Sunday, July 29, 2018

Single payer sympathy?

A July 30 2018 Op-Ed in the Wall Street Journal, titled "The tax and spend health care solution"
Why is paying for health care such a mess in America? Why is it so hard to fix? Cross-subsidies are the original sin. The government wants to subsidize health care for poor people, chronically sick people, and people who have money but choose to spend less of it on health care than officials find sufficient. These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care or insurance, at market prices, for people the government wishes to help. 
But lawmakers do not want to be seen taxing and spending, so they hide transfers in cross-subsidies. They require emergency rooms to treat everyone who comes along, and then hospitals must overcharge everybody else. Medicare and Medicaid do not pay the full amount their services cost. Hospitals then overcharge private insurance and the few remaining cash customers. 
Overcharging paying customers and providing free care in an emergency room is economically equivalent to a tax on emergency-room services that funds subsidies for others. But the effective tax and expenditure of a forced cross-subsidy do not show up on the federal budget. 
Over the long term, cross-subsidies are far more inefficient than forthright taxing and spending. If the hospital is going to overcharge private insurance and paying customers to cross-subsidize the poor, the uninsured, Medicare, Medicaid and, increasingly, victims of limited exchange policies, then the hospital must be protected from competition. If competitors can come in and offer services to the paying customers, the scheme unravels. 
No competition means no pressure to innovate for better service and lower costs. .....

As usual, I have to wait 30 days to post the whole thing.  It synthesizes some of my earlier blog posts (here here here)  on how cross subsidies are worse than straightforward, on budget, taxing and spending.

Let me here admit to one of the implications of this view. Single payer might not be so bad -- it might not be as bad as the current Medicare, Medicaid, Obamacare, VA, etc. mess.

But before you quote that, let's be careful to define what we mean by "single payer," which has become a mantra and litmus test on the left. There is a huge difference between "there is a single payer that everyone can use," and "there is a single payer that everyone must use."

Most on the left promise the former and mean the latter. Not only is there some sort of single easy to access health care and insurance scheme for poor or unfortunate people, but you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme.   Doctors are forbidden to have private cash paying customers. That truly is a nightmare, and it will mean the allocation of good medical care by connections and bribes.

But a single provider or payer than anyone in trouble can use, supported by taxes, not cross-subsidized by restrictions on your and my health care -- not underpaying in a private system and forcing that system to overcharge others -- while allowing a vibrant completely competitive free market in private health care on top of that, is not such a terrible idea, and follows from my Op-Ed. A single bureaucracy that hands out vouchers, pays full market costs, or pays partially but allows doctors to charge whatever they want on top of that would work. A VA like system of public hospitals and clinics would work too.  Like public schools, or public restrooms, you can use them, but you don't have to; you're free to spend your money on better options if you like, and people are free to start businesses to serve you. And no cross-subisides.

Whether we restrict provision with income and other tests, and thus introduce another marginal disincentive to work, or give everyone access and count on most working people to choose a better product, I leave for another day. It would always be an inefficient bureaucratic problem, but it might not be the nightmare of anti-competitive inefficiency of the current system.

The free market describes well how your and my health care and insurance should work. It does not offer nearly so clear advice on how the government should manage the finances and bureaucracy that provide subsidies (if we want to provide them).  There are always tradeoffs, generosity vs. moral hazard and disincentives. Economics is crucial to understanding those tradeoffs, of course, but the answer will always be a muddy middle of tradeoffs. I have offered that taxing and spending -- on budget and appropriated -- to provide those subsidies may be better than the current mandated cross subsidies. We already have a "single payer" -- the federal government. The argument that a  single point of entry, a single payer, or a single provider, may be more rational and cost effective than the current system  for the purpose of providing subsidized care is not as crazy as it sounds -- if it allows a free the market for the majority of Americans who own cars, houses, TVs and cell phones and can pay for better services in that free market.

"Single payer" also usually means "single price-setter." It means a gargantuan Federal bureaucracy that will somehow produce health care cost savings by simply decreeing that doctors and hospitals be paid less. Good luck with that.

