CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE Key Design Components and Considerations for Establishing a Single-Payer Health Care System Administration Cost Containment Eligibility and and Financing Enrollment Components of a Single-Payer Payment Rates System Covered Services and Cost Sharing Provider Roles Role of Current and Rules Systems MAY 2019 At a Glance Some Members of Congress have proposed establishing a single-payer health care system in the United States to ensure that virtually everyone has health insurance. In a typical single-payer system, people enroll in a health plan oper- ated by the government, and the receipts and expenditures associated with the plan appear in the government’s budget. This report describes the primary features of single-payer systems, and it discusses some of the design considerations and choices that policymakers will face as they develop proposals for establishing such a system in the United States. The report does not address all of the issues involved in designing, implementing, and transitioning to a single-payer system, nor does it analyze the budgetary effects of any specific proposal. Some of the key design considerations for policymakers interested in establish- ing a single-payer system include the following: •• How would the government administer a single-payer health plan? •• Who would be eligible for the plan, and what benefits would it cover? •• What cost sharing, if any, would the plan require? •• What role, if any, would private insurance and other public programs have? •• Which providers would be allowed to participate, and who would own the hospitals and employ the providers? •• How would the single-payer system set provider payment rates and purchase prescription drugs? •• How would the single-payer system contain health care costs? •• How would the system be financed? For each question, this report discusses various options and provides a qualitative assessment of the trade-offs they present. www.cbo.gov/publication/55150 Contents Introduction 1 Single-Payer Health Care Systems 1 Differences Between Single-Payer Health Care Systems and the Current U.S. System 2 Design Components and Considerations for Establishing a Single-Payer System 6 How Would the Government Administer a Single-Payer Health Plan? 7 Federal and State Roles 7 Standardized Information Technology Infrastructure 7 Administrative Costs 8 Who Would Be Eligible for the Plan, and How Would People Enroll? 8 Eligibility 8 Opting Out 8 Verification and Enrollment 8 What Health Care Services Would the Plan Cover? 9 Covered Services 9 New Treatments and Technologies 9 Long-Term Services and Supports 10 What Cost Sharing, If Any, Would the Plan Require? 10 What Role Would Private Health Insurance Have? 12 What Role Would Other Public Programs Have? 14 What Rules Would Participating Providers Follow? 14 Balance Billing 14 Private-Pay Patients 15 Who Would Own the Hospitals and Employ the Providers? 15 BOX 1. KEY FEATURES OF MULTIPAYER HEALTH CARE SYSTEMS THAT AIM TO ACHIEVE UNIVERSAL COVERAGE 16 How Would a Single-Payer System Pay Providers and Set Payment Rates? 18 Provider Payment Methods 18 Determining Payment Rates 20 Implications of Alternative Payment Methods and Rates 21 II Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 How Would the Single-Payer System Purchase Prescription Drugs? 23 Determining Prescription Drug Prices 23 Implications of Alternative Payment Methods for Prescription Drugs 25 How Would a Single-Payer System Contain Health Care Costs? 25 Global Budgets 26 Utilization Management 27 How Would a Single-Payer System Be Financed? 27 About This Document 30 Table 1. Key Features of Single-Payer Health Care Systems in Selected Countries 4 Figure 1. Designing a Single-Payer Health Care System 2 Key Design Components and Considerations for Establishing a Single-Payer Health Care System Introduction Single-Payer Health Care Systems Congressional interest in substantially increasing the Although single-payer systems can have a variety of number of people who have health insurance has grown different features and have been defined in many ways, in recent years. Some Members of Congress have pro- health care systems are typically considered single-payer posed establishing a single-payer health care system systems if they have these four key features: to achieve universal health insurance coverage. In this report, the Congressional Budget Office describes the •• The government entity (or government-contracted primary features of single-payer systems, as well as some entity) operating the public health plan is responsible of the key considerations for designing such a system in for most operational functions of the plan, such the United States (see Figure 1). as defining the eligible population, specifying the covered services, collecting the resources needed for Establishing a single-payer system would be a major the plan, and paying providers for covered services; undertaking that would involve substantial changes in the sources and extent of coverage, provider payment •• The eligible population is required to contribute rates, and financing methods of health care in the United toward financing the system; States. This report does not address all of the issues that the complex task of designing, implementing, and •• The receipts and expenditures associated with the transitioning to a single-payer system would entail, nor plan appear in the government’s budget; and does it analyze the budgetary effects of any specific bill or proposal. •• Private insurance, if allowed, generally plays a relatively small role and supplements the coverage About 29 