Is U.S. Health Care Evolving Toward a Single-Payer System? An Interview with Health Care Economist Paul Feldstein, PhD

Peter I. Buerhaus, PhD, RN, FAAN


Nurs Econ. 2010;28(3):198-201. 

In This Article

Future Directions

Buerhaus: Looking to the future, do you think the passage of health reform legislation and its implementation could eventually lead to the adoption of a single-payer system?

Feldstein: It is hard to say where we are going, particularly because the legislation creates health insurance exchanges which will be overseen by an insurance regulator. The insurance regulator will have the authority to set the benefit package and influence whether a state approves or denies rate hikes by insurance companies. I can see a scenario where there is very little cost containment and little pressure to keep insurance premiums from rising substantially. And, if there is a weak mandate for individuals to purchase health insurance, then the resulting adverse selection is likely to cause insurers to increase their premiums. (Adverse selection occurs when an insurance company enrolls too many sick people who use more services and increase costs, and not enough younger and low users who are needed to offset the costs of high users.) People will become dissatisfied with the premium increases and some may become more supportive of a government-funded public insurance option. By heavily subsidizing government-provided health insurance and undercutting private insurers, many people will switch to lower-cost public insurers because studies show that people are willing to switch insurers for not much of a price difference. Eventually, if many individuals purchase public insurance, we could end up with a single-payer system or something close to one. We already pay the health care for tens of millions of people with the Medicaid and Medicare programs, and you can just pretty much put a public insurance option together with these programs into one system.

Buerhaus: What would you recommend to improve the performance of market forces so that the production, delivery, and distribution of health care services are more efficient, less costly, and higher quality?

Feldstein: Many health economists would like to see limiting the tax exemption of employer-provided health insurance. Most of the benefit of this tax exemption goes to those earning higher incomes. Currently, employees are better off having their employer use a portion of their pre-tax wages to purchase health insurance. If the employee purchases health insurance on his or her own, he or she would have to pay taxes on their earnings, which would leave fewer dollars to purchase health insurance. By having the employer purchase insurance, the employee benefits because the employer can purchase a richer (more comprehensive) benefit package than what the employee would be able to do as an individual. This tax treatment of employer-provided health insurance makes people less sensitive to the price and use of health services provided by their health plan. But by capping or putting a limit on employer-provided health insurance, the government can raise a great deal of money that could help finance insurance coverage for the poor. Capping employer-provided insurance would also improve efficiency in the consumption of care by making people more sensitive to the price of services and more willing to purchase lesscomprehensive health policies. And limiting the tax treatment of employer-provider health insurance would improve equity because the more income an individual earns, the greater the incentive to have their employer purchase more comprehensive health insurance whereas lower-income earners do not have this opportunity.

However, the health reform legislation that was enacted did not cap this tax exemption because unions opposed it and Congress postponed any changes until 2018. Yet, if the current Congress is reluctant to make such changes, why would a future Congress that has nothing to gain from doing so go along with implementing this change? That was a big mistake. The first thing I would do is put a limit on the tax exemption of employer-provided health insurance.

I would also recommend improving incentives on health care providers and insurers to foster greater competition. One of the proposals is for insurance companies to compete across state lines which would help reduce premiums, particularly in the states that require costly state-mandated benefits. Opponents are afraid insurance companies have high market shares and there will not be enough competition. This would increase competition. I would also do away with a number of regulatory clauses like any willing provider. I also favor an individual mandate for the purchase of health insurance as long as there is a strong penalty for not purchasing insurance. A weak penalty is likely to bankrupt some insurers because young people and others who are not sick will be unlikely to buy insurance. They might as well pay a weak penalty and buy insurance later if and when they get sick. This will increase adverse selection and place insurers in economic jeopardy.

I am concerned that there is not enough hospital competition in a number of markets and hospitals are gaining market power. As you get consolidation of hospitals, they are able to increase the rates charged to insurers and it is going to become even more difficult for insurers to negotiate lower prices. The insurers will have little choice but raise premiums, but that will lead to trouble with the insurance regulators as we talked about a moment ago. The only way around this is to bundle services into one payment or pay on an episode-basis; say one payment for a hip replacement to be split among the hospital, physician, and community provider. By moving toward a more capitated payment system, the Medicare program would encourage higher-priced physicians to work together with hospitals and then maybe these types of organizations would be more competitive with one another. $


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