In Alice’s Wonderland, the White Queen could believe six impossible things before breakfast. That’s the kind of faith required to support the New York State Health Act, a proposal to establish a single-payer system in New York.
Just to be clear: Universal health coverage is desirable and, I believe, attainable. Most of our trading partners have established universal or near-universal coverage through systems that are stable (mostly) and enjoy the widespread support of their electorates and taxpayers. See the World Health Organization’s overview.
The Affordable Care Act (ACA or Obamacare) was a valiant effort to move the United States toward an insurance-based, universal system that would resemble that of nations like Germany, Taiwan, Switzerland and others. As related in a previous column, however, a combination of strategic miscalculations, outright mistakes and relentless sabotage has left us with a system that, if not worse than what preceded it, may well be soon.
Our health care system is exceptional only in what it costs: It’s a patchwork that covers too few at too high a cost. It’s still busted.
Single payer is another path to universal coverage. Sen. Bernie Sanders has been beating the drum for a single-payer solution he’s dubbed “Medicare for All” since the Democratic primary. Globally, single payer is best exemplified by the United Kingdom and Canada. The U.K.’s National Health Service, while hardly flawless and subject to continuous tinkering by the party in power, enjoys support from the British public that approaches that of fans for Manchester United. The systems run by Canada’s provinces, despite long waits for certain types of care and other criticism, are also very popular.
The New York Health Act
Richard Gottfried, longtime chairman of the New York State Assembly Health Committee, has been pursuing the single-payer holy grail in legislation since 1992. The ascendancy of the Democratic party’s progressive wing and the attention gained by Sanders’ proposal has put new energy behind Gottfried’s plan. Cynthia Nixon, in her unsuccessful run for the Democratic nomination for governor, brought additional attention to the Gottfried plan.
The NYS Health Foundation has taken notice, too, funding a study of NYHA by the RAND Corp. Its task was to tackle the technical characteristics of the legislation, with a focus on financial viability. Can a single-payer plan achieve universal coverage? What would be required to implement the plan? And, if implemented according to RAND’s assumptions, can it save money or, at least, break even?
What is the NYHA plan?
The New York Health Act would create a single health care system for the state by combining public health care systems (principally Medicaid, Child Health Plus and Medicare) with employer-based systems to provide universal coverage for all state residents, included the undocumented. The system would charge no premiums or co-pays. Coverage would be equivalent to state Medicaid and ACA (i.e. very good). Enrollees would each have a care coordinator to help manage utilization and guide access to specialty care. Provider fees would be set through negotiation with provider representatives.
The new system would be funded by consolidating existing sources of revenue, including the full array of current NYS health care taxes and a new payroll/income tax shared 80 percent /20 percent by employers and workers, respectively. Federal funds (including ACA subsidies) are assumed to continue flowing at the same rate under a series of waivers negotiated with the federal government.
Employer-based care would not be illegal, but the NYHA proposal assumes that the required employer tax would render this impractical. Employers would have no incentive to offer plans to employees who were already covered by the NYHA plan.
Private health insurance would no longer be necessary, although NYHA contains no prohibitions on care purchased outside the state system. Current spending on premiums by individuals and firms would be replaced by the dedicated payroll/income taxes. Administration would be taken over by a state agency, presumably the NYS Department of Health. Administrative costs are assumed to be six percent.
Would NYHA save money?
At 18 percent of GDP, U.S. health care costs are much higher than those of our trading partners. Many who pursue the single-payer quest begin with an assumption that the principal cause of the cost differential is greedy and inefficient health insurers. We have all noted the generous pay packets granted to insurance executives and have experienced some of the bureaucratic red tape first hand. (What’s your maddening health insurance story?)
Single-payer logic says, “If we pay 50 percent more for health care than Germany and the reason is the health insurers, then we can cover lots more people for the same money if we simply eliminate this costly middleman.”
So that’s the first test for RAND’s NYHA study: Can the state expand coverage to everyone and eliminate all out-of-pocket costs without spending more money?
RAND: Under our base case assumptions, total health care spending under the NYHA would be slightly lower than spending under the status quo. We estimate that spending would be similar in 2022 and 3 percent lower by 2031, with the 10-year cumulative net savings being about $80 billion, or 2 percent.