million people under age 65 were uninsured provided under the public plan.2 in an average month in 2018, according to estimates by CBO and the staff of the Joint Committee on Taxation.1 In the United States, the traditional Medicare program Although a single-payer system could substantially is considered an example of an existing single-payer reduce the number of people who lack insurance, the system for elderly and disabled people, but analysts change in the number of people who are uninsured disagree about whether the entire Medicare program would depend on the system’s design. For example, some is a single-payer system because private insurers play a people (such as noncitizens who are not lawfully present significant role in delivering Medicare benefits outside in the United States) might not be eligible for coverage the traditional Medicare program. Medicare beneficiaries under a single-payer system and thus might be unin- can choose to receive benefits under Part A (Hospital sured. This report uses the term “universal coverage” to Insurance) and Part B (Medical Insurance) in the tradi- characterize systems in which virtually all people in an tional Medicare program or through one of the private eligible population have health insurance. insurers participating in the Medicare Advantage pro- gram. Those private insurers compete for enrollees with each other and with the traditional Medicare program, 2. See Jodi L. Liu and Robert H. Brook, “What Is Single-Payer 1. See Congressional Budget Office, Health Insurance Coverage for Health Care? A Review of Definitions and Proposals in the U.S.,” People Under Age 65: Definitions and Estimates for 2015 to 2018 Journal of General Internal Medicine, vol. 32, no. 7 (July 2017), (April 2019), www.cbo.gov/publication/55094. pp. 822–831, https://doi.org/10.1007/s11606-017-4063-5. 2 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 Figure 1 . Designing a Single-Payer Health Care System Would the federal government, Would the system the states, or a third party use a standardized administer the system? IT infrastructure? How would the system contain health care costs? Who would be eligible, and how would the system verify eligibility? Would the system use global budgets or utilization How would people enroll? management? Administration Could people opt out? Would the government finance the system through premiums, cost Cost Containment Eligibility and sharing, taxes, or borrowing? and Financing Enrollment Which services would the system cover, and would it cover Components of a long-term services and supports? Single-Payer How would the system address new treatments and technologies? Covered Services How would the system Payment Rates System and Cost Sharing What cost sharing, if any, would pay providers and set provider payment rates? the plan require? How would the system Provider Roles Role of Current purchase and determine the and Rules Systems prices of prescription drugs? What role would private health insurance have? What role would current public programs have? Who would own the hospitals Could providers offer services Could providers and employ the providers? that the public plan covers to “balance bill” patients? private-pay patients? Source: Congressional Budget Office. IT = information technology. and they accept both the responsibility and the financial systems, in which more than one insurer provides health risk of providing Medicare benefits. The Medicare pre- insurance coverage.3 scription drug program (Part D) is delivered exclusively by private insurers. Differences Between Single-Payer Health Care Systems and the Current U.S. System Australia, Canada, Denmark, England, Sweden, and Establishing a single-payer system in the United States Taiwan are among the countries that are typically would involve significant changes for all participants— considered to have single-payer systems. Although some individuals, providers, insurers, employers, and man- design features vary across those systems, they all achieve ufacturers of drugs and medical devices—because a universal coverage by providing eligible people access to a specified set of health services regardless of their health 3. See Peter Hussey and Gerard F. Anderson, “A Comparison of status (see Table 1). Other countries, including Germany, Single- and Multi-Payer Health Insurance Systems and Options the Netherlands, and Switzerland, have achieved uni- for Reform,” Health Policy, vol. 66, no. 3 (December 2003), versal coverage through highly regulated multipayer pp. 215–228, https://doi.org/10.1016/S0168-8510(03)00050-2. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 3 single-payer system would differ from the current system Coverage. In a single-payer system that achieved uni- in many ways, including sources and extent of cover- versal coverage, everyone eligible would receive health age, provider payment rates, and methods of financ- insurance coverage with a specified set of benefits ing. Because health care spending in the United States regardless of their health status. Under the current currently accounts for about one-sixth of the nation’s system, CBO estimates, an average of 29 million peo- gross domestic product, those changes could significantly ple per month—11 percent of U.S. residents under age affect the overall U.S. economy.4 65—were uninsured in 2018.5 Most (or perhaps all) of those people would be covered by the public plan under For both the economy and participants in the single- a single-payer system, depending on who was eligible. payer system, the consequences would depend on how A key design choice is whether noncitizens who are not all stakeholders