If we changed our health care system overnight to single-payer, we would not instantly save $1 trillion per year.
Let's look at how we spend our health care dollars now. According the Centers for Medicare and Medicaid Services (CMS), this is how, in 2015, we spent $3.2 trillion:
- $1 trillion (up 5.6% year over year) on hospitals
- $635 billion (up 6.3%) on physician and clinical services
- $88 billion (up 5.9%) on other professional services (e.g. podiatry, physical therapy, optometry)
- $118 billion (up 4.2%) on dentistry
- $163 billion (up 7.8%) on "other health, residential, and personal care services" (e.g. school-based care, workplace health care, community centers, ambulances)
- $89 billion (up 6.3%) on home health care
- $157 billion (up 2.7%) on nursing home and retirement care
- $325 billion (up 9.0%) on prescription drugs
- $49 billion (up 3.9%) on durable medical equipment
- $59 billion (up 3.7%) on non-durable medical equipment
That leaves about $520 billion, or 16% of the total spending, unaccounted for. This is overhead. Estimates vary about how much money we could save by cutting insurance overhead costs. Medicare, the federal single-payer system for those older than 65, has an overhead of about 2% whereas private insurance overhead averages about 12%. Steffie Woolhandler and David Himmelstein estimate that we "could save approximately $504 billion annually on bureaucracy" by going to single-payer.
Besides bureaucratic overhead, why else is American health care so expensive? Prices. We pay more for CT scans, MRIs, pharmaceuticals, hospital services, and procedures. And why are prices so high? Compared to other countries, we have done less to regulate the health care industry and the prices in that system. For example, the UK’s National Health Service is a massive purchaser of pharmaceuticals and negotiates favorable prices; it then controls the growth in those prices. America’s Medicare, by contrast, is not allowed to negotiate drug prices. (It mystifies me that supposed ‘free-market’ conservatives defend this plainly anti-capitalist statute.)
To this list of reasons for high health care costs in the US — bureaucratic overhead, high prices, and dysfunctional and counterproductive regulation — add system fragmentation, perverse incentives, and severe under-investment in health promotion and disease prevention, including transportation, food systems, healthy housing, healthy communities, open spaces, pollution control, etc.
A single-payer health care system has the potential to diminish, if not cure, many of these ills. Bureaucratic overhead would be much lower than 16%, if not as low as Medicare’s 2%. A cohesive public health and health care system could align incentives with outcomes; invest in prevention and realize the saving in health care delivery; make pricing transparent and competitive.
Further, with guaranteed health care, Americans would be free to start a business, change jobs or industries, or go back to school, and not have to worry about how they would afford health care for themselves or their employees. I struggle to imagine a more potent injection of entrepreneurial energy into the American economy.
Unfortunately, the road to single-payer is riddled with obstacles. Public opinion is starting to shift in its favor, but political will is lagging. There are many entrenched interests wishing to defend their $1 trillion, give or take, who currently benefit from our fragmented, inefficient, opaque, and wasteful system. I believe the public option - in which individuals could choose to buy insurance from the federal government rather than private companies - is the most viable route to single-payer. Another, more attractive, option would be to enroll every child under 18 in a federal health insurance system - Medicare for kids. Then, year by year, increase the enrollment age by one year to 19, then 20, etc, thus creating an entire generation that is fully insured. (We could, at the same time raise the national smoking age, year by year, creating a smoke free generation — imagine the savings!)
No matter the path to single-payer, I think it is inevitable that we will get there. Whether this century or the next will determine what other things, with a spare $1 trillion per year, our nation can accomplish.