payer could do a great job helping to avoid many episodes of care, and it could also enable the costs of delivering the care that cannot be avoided to go down immensely. I’ve explained how already.

So let’s just keep all this in mind as Medicare for All is being debated. People can quibble about the projected savings/costs and various other numbers all day long, but the important part in the long run is how it’s implemented.