This is not reassuring. It is easy to be “off” by 2 percent, particularly given the vast array of challenging assumptions required to reach this conclusion. It is also easy to imagine the pressure on the RAND team to nudge the assumptions until that “headline” figure slips into positive territory. We can be grateful for the job they did articulating their assumptions and reporting the financial implications of changing them. RAND reports that the range of possible cost outcomes is from 5 percent savings to 8 percent additional cost, thus annual savings of $200 billion to annual cost of $360 billion.
The cost problem is bigger than the insurers
RAND starts by assuming away those greedy insurers. Unfortunately, the notion that they are the reason for our health care cost differential is naïve. The problem is more complex, thus harder to solve.
Globally, only the true single payer systems have eliminated the insurance industry. Yet many nations boast near universal coverage at a much lower cost while relying on an insurance-based system.
Research shows that all universal coverage systems share a common characteristic: Whether single payer, insurance-based or some combination, all are founded on robust regulation of provider cost and, to a lesser extent, system utilization. Providers in the U.K. are government employees. In Canada, the providers are private and negotiate with the provinces for their fees. The insurance-based universal coverage systems also maintain rigorous control of provider payments and insurance profitability.
RAND’s researchers understand this. The cost forecast above makes two critical assumptions. First, that provider payments for Medicaid, Medicare and private providers would all be equalized. As NYS Medicaid provider rates are low, even by national Medicaid standards, and fully a third of individuals covered under the NYHA are currently covered by Medicaid (4.6 million of the state’s 19.5 million population is covered by Medicaid or CHIP), the rates paid to private providers would fall under this model.
Second, the model also assumes that provider rates will rise in the future at the Medicaid/Medicare rate.
The federal role
RAND devotes 2,000 words to an overview of the federal actions required to make NYHA work. Both Congress and the administration would need to be involved.
- The federal government would have to agree to convert health care dollars flowing to NYS under the status quo to a block grant. This would include Medicaid, Medicare, the Children’s Health Insurance Program (CHIP) and funding flowing through the Affordable Care Act.
- Implicit here is the assumption that these programs will continue to be funded at current levels and that NYS’s share of program dollars would remain the same. As New York State is a conspicuously large consumer of federal health care dollars, particularly under Medicaid and the Affordable Care Act (including being one of only two states to draw down funds under the Basic Health Program), this unstated assumption is weak.
- Subsuming Medicare under the New York plan would also require waivers from laws and regulations governing eligibility and cost-sharing. As RAND observes, “a Medicare waiver that would affect enrollee benefits would be unprecedented. It is possible that the waivers could be legally challenged by beneficiaries who prefer to receive benefits under the current system.”
- The elimination of employer-based insurance would create problems for firms with employees living in other states. This could be a challenge for any state but New York is particularly vulnerable. The NYS Office of Taxation and Finance reports that 820,000 full year nonresidents—earning taxable income of $222 million—filed NYS tax returns in 2010. About half were New Jersey residents with another fifth living in Connecticut.
- Finally, the Employee Retirement Income Security Act of 1974 (ERISA) preempts states’ regulation of self-funded health care plans. NYS may not be allowed to force these employers into the NYS plan and compel employers to pay into the state fund. This is not a minor issue—The Employee Benefits Research Institute reports that 60 percent of private health plan enrollees were in self-insured plans nationally. About 80% of firms with more than 500 employees were self-funded for health insurance for at least one plan. RAND’s revenue calculations are deeply flawed if firms with self-funded plans secure an exemption from the NYHA plan. The NYHA plan could accelerate the movement to self-insurance if the tax were set too high.
In summary, RAND’s assessment of the New York Health Act’s single-payer health plan is technically strong, but delicately avoids the obvious conclusion: By proposing the virtual elimination of the state’s health insurance industry, establishing a robust regulatory structure of provider prices and threatening the status of employers’ self-funded health plans, NYHA will unleash an army of well-funded lobbyists, the legislature will find irresistibly persuasive.
Nor are RAND’s technical conclusions unassailable. The headline finding—that NYHA will expand coverage and save money—is based on a large number of interlocking assumptions. If any single assumption is off by much, the magical result will vanish.
It is not hard to read between the lines of RAND’s careful prose—their finding is based on such a long list of assumptions, some of which are dubious, best—that even the authors find the result hard to defend. The rest of us need not be so circumspect.