Both left and right forget that "negotiation" means only you pay less and somebody else pays more. We can't all pay less by negotiation. Price controls mean rationing. Period. This is the heart of current "single payer" proposals, and they are doomed.

My "single payer" is just that, a "payer," operating in a completely free market.

Still, when a politician endorses "single payer," ask "does that mean we all can use a single payer? Or does that mean we all must use a single payer?"


  1. In a system designed and allowed to deny claim as SOP, and soon to exclude all who need long-term care as profit-prohibitive, the offering-up and already accomplished hacking of our DNA will create entire swaths of not only uninsurable, but also unemployable people, based on who can and who cannot join any company-provided insurance plan.

    The fact that the private health insurance industry adds almost 40% to our nation's health care costs, might lead one to wonder at the fact that we lead the galactic quadrant in home foreclosure due to med bill-induced bankruptcy, and ask themselves, 'Is accounting really worth that much?'

  2. I look forward to reading the article when it is available outside the paywall. You may well address it in the full article (I hope so), but I'd love to understand how these claims have played out in other countries. For example:

    1. You say "These are worthy goals, easily achieved in a completely free-market system by raising taxes and then subsidizing health care" : It seams easy in theory, is it in practice? Has anyone tried it?

    2. How do healthcare outcomes play out in countries with "must" single payer v.s. "can" single payer? Is it really true that the former leads to "allocation of good medical care by connections and bribes" in practice?

    1. Healthcare outcomes in Canada are fine.

      There is never enough money to do everything and bureaucracies are never efficient but I think it is fair to say that the inefficiencies in the Canadian system cost less than the inefficiencies in the American system. We do have the relief valve that if someone really wants to pay for their health care they can seek it in the United States. The only person I know who has done that had his by-pass done in the US because he was there when diagnosed and too sick to travel.

      I have never heard of bribes but if you have better social skills and your doctor likes you then you are slightly more likely to get a faster referral and more attention.

      If you want to see Canadian health care in action try to find and watch the documentary series "Emergency Room: Life + Death at VGH". VGH is Vancouver General Hospital and is the largest hospital in one of the largest Canadian cities. As a result of an injury I had six surgeries at that hospital and was well satisfied with the service and results and it cost me $0.0.

    2. Wrong Absalon.
      It did not cost you $0.0.
      Your out of pocket may have been zero, but it cost you and many other Canadians taxes.
      And one thing about the Canadian system: it is a big free rider on the inventions of others, mainly the American medical and pharma industry. Canada does not invent anything, does not produce any significant output in medical devices and pharmaceutical drugs (and neither do many other countries). Canada free rides on America to do all this (and on Americans to pay for all this).
      All that equipment for those surgeries you had? They were probably invented and/or produced in the US.
      So no Abasalon. Stuff is not free. Somebody somewhere pays of free stuff.

    3. Manfred, I am well aware that I pay taxes.

      The American companies that provided the CAT scan machine was paid. All the other medical device makers were paid. If they did not like the prices they should not have sold the machine.

      On pharmaceuticals, patents are respected in accordance with Canadian laws. Canadian government agencies do bargain for bulk pricing and can use legislative powers to pressure pharmaceutical companies so we get lower prices for drugs. For example, the price of an Epi-Pen in the United States has gone up by a factor of three over the last ten years but not in Canada where they are 1/3 the price of the United States.

    4. Manfred

      The United States is paying more than anyone else for healthcare for worse outcomes:

      quoting a Wall Street Journal article.

