PERSPECTIVE ON HEALTH REFORM : The One Huge Flaw of ‘Single Payer’ : There’s no evidence the government can efficiently administer medical care--or anything else.

“Single payer, single payer” has become the health-reform mantra of the left. It combines the twin appeals of simplifying the current system by turning the whole thing over to government management and saving on administrative costs by eliminating the health insurance industry. Unfortunately, reduced complexity is unlikely in any program administered by the government--federal or state. Without changing the incentives to raise costs in the current system, administrative savings alone will not solve our health-care cost and access problems, at least not without sacrificing quality.

In general, single-payer advocates would have the government pay for all health-care services and raise the required revenue through a payroll tax on earned income. But government is inherently an ineffective, incompetent, inefficient purchaser of whatever it buys. Scandals regularly plague government agencies--memorable incidents include the the Defense Department’s infamously wasteful procurement policies, past political favoritism in the Department of Housing and Urban Development and the horrific fraud and high default rate on government-backed education loans. Local stories about Medicare or Medicaid fraud and abuse are a common occurrence.

There is a systemic explanation for such ineffectiveness. Brookings Institution economist Charles Schultze explained that government cannot be seen as directly harming individuals, such as by putting them out of work or out of business, especially individuals who also happen to be constituents. All government suppliers create jobs in some congressional district or another and therefore are protected by some member of Congress. So government typically ends up paying on the basis of cost reimbursement, which assumes that those whose costs are higher need more money. This type of reimbursement formula has been disastrous, both in terms of cost and quality of health care. By contrast, the private market permits lower-quality, inefficient providers to fail, allowing better ones to replace them.

Legislators are constantly under intense pressure to deliver particularized benefits--also known as “pork barrel”--to constituents and electoral supporters. Thus, decisions are made on political grounds, not on the basis of maximum value for money. This is also why veterans hospitals are not built where they are needed most; they are built in the districts of Veterans Affairs Committee members.

Government is especially weak on questions of volume, appropriateness of services and quality--subtle issues where judgment is necessary. Civil servants are not allowed to use judgment. Formulas to determine who gets how much health care lend themselves to political manipulation, waste and abuse. Quality would suffer because quality is not a government priority. According to Vice President Al Gore in the 1993 National Performance Review, “In Washington’s highly politicized world, the greatest risk is not that a program will perform poorly, but that a scandal will erupt. Scandals are front-page news, while routine failure is ignored.” Instead, a market-based approach relies on consumer choice and wide dissemination of information so people can judge for themselves where to spend their money.

Single-payer advocates like to point to Medicare’s low administrative costs as evidence of efficiency. Administrative costs may be low relative to the private sector, but total Medicare expenditures continue to grow at unacceptable rates, despite government’s ability to lower reimbursement rates and shift costs to private payers. Medicare is not efficient; it is undermanaged. In the name of budget reduction, Congress and the executive branch cut back on the number of civil servants needed to manage these programs properly. The program spends billions on unnecessary and inappropriate care. No competitive private company would pay out large sums of money with so little management.

Health-care costs account for approximately 14% of this nation’s economy. Direct federal spending accounts for nearly one-third of health-care costs; federal spending overall comes to 22% of the gross national product. A single-payer system would increase government’s reach by half. But according to the vice president, “the average American believes that we (the federal government) waste 48 cents of every tax dollar. . . . In the name of controlling waste, we have created paralyzing inefficiency.”

While the private sector in health-care purchasing has undergone a revolution--roughly 100 million people have converted from traditional fee-for-service free choice of provider insurance to health-maintenance organizations and preferred-provider insurance--government has been incapable of changing. Fewer than 2.5 million of the 36 million Medicare beneficiaries are in HMOs. Bruce Vladeck, head of the Health Care Financing Administration, which administers Medicare, admitted: “Our payment methodology is so primitive that it doesn’t save money, . . . We are losing money on HMO patients” because the HMOs seem to skim off healthier enrollees but are still paid 95% of the average Medicare bill.

Twenty-nine years after enactment of Medicare, government is unable to take advantage of an innovation that provides high-quality care at less cost to more than 40 million private-sector patients. As Gore put it, “the federal government seems unable to abandon the obsolete . . . the federal government is not simply broke; it is broken.” State governments are no better. California’s Medi-Cal program only recently began to adopt managed care, years after the private sector. Still, it’s among the first states to do so.

While there is much that can be done to improve the current state of the health-insurance industry, government is too rigid and inflexible to accomplish it. Only market forces can create a system in which informed, cost-conscious buyers switch to the most efficient system because they see that it is in their own best interest to encourage efficiency.