CASE STUDY 6.3: SINGLE-PAYER SYSTEM

Abstract

Case 6.3 seeks to assess the cost-effectiveness of the Medicare for All system. It discusses the cost savings to be realized by insurers, providers, and patients in implementing the Medicare for All system. For insurers, the plan would reduce costs by reducing redundancies and streamlining administrative procedures as well as granting Medicare significant power to bargain over pharmaceuticals prices. For patients under private insurance, the plan will reduce spending on care by $455 billion. At the same time, it would increase spending for those under Medicaid by approximately $160 billion. This text responds to questions one to four in the case study. More specifically, it seeks to determine the extent to which moving to a single-payer system would reduce administrative costs, how much provider revenues would fall if Medicare replaced private insurance, how much provide revenues would rise if Medicare replaced Medicaid, and the effect of Medicare for All on aggregate healthcare spending.

Case 6.3

Introduction of Topic and Facts

The case seeks to determine whether the Medicare for All system would help reduce costs for insurers, providers, and patients. On the part of insurers, the case argues that Medicare for all would reduce costs in two ways. First, it would cut down on redundancies and inefficiencies in administration processes that push up administration costs. In so doing, the plan would realize cost savings of $125 billion annually. Additionally, it would give Medicare strong price bargaining power over pharmaceutical companies, which is projected to realize cost savings of between $120 and 140 billion annually. For patients, the plan would lower some prices and increase others. Since private insurance prices are higher than Medicare prices, moving to Medicare would reduce both hospital and clinical fees for patients under private insurance plans. At the same time, the move would increase hospital and physician fees for patients under Medicaid since Medicaid charges lower rates than Medicare. Therefore, cutting private insurance prices to Medicaid levels will reduce aggregate spending on care by approximately $455 billion. Conversely, increasing Medicaid prices to Medicare levels is projected to increase spending by approximately $160 billion. To address this, policymakers may settle for a Medicare reimbursement rates that takes into account both private insurance and Medicaid rates for the plan to benefit all members of society.

Summary of the Areas Pertinent to the Course

Case 6.3 demonstrates some crucial concepts covered in the course content. These include the idea of improving the experience of care through a single-payer system, modification of social determinants of health, and reference pricing (Lee, 2019). The case recommends moving to a single-payer healthcare management model as a means to improve the experience of care by reducing the administrative processes in billing and payment processing that cause redundancies and inconveniences for patients. The case also brings to light the concept of modifiable social determinants of health, which are social factors that hinder the effective administration of care, but could be modified to improve patients experience of care. The modifiable social determinant identified in the case is low-income, which makes it difficult for an unemployed person to get private insurance cover. The proposed strategy is to implement a form of value-based insurance design that uses Medicare rates as the reference price for health insurance to increase access to coverage for low-income citizens.

Detailed Case Discussion

How much would moving to a single payer plan reduce administrative costs?

Studies have shown that the United States (US) spends more in healthcare administrative expenses than other developed countries (Gee & Spiro, 2019). The main component of administrative costs is billing costs, which are costs surrounding claims submissions, reconciliations, and payment processing (Gee & Spiro, 2019). Besides billing, insurance providers may also incur administrative costs in the areas of general management, record-keeping, initiatives targeting the quality of services, and programs seeking to combat abuse and fraud (Gee & Spiro, 2019).

The case study acknowledges that it is not clear how much administrative cost savings would be realized by moving to a single payer plan. However, a report by American Progress estimates that healthcare providers and payers in the US spend approximately $496 billion on administrative costs, twice the necessary...

…$352 billion (Schwartz et al., 2021). Aggregate spending on care for people under employer-sponsored coverage would reduce by approximately $310 billion (from $757 to $447 billion) if private insurers charge the Medicare rates (Schwartz et al., 2021). The authors attribute this to a decrease in the amount of premiums for services covered under the employers plan and lower out-of-pocket costs for costs that the employer does not cover (Schwartz et al., 2021).

Looking at the reduction in spending by type of service, outpatient services are covered by private insurers at 203 percent of the Medicare rate, while inpatient services are covered at 165 percent (Schwartz et al., 2021). If private insurers were to charge Medicare rates, outpatient care would account for the greatest reduction in total spending at 45 percent, while inpatient care costs would reduce by 27 percent (Schwartz et al., 2021). Finally, if private insurers were to charge Medicare rates, aggregate per-person spending would reduce, although the decline would be greater among people aged 19 to 65and lower for children below 18 years given that Medicare rates rise steadily with age beginning from age three (Schwartz et al., 2021 ). Generally, replacing private insurance and Medicaid with Medicare would reduce aggregate spending on care in the economy.

Conclusion

This assignment sought to analyze the feasibility of the proposal to collapse the multi-payer health system presently in place and replace it with the single-payer system. The US incurs significantly high costs in healthcare administration compared to other developed nations. A significant part of these high costs is a result of redundancies and inefficiencies in administrative processes. Upon responding to questions 1, 2, and 3, this text concludes that Medicare for all would: a) attract administrative cost savings of etween $200 and $260 billion annually, b) decrease provider revenues by between 25 and 30 percent, and c) reduce aggregate healthcare spending in the economy. Three takeaways from the assignment are:

Medicare for All will significantly decrease hospital revenues, with outpatient services accounting for the greatest decline among hospital departments.

The cost savings realized from streamlining administrative processes may not be…