    5. Absalon,
      Yes, the CAT Scan maker got paid, by the Canadians, and yes, they did accept that price. Sometimes companies sell to have a market presence, but not because they make money. Medical device and pharma make their money in the US, what they sell to Canadians and Europeans and Australians is icing on the cake. The R&D that led to the CAT Scan they used on you was funded by American money, not Canadian money. If the world goes by what the Canadian health care system (and the British, and the French, and the Australian, etc) paid, there would not NO medical or pharma research (or at the most, very little)
      And this is what many people don't get.
      They think that developing all those devices and drugs is free, like the Canadian Health System or the British NHS.
      R&D would be killed off, and thus, the socialization of health care would be paid by future generations, with less R&D available to them.
      But... who cares about future generations anyway?
      No, R&D is not free, it costs a *huge* boatload of money, but for Canadians and the British and the French it is easier to free ride on the Americans.

      As for health outcomes, it may certainly be true that outcomes are worse. That can be because of many factors - socioeconomic factors play a big role.
      But there is a reason why there are many Canadians coming to the US for treatment (and British and others). If the Canadian system is so great and such a paradise, why are they coming to the US? Answer: because in the US they get timely, fast, high tech treatment, something the Canadian system cannot provide to many Canadians.

    6. Manfred - for the record: the CAT scan technique was invented by a South African physicist who started his work in South Africa and continued it at an American University. His theoretical work was then used by an electrical engineer at EMI in England to build the first working CT machine.

      For the rest of your post we will have to agree to disagree.

    7. Dear Absalon, I am afraid to bring bad news for you: There is absolutely no better medical service than the one provided in the US. Look at cancer survivorship rates, prevention, etc. This type of claim is just terrible leftist propaganda that, as always, do not stand a chance with the facts.

      What you are saying is that people die later in other countries. This has very little to do with the quality of medical services and a lot more with violent deaths, bad eating habits, and etc.

  3. "A single bureaucracy that hands out vouchers, pays full market costs, or pays partially but allows doctors to charge whatever they want on top of that would work. A single bureaucracy that hands out vouchers, pays full market costs, or pays partially but allows doctors to charge whatever they want on top of that would work."

    Where have I heard this before? "I believe in free markets but if all we can achieve is rigged markets then the outcome will be a single payer system. Perhaps a single payer system where the doctor or hospital could balance bill (i.e., charge more than the single payer "allows") could work. The provider of services could advertise their price and you would be able to just subtract the single payer amount to get your out of pocket."

    One problem: While this would easily work for doctors the cross subsidies are on the facility side. Doctors are rarely, if ever, the cause of cross subsidies.

    The payer - not the facility - is usually the source of the cross subsidies, as I have pointed out on my web site since 2013:

    Medicare facility fee for CPT code 64510, Stellate Ganglion Block (2013 Medicare Rates)

    Hospital Outpatient Department: $826

    Ambulatory Surgery center: $531

    Office: $221

    The numbers are 5 years old but not much has changed. Remember, "Whose bread I eat, his song I must sing". If the single payer has cross-subsidies baked into the cake ("bread" just didn't sound right) the problem remains.

    I discussed this in 2017 on ( after reading this report to Congress by the Physicians Advocacy Institute:

  4. I once attempted unsuccessfully to publish an opinion in the WSJ along these lines. The ability for private companies like FedEx to deliver packages alongside the Post Office or private space exploration companies to send ships into space alongside Nasa's could serve as the model for a public system of health care that competes alongside virtually unfettered private companies.

  5. John, there are real world examples of the full spectrum of "single payer" models. Perhaps every time someone advocates single payer, we should insist they explain which country their model most closely resembles before allowing them to continue. I agree, some at the less regulated end of the spectrum (e.g. Australia) would be a significant improvement over the devil's brew which is the current US model, but if they mean something like Canada, or god forbid, the UK's NHS, then man the barricades!

  6. The big economic lever we're all looking for is single-pricing. No one really cares how that's paid for - and single-pricing has no payment dependencies. It can be either single or multi-payer.

  7. My simple idea is to automatically enroll anyone in Medicaid anyone who is uninsured. In this way, Medicaid becomes the insurer of last resort.

    There's a hitch, however ... Medicaid won't be "free" to everyone. Those in poverty (or some X% of the poverty rate) would pay nothing and everyone else would be charged a “premium” based on ability to pay. A single mother in poverty would pay nothing for Medicaid coverage, but Elon Musk (if he chose this option) would pay the full price. A middle class family would pay something in between free and full-price.

