What do the advocates of single payer claim are the advantages of eliminating private health insurance?

Question

Elizabeth Warren, Kamala Harris, and Bernie Sanders have all trumpeted the original meaning of Medicare for All: a single-payer health care system. The Medicare for All Act of 2017, sponsored by Sanders, would outlaw all private health insurance companies (with the exception of private cosmetic insurance).

In the first Democratic primary debate on 6/26, Warren explained:

Look at the business model of an insurance company: it's to bring in as many dollars as they can in premiums and to pay out as few dollars as possible for your health care.

That leaves families with rising premiums, rising copays, and fighting with insurance companies to try to get the health care that their doctors say that they and their children need.

Medicare for All solves that problem.

However, one would think having a public option would be more efficient: If the private sector has to compete with a public option, then private companies would be driven by market forces to perform better or close. If the public option is truly better, then consumers would naturally buy into it.

What do the advocates of single payer claim are the advantages of eliminating private health insurance? How do they respond to claims that competition from the private sector forces the health bureaucracy to be more efficient?

Answer 1

However, wouldn't having a public option be more efficient? If the private sector has to compete with a public option, then private companies would be driven by market forces to perform better or close. If the public option is truly better, then consumers would naturally buy into it.

The "market forces" don't actually work as well here because they do not apply to the public option itself. Public option can defeat everyone in the private sector by doing things that are popular but lose money. If a private company does things that lose money, it has to either stop doing those things or it goes out of business. If the public option does things that lose money, it effectively is bailed out by taxpayers and can merrily keep doing those inefficient things.

This is why some people are against a public option; it can be a backdoor to single payer by means of killing off the private market slowly instead of quickly.

In a comparison of single-payer vs. public option, are the single-payer advocates right?

The only relevant difference is that the government becomes the only insurance company. Maybe it deliberately takes losses to make prices seem smaller, but there will still be a bureaucracy you have to fight with to get care, and there will still be pressure for that bureaucracy to say "no" based upon costs.

Would abolishing private health insurance be the method that gets most Americans the best coverage? What are the economics behind that?

No, because the purpose of single-payer arrangements is usually not to give everyone "the best" coverage, but to give some basic level of coverage to everyone, including people who do not have it now. Countries that adopt these schemes (really, Britain and Canada) usually allow people to buy additional insurance for services not typically covered by the single payer.

Answer 2

However, wouldn't having a public option be more efficient? If the private sector has to compete with a public option, then private companies would be driven by market forces to perform better or close. If the public option is truly better, then consumers would naturally buy into it.

Not really. The public option would likely be cheaper coverage in a like-for-like comparison. Medicare already has lower administrative costs than private insurers do ($132 per person vs $700), so it's already more "efficient," and a public option would be more efficient than private insurance for the same reasons. The competition would never help to make the public option any better, because its price already are set without a profit motive. The competition might make the private insurance cheaper, but it will never be as cheap as the public option until they are operating at 0 profit (and even then it won't be as cheap, because they have greater administrative costs).

Meanwhile, an existing competition between public and private insurance would be keeping the public option from having all of the market share. The problem with this is that, the more people are covered by a public option, the more that economies of scale can help lower administrative costs per customer, because there will be fewer bureaucrats working per customer. For example, the people who write software that helps price medical procedures will not substantially balloon as more customers come on board. 20 software engineers can write a program that serves 2 million customers as effectively as they can serve 300 million customers. So there are certain kinds of bureaucratic administrative costs that don't grow with more customers, and that means more customers results in proportionally lower administrative costs per customer.

Would abolishing private health insurance be the method that gets most Americans the best coverage? What are the economics behind that?

Private insurance is analogous to a flat tax, and single-payer healthcare is analogous to a progressive tax. This is because most people who have a single-payer plan have in mind that the burden to pay for it would be disproportionately shouldered by the wealthy. Private insurance, on the other hand, places an equal absolute burden on a person who makes $10,000/year and a person who makes $1 billion/year. So, single-payer healthcare is likely to help ensure that all Americans have health coverage, no Americans are crippled by extraordinary medical bills, and wealth inequality would be eased slightly. Private insurance would continue to keep tens of millions of Americans uninsured, many Americans will crippling medical bills that ruin lives, and continue the tide of wealth inequality that is steadily growing in America.

Related economic consequence of single-payer: this would also free-up more spending money for lower and middle class Americans, who are the classes that proportionally spend the most of their money, and spend it the fastest when they get it. This would lead to increased consumer spending, increased economic velocity, increased job creation in the private sector, lower unemployment, increased wages (and probably some inflation too). Having more Americans covered under healthcare and fewer Americans bankrupt due to medical bills also implies increased quality of life.

Answer 3

Look at the business model of an insurance company: it's to bring in as many dollars as they can in premiums and to pay out as few dollars as possible for your health care.

That is not the purpose of an insurance company. They assume the risk for large sudden costs so that you can budget and enjoy protection with smaller, spread out payments. Assuming catastrophic risk is a valuable service. Some insurance companies do make a profit but that isn't required - consider Mutual of Omaha, a co-op.

However, wouldn't having a public option be more efficient?

Not necessarily. England has a public option but people die waiting in ambulances at hospitals. https://duckduckgo.com/?q=nhs+ambulance+queues&ia=web. Government employees have no incentive to be efficient because there are little to no consequences for waste.

If the public option is truly better, then consumers would naturally buy into it.

Not necessarily. Sometimes the government offers things at below-market price, where a private company cannot compete. Examples are the artificially low subway fares (requiring a taxpayer bailout), artificially low stamp prices (requiring a yearly taxpayer bailout), and artificially low coastal flood insurance which is also subsidized by taxpayers.

In a comparison of single-payer vs. public option, are the single-payer advocates right?

No.

Would abolishing private health insurance be the method that gets most Americans the best coverage?

No. It would get more Americans covered, but the service will be less. There are better ways to reduce healthcare expenses so more people could afford them. There were ways at the turn of the century people obtained low-cost health care. Reducing regulations will reduce costs, similar to how airline de-regulation reduced the cost of air travel.

What are the economics behind that?

Public health care will lead to reduced service because health care is a limited resource. Limited resources with 'zero' (upfront/obvious) costs will lead to greater demand, which leads to rationing. Price discrimination is used to apportion resources to those who want it most. Without prices, then resource utilization must be apportioned via lottery or rationing.