responded to the system’s various design lawfully present would be eligible. An average of 11 mil- features and how those responses interacted within the lion people per month fell into that category in 2018, health care system and with the rest of the economy. according to CBO’s estimates, and they might not have The magnitude of those responses is difficult to pre- health insurance under a single-payer system if they dict because the existing evidence is based on previous were not eligible for the public plan. About half of those changes that were much smaller in scale. Although 11 million people had health insurance in 2018. policymakers could design a single-payer system with an intended objective in mind, the way the system was People who are currently insured receive their cover- implemented could cause substantial uncertainty for all age through various sources. Almost all people age 65 participants. That uncertainty could arise from politi- or older, or about one-sixth of the population, receive cal and budgetary processes, for example, or from the coverage through the Medicare program. CBO and the responses of other participants in the system. To mitigate Joint Committee on Taxation estimate that, in 2018, a uncertainty during the system’s implementation, policy­ monthly average of about 243 million people under age makers could develop administrative and governance 65 had health insurance. About two-thirds of them, or structures to continuously monitor its performance and an estimated 160 million people, had health insurance respond quickly to any issues that arise. through an employer. Roughly another quarter of that population, or about 69 million people, are estimated to The transition toward a single-payer system could be have been enrolled in Medicaid or the Children’s Health complicated, challenging, and potentially disruptive. Insurance Program (CHIP). A smaller proportion of To smooth that transition, features of the single-payer people under age 65 had nongroup coverage, Medicare, system that would cause the largest changes from the or coverage through other sources.6 current system could be phased in gradually to minimize their impact. Policymakers would need to consider how Under a single-payer system, people who currently quickly people with private insurance would switch their have private insurance would enroll in the public plan. coverage to the new public plan, what would happen to Depending on the design of the single-payer system, workers in the health insurance industry if private insur- however, those people might be allowed to retain private ance was banned entirely or its role was limited, and how coverage that supplements the coverage under the public quickly provider payment rates under the single-payer plan. People who currently have public coverage could system would be phased in from current levels. Although continue to have such coverage under a single-payer the transition toward a single-payer system would require system, although their covered benefits and cost sharing considerable attention from policymakers, this report might change, depending on the system’s design. does not focus on the transition process. Costs. Government spending on health care would increase substantially under a single-payer system because the government (federal or state) would pay a large 4. In 2017, health spending accounted for 17.9 percent of the nation’s gross domestic product. See Anne B. Martin and 5. See Congressional Budget Office. Health Insurance Coverage for others, “National Health Care Spending in 2017: Growth People Under Age 65: Definitions and Estimates for 2015 to 2018 Slows to Post-Great Recession Rates; Share of GDP Stabilizes,” (April 2019), www.cbo.gov/publication/55094. Health Affairs, vol. 38, no. 1 (January 2019), pp. 96–106, https://doi.org/10.1377/hlthaff.2018.05085. 6.Ibid. 4 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 Table 1 . Key Features of Single-Payer Health Care Systems in Selected Countries Design Features Australia Canada Denmark England Sweden Taiwan Level of Administration National Provincial or National National National National government territorial government; government government; government government administrative county councils regions provide responsible for care most financing and purchasing Eligibility Universal coverage Yes Yes Yes Yes Yes Yes Separate public programs for Yes Yes Yes No No No certain groups other than military Mandated Benefit Package Hospital and physicians’ services Yes Yes Yes Yes Yes Yes Outpatient prescription drugs Yes No Yes Yes Yes Yes LTSS Limited No Yes Limited Yes No Dental, vision, and mental health Limited No Yes Yes Yes Yes services Cost Sharing Hospital and physicians’ services Yes No No, except visits No Yes Yes without referrals Prescription drugs Yes n.a. Yes Yes Yes Yes LTSS Yes n.a. No Yes Yes n.a. Dental, vision, and mental health Yes n.a. Yes, for dental Yes Yes Yes services and vision Limit on out-of-pocket spending Yes, for No No, but No Yes Yes prescription copayments drugs decrease with higher out-of- pocket spending on prescription drugs Reduction or exemption available Yes Yesa Yes Yes Yes Yes Private Health Insurance Supplementalb Yes Yes Yes No No Yes Substitutivec No No No No No No Other types of private insuranced Yes No Yes Yes Yes No Participating Provider Rules Balance billing allowed Yes No No No No No Payments from private-pay Yes No Yes Yes Yes No patients for covered services Hospitals e Primary ownership Mixed Mixed Public Public Public Private Primary payment method Global budgets Global budget Global budget DRG Global budgets FFS with and DRG in and