    Opponents of Medicaid expansion claim that the program provides inferior service: fewer providers, lower quality, worse outcomes. If that’s true, then that’s a feature, not a bug. If consumers have to pay for their government insurance and that coverage is inferior, then consumers have an incentive to exit the Medicaid market and enter the private market. Medicaid becomes the insurer of last resort that it was intended to be.

    1. The current Medicaid is a huge part of the problem, since it does not pay full cost. Then providers must cross-subsidize Medicaid from other sources, and they must be protected from competition. Medicaid pays way more for the same service in a hospital than a clinic, for example. Yes, there must be some attraction to getting a job and paying for better service than the government system. I wish it could be otherwise but until money falls from trees it is not.

    2. What does " it does not pay full cost" mean? Medicaid offers a reimbursement rate that is lower than private insurance companies. No one is forced to take Medicaid rates (isn't that the conservative argument? Medicaid is terrible, and such small portions too!). Providers "must" cross-subsidize only in that they want to make more money and have the market power to extract those higher rates from private insurers while they can't do the same with Medicaid.

      It's like criticizing Walmart for "not paying the full cost" when it offers potential suppliers less for their product than other companies offer. Suppliers don't have to accept Walmart's offer. But since Walmart's has so much buying power they are able to get suppliers to play ball.

      It's such a weird way to phrase "using market power to get better prices". Since when does a good or service have any intrinsic "cost" other than what the seller can get from buyers in the market?

    3. I thought Medicaid reimbursement were low which is why so many doctors refuse it

    4. Professor: You continue to exhibit a misunderstanding regarding the lack of limitations that a sovereign has in issuing currency. Money of course does grow on trees, or at least can be key-stroked into existence. The limitation is the productive capacity of the economy (full employment as we discussed). When we run out of sharpie kids who can be trained to become doctors, nurses, PAs, and bed/equipment assemblers or drug manufacturers, that's when we can worry about say too much money growing on trees and say potential inflation.

      Until then, finding the money to provide additional care is not an issue. Moreover, all we are talking about is incremental medical care since whatever care the govrmnt provides may well represent a reduction of care already provided by private sector.

  8. thanks for a thoughtful addition to the conversation. Does Medicare for all align well with what you think would work?

  9. Hey John,

    I am so glad to see you join the single-payer train!

    My only complaint is your claim that "most on the left" want the "everyone must use" model. That is simply false. Most on the left want something that everybody CAN use. Most of us really want everyone to have a chance at a decent health outcome. Only a few really doctrinaire leftists believe that it's better not to let rich people pay out of pocket, whatever they are willing to pay, for whatever they want to buy.

    Either that, or you're defining "the left" to mean these doctrinaire leftists - in which case I reply, sure, but they represent a tiny fraction of the population.

    People who, as far as I can tell, would be 100% on board with your preferred proposal:

    Bernie Sanders
    Elizabeth Warren
    Alexandria Ocasio-Cortez
    Michael Moore

  10. This business of "bribes and connections" is this something pulled out of your ass or is there actual evidence of this in single payer for all countries like Canada? Weird how conservatives declare "things must be so" about med with no reference to how things actually are.

  11. This sentence: "A system of public hospitals and can use them, but you don't have to; you're free to spend your money on better options if you like, and people are free to start businesses to serve you" literally describes the UK healthcare system. The NHS runs public hospitals all over the country, but private healthcare providers also set up hospitals (or practices within NHS hospitals) and you can get private health insurance to cover you at them. Do you therefore support moving towards an NHS-style system?

  12. I lived in Italy for around 15 years. How it works there is that everyone pays into the public system via taxes (yes, they're high, but for a *lot* of different reasons, not just health care), and everyone has access to the public system. There is also, a parallel, private system that's a bit cushier, sometimes faster, but so much more of a 'market' than what we have in the US. It's pretty cheap, because the competition is 'free' (a sunk cost), and you can usually get quotes on the phone. I only ever used the private system once because in one case it was far more convenient geographically: I could walk to an appointment with a specialist and it wasn't much money.

