Single Payer vs. Multi-Payers under Universal Health Coverage
by Warren Greenberg, George Washington University, Washington, DC
Currently, there is much discussion of universal healthcare coverage in the United States. Universal healthcare coverage may mean a single payer system akin to what is in place in Canada. The Canadian government in each of its ten provinces acts as a single payer or single health insurer for all healthcare services. In contrast, countries such as the Netherlands and Israel have universal coverage under a multi-payer or multi-health insurer system in which individuals choose among competing health insurers for their care.
Economics predicts that a single payer purchases a reduced quantity of services at lower prices reducing overall costs. Shortages and queues will result, however. In a multi-payer system there are often different types of cost containment which may be offered by different health insurers such as various sizes of deductibles or co-payments which would affect quantity of services delivered. Over time, there have been innovations in cost containment among health insurers in a multi-payer system. Out-patient surgery, which is less expensive than in-patient surgery, is now common. Pre-certification has reduced hospital admissions and concurrent review has reduced length-of-stay in hospitals. There are a large number of health maintenance organizations (HMOs) and preferred provider organizations (PPOs) which also attempt to contain costs in addition to traditional fee-for-service plans in the health insurance industry.
Quality of Care
Under a single payer system there is no market incentive to provide information on the quality of care of individual hospital or physician providers or to only contract with physicians or hospitals which have best practices. Each provider automatically is a fully participating physician or hospital in a single payer system.
With a multi-payer system, one would expect some payers to contract with the purportedly better quality hospitals (such as the Cleveland Clinic or Mayo Clinic) and superior physicians so that they may emphasize that they are a health plan which contracts only with the best providers of healthcare. However, health insurers which would compete in this manner would attract a large number of individuals who had pre-existing conditions or chronic illnesses. Enrollment of high-risk individuals would increase costs for these health insurers. Thus, health insurers in a multi-payer system are reluctant to compete on the basis of quality of care provided by its physicians and hospitals.
Enrollment of High-Risk Individuals
Under a single-payer system, all individuals may enroll regardless of health condition. In contrast, in a multi-payer system, health insurers have incentives to avoid those who are costly and high risk and enroll those who are less costly and at low risk. Advertising to young families, denying coverage for pre-existing conditions, and requiring medical examinations, are ways that are utilized by health insurers to ensure a healthier and less costly enrollment in a multi-payer system.
Under a single-payer system, providers need only bear the administrative costs from one insurer for services delivered. Under a multi-payer system, the payment for each of the payers must be accounted for by providers. One insurer may deny benefits for a procedure while another may pay. Different insurers may have different deductibles and co-payments for various procedures.
Government Intervention in the Health Insurer Marketplace
Thus far, the comparisons between a single payer and multi-payer system have not considered government intervention in the health insurer marketplace. Government interventions have been instituted in the Netherlands and Israel where there are multi-payer systems. These interventions have included a risk adjustment or risk equalization measure applied to each health insurer in the marketplace. In the Netherlands, the government pays each health insurer a risk adjusted sum based on age, gender, diagnostic costs, pharmaceutical costs, and indicators of disability among other health status criteria. In Israel, age alone is used as measure of risk adjustment. With a risk adjustment measure, health insurers which have enrolled poorer risks or older individuals receive greater payments from the government. Health insurers would be free to contract selectively with better hospitals and physicians and advertise their attributes to all prospective enrollees. In addition, both the Netherlands and Israel mandate a standardized benefit package which can also help reduce cream-skimming by eliminating the propensity of the health insurers to offer a limited array of benefits which would appeal mostly to healthy individuals.
When government interventions are introduced, it appears that in addition to cost-containment, potential improvements in paying for quality of care, and reductions in cream-skimming can be accomplished in a multi-payer system. In contrast, inefficiencies are still inherent in a single-payer system. If Governmental reforms in the multi-payer system can be successfully accomplished, as they have been in Israel and the Netherlands, the directions for the U.S. health system may be somewhat clearer.
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