    1. Exactly, what people dont understand is that health care in some european countries is more efficient than in the us not because of the public system, but because of a quite competitive market that goes along with it. In fact, people use the public system for very expensive treatment or dangerous diseases, but given long waiting time for less expensive and less dangerous treatment they opt for the private sector in this case. This amounts to public insurance only for mortal or expensive diseases, and market for the rest.

  13. Caroline FichtenbergJuly 30, 2018 at 1:53 PM

    This piece seems to conflate two very different things: single payer (ie. one entity, usually the government, paying for health care), and single provider (one entity providing health care where doctors are actually government employees, eg. the UK's NHS). Most other developed nations have single payer systems but not single provider systems, in other words, people are free to pick their doctors, and doctors work for themselves. The examples of the Post Office or public schools are therefore not the right ones. Most single-payer advocates in the US are not arguing for a national health system like in the UK but for something like Medicare for all where the government pays for the care and people can pick their doctors and also have additional coverage if they so choose.

  14. I agree with a lot of this, but you are perhaps a little unfair to say that most of the left promises "can" but means "must." Even Sanders' plan, the gold standard for the left these days, has an opt-out, embodied in Sec. 303 of his proposed legislation. That is why I have argued that even the Sanders plan is not truly "single-payer":

  15. The voucher argument is fair, as an alternative to "single payer." My objection
    is simple. Let me keep all my money and I will choose. The "most vulnerable" argument not withstanding.

  16. Are there any developed countries in the world where one "must use single payer" as you put it? Every country I know of with a public healthcare system (Canada, the UK, France, Germany, Ireland, etc.) also has private health insurance for those who can afford it. I personally used to have private health insurance paid for by my employer (a taxable benefit) in the UK

  17. Reinstitute universal conscription.

    The VA covers everybody. Then limit VA budget to 12% of GDP.

    The problem is solved in two generations.

    Develop x-prizes for technologies that reduce cost of healthcare.

  18. Subsidize demand (Medicare, Medicaid, Obamacare) and restrict supply (certificate of need laws, restrictions on med school and residency slots), and what do you get.

    Single payer could save tons of money by putting all personnel on the GS pay scale. There would be a lot of unhappy doctors. Just imagine hospital system administrators being capped by the SES maximum of $230,0000.

  19. Here is how you implement a single payer health care system: Extend Medicare to everyone. Medicare eligibility age? Zero! Get rid of Medicare taxes altogether. Instead fund Medicare from general revenue, i.e. taxes. This way the Republicans will not be able to challenge Medicare expansion in the courts. Lower deductibles to zero so people would not be discouraged to seek medical help (waiting too long will increase the cost of care). So when you get sick, all you will need is your Social Security #. Of course, taxes will go up, but you won't have to worry about medical insurance premiums. If you like private insurance, great! If you don't use Medicare, more money will go to others. Since Medicare is a successful program and works well for people 65 or older, it is guaranteed to work for younger than 65, because they are less likely to get sick.

  20. "A single bureaucracy that ... pays partially but allows doctors to charge whatever they want on top of that" is pretty much exactly the NZ system. You also have the option of not signing up for it if, for some reason, you don't want the partial payment. Best of all, there are no forms to fill out. You can also take out private insurance that'll cover the costs of what's not covered by the government. That does require some form-filling (for minor expenses), but only once every 6-12 months.

    There are still some fish hooks though, e.g., GPs act as gatekeepers to most (private) specialists. And there doesn't, as far as I can tell, seem to be a huge amount of price competition (might be different in a bigger economy though).

  21. In the clearest sign of an about-face at the libertarian-leaning Koch network, the billionaires funded a study that found that a Medicare-for-all plan by Sen. Bernie Sanders of Vermont would save the US $2 trillion over a decade . Sanders thanked the Koch network by name .


    Wel, I guess anything can happen.

    1. This is the paper that Bernie loved, from the Mercatus Center at George Mason University:

      "The leading current bill to establish single-payer health insurance, the Medicare for All Act (M4A),would, under conservative estimates, increase federal budget commitments by approximately $32.6 trillion during its first 10 years of full implementation (2022–2031), assuming enactment in 2018. This projected increase in federal healthcare commitments would equal approximately 10.7 percent of GDP in 2022, rising to nearly 12.7 percent of GDP in 2031 and further thereafter. Doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan. It is likely that the actual cost of M4A would be substantially greater than these estimates, which assume significant administrative and drug cost savings under the plan, and also assume that healthcare providers operating under M4A will be reimbursed at rates more than 40 percent lower than those currently paid by private health insurance."

      Not sure this is a ringing endorsement of "Medicare for All".

    2. Well, duh, federal budget commitments are going to go up if M4A is implemented. The savings (supposed or real, I dunno) come from not having to spend money on other forms of health insurance.

  22. No cross subsidies means no community rating, right? In that case, the public option is going to pick up everyone with a significant pre-existing condition, on top of the healthy poor who can't afford anything. Your ideal free-market health care system will exclusively serve people who don't need much health care. I have to admit, for providing health care to people who don't need it, there's no better system than the free market!

  23. "Not only is there some sort of single easy to access health care and insurance scheme for poor or unfortunate people, but you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme. Doctors are forbidden to have private cash paying customers. That truly is a nightmare."

    Without going into the merits and issues of the Canadian system, it does permit a private option. Essentially, the physician has to choose to accept Medicare or not:
    -If so, the physician cannot accept private payments.
    -If not, the physician can accept cash payments.
    About 2-3% of physicians in Québec choose cash payments.

    1. Follow-up comment:
      What type of medical services are patients paying for cash?

      -Short general practitioner visits, such as annual checkups, getting a few prescriptions, and specialist referrals. Usually a hundred dollars a visit or so.
      -Medical imaging. A few hundred dollars; depends on the type of imagine (MRI, CT, ...).
      -Minor surgeries. Usually a few thousand dollars.
      -Eye surgery--mostly cataracts--used to be a popular in the private sector. Not as much anymore as the public sector experience has improved.
      -Orthopedic surgery. ACL, shoulder, knee replacements, hip replacements, etc. $5k-$20k, typically.

      As for the more expensive stuff--such as (n)ICU, heart/chest surgery, cancer--it's basically all done in the public sector.

  24. What if the optional single payer option was simple catastrophic coverage (high deductible, low premium)? And would it be administered by the federal or state or county governments?

  25. Under a single payer that everyone must use you are forbidden to have private doctors and private hospitals? But look at the traditional Medicare program. Patients have free choice of their physicians and hospitals. They also can elect to enroll in the private Medicare Advantage (MA) plans, but then they lose their their health care choices by being restricted to provider networks. Not only that, but "MA insurer revenues are 30 percent higher than their healthcare spending," demonstrating the surplus that the private insurers are receiving from the taxpayers (NBER No. 23090) - a cross subsidy of sorts, but benefiting the insurer rather than the patients.

    Of course, single payer advocates also support tax and spend, but we want our tax funds to be used wisely. Providing excess public funding to private insurers while they take away health care choices from patients is not a wise use of our tax dollars. It would be far better to improve the traditional Medicare program and cover everyone with it, and then let the health care delivery system compete on the basis of service, access, and quality.

  26. I recently heard that some docs prefer Medicare to avoid the insurance maze of questions and wasted time and expense.
    HR676 savings would allow higher reimbursements without deductibles and copays.

  27. but you and I are forbidden to escape it, to have private doctors, private hospitals, or private insurance outside the scheme.

    The above statement certainly supports your libertarian world view, except that it is not true. The single-payer design in, e.g., California's many proposals (two of which were vetoed by Schwarzeneggar) allowed any provider to opt out of the system (they had to opt out completely), and only disallowed private insurance for what was covered under the plan (private insurance to upgrade your hospital accommodations, e.g., was fine). That said, yes, everyone has to pay into the kitty, you could not opt out of that, for obvious reasons. But you have hit on the heart of the matter, the larger the risk pool, the lower the costs. The ideal, of course, is a single risk pool that includes everyone, as any actuarial scientist will tell you.

  28. I have been promoting a 'Medicare for Anyone' program for several years, much in line with what Prof Cochrane is describing.

    In this program, which absolutely must be federal to avoid red state sabotage, Medicare is opened up to anyone. The premium is set at an amount which is widely affordable, like $250 a month, and the government covers the rest of the cost.

    Medicare for seniors currently costs about $12,000 per person per year. ($1,000 per month)
    Medicare for anyone under 65 will of course cost less. How much less is an
    actuarial challenge but solvable.

    The political challenge is to collect the new taxes. If 20 million people sign up for new Medicare, and the real cost is $600 per month, then the subsidy is $350 a month ($4200 a year.) The total federal cost for 20 million persons is then $84 billion a year.

    That is about 1% of payroll if we chose to tax it that way. I could accept that.

    However, we have a Congress that goes to the mat over $8 billion in CSR payments or SCHIP programs. I don't know what mat they would go to over $84 billion.

  29. Do you all consider it a problem that healthcare is mostly regulated at the state level even while half of it is paid for at the federal level? So if a state politician is looking at a regulation that looks like it would slightly increase safety but at a fairly high cost he is more prone to go for it than if half the cost was not covered by the Federal Government.

  30. Most people don't realise it, but Australia's constitution contains a clause barring the civil conscription of docotors, which means no price setting of doctors fees. Even though I lean left, I have to thank the right-wingers for causing that clause to be inserted, because I think that it saved us a lot of grief.

    As price setting was off the table, Australia decided to set up a system of public hospitals completely paid for by tax payer money. I believe that needing to compete against pubic hospitals that essentially charged no fee at point of delivery forced private hospitals to be more conscious of their prices than their US counterparts. Deliberately inflating the price or refusing to tell potential customers the cost is a terrible strategy when they can go elsewhere!

    As for our universal public health insurance program Medicare, that operates like a voucher system. The government will pay the first $X and it is up to patients and their insurers to cover the rest. Private health insurance generally operates in the same way, acting as a voucher rather than a price setter. Thus, doctors and hospitals CAN charge whatever they want (avoiding the problem of price setting), but they very much risk losing customers if they take it too far. It also means that the government can lowball medical payments, knowing that providers can simply increase their fees should it be necessary.

    Interestingly enough, Australia's constitution does not ban price setting of medical devices (they are not doctors) and when we tried using that policy to protect patients, it backfired horribly. Insurers were forced by law to pay out FIVE times the cost of devices as public hospitals, as the price they set did not account for the fall in device costs! (I do wonder, has the US seen that type of fall as well?)

    I sometimes wonder whether Australia is actually more free market than the US. Sure we have a lot of government involvement in healthcare, but that intervention serves to give us power over the industry because it gives us the ability to say 'no.' Ultimately, isn't that what the free market is about - sellers are forced to act in the best interests of consumers or risk losing business?

  31. Hi Professor Cochrane,

    I have a question to you or others, but I doubt anyone will read this since it is so late. Still a last ditch effort: how would you come up with the price for the full voucher or partial voucher? This is currently the issue. If you come up short with a partial voucher eventually enough hospitals aren't paid and they go back to cross subsidies using those with means to pay the premium. If not partial voucher then how will you determine the "full voucher"? Some CMS style committee to decide what "full cost" would be? If so that's open to either abuse (e.g., I charge anyone with govt voucher higher than others purely because I see no limit) or to capping which again leads to eventual cross subsidies. So, if anyone can elaborate on what I'm missing to explain this to me that would be great.


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