DRG overall global public hospitals; budget FFS in private hospitals Continued May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 5 Table 1.Continued Key Features of Single-Payer Health Care Systems in Selected Countries Design Features Australia Canada Denmark England Sweden Taiwan Primary Care Physicians e Primary employment Private Private Private Private Mixed Private Primary payment method FFS FFS FFS Capitation Capitation FFS with overall global budget Outpatient Specialist Physicianse Primary employment Mixed Private Mixed Public Mixed Private Primary payment method FFS FFS FFS for self- Salary Per-case Salary employed payment providers; salary for public hospital employees Prescription Drugs Primary payment method Internal External Internal Negotiated Value-based Value-based reference reference reference pricing; profit caps payment payment pricing pricing price-cap agreement for drugs with no generic equivalents Main Source of Financing General tax Provincial and Earmarked General General Payroll-based revenues and federal general income tax revenues revenues premium, earmarked tax tax revenues and payroll raised by supplementary revenues taxes county premium based councils, on nonpayroll municipalities, income, general and nationally revenues, tobacco tax, lottery gains Source: Congressional Budget Office. DRG = diagnosis-related groups; FFS = fee for service; LTSS = long-term services and supports; n.a. = not applicable. a. Cost-sharing reductions or exemptions are available for prescription drugs in some provinces. b. Supplemental insurance could cover services not included in the single-payer plan, such as dental, vision, or hearing. It could also reduce enrollees’ cost sharing, like the private plans that many Medicare beneficiaries purchase. c. Substitutive insurance, which duplicates the benefits of the single-payer health plan, could be offered to people who are not eligible for the single- payer system, such as noncitizens who have recently entered the country or temporary visitors. It could also be an alternative source of coverage if people are allowed to opt out of the single-payer system. d. Other types of private insurance could provide benefit enhancements, such as faster access to care, private rooms instead of semiprivate rooms for inpatient stays, and a greater choice of providers. e. Refers to the characteristics of a typical entity in each system. 6 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 share of all national health care costs directly. Currently, An expansion of insurance coverage under a single-payer national health care spending—which totaled $3.5 tril- system would increase the demand for care and put lion in 2017—is financed through a mix of public and pressure on the available supply of care. People who are private sources, with private sources such as businesses currently uninsured would receive coverage, and some and households contributing just under half that amount people who are currently insured could receive additional and public sources contributing the rest (in direct spend- benefits under the single-payer system, depending on ing as well as through forgone revenues from tax subsi- its design. Whether the supply of providers would be dies).7 Shifting such a large amount of expenditures from adequate to meet the greater demand would depend private to public sources would significantly increase on various components of the system, such as provider government spending and require substantial additional payment rates. If the number of providers was not government resources. The amount of those additional sufficient to meet demand, patients might face increased resources would depend on the system’s design and on wait times and reduced access to care. In the longer run, the choice of whether or not to increase budget deficits. the government could implement policies to increase the Total national health care spending under a single-payer supply of providers. system might be higher or lower than under the current system depending on the key features of the new system, Because the public plan would provide a specified set such as the services covered, the provider payment rates, of health care services to everyone eligible, participants and patient cost-sharing requirements. would not have a choice of insurer or health benefits. Compared with the options available under the current Other Consequences. A single-payer system would system, the benefits provided by the public plan might present both opportunities and risks for the health care not address the needs of some people. For example, system. It would probably have lower administrative under the current system, young and healthy people costs than the current system—following the exam- might prefer not to purchase any coverage, or they might ple of Medicare and of single-payer systems in other prefer to purchase coverage with high deductibles or countries—because it would consolidate administrative fewer benefits. And, unlike a system with competing tasks and eliminate insurers’ profits. Moreover, unlike private insurers, the public plan might not be as quick to private insurers, which can experience substantial meet patients’ needs, such as covering new treatments. enrollee turnover over time, a single-payer system with- Policymakers could try to design the governance struc- out that turnover would have a greater incentive to invest ture of the single-payer system so that it would respond in measures to improve people’s health and in preventive to the shifting needs of enrollees in a timely manner. measures that have been shown to reduce costs. Whether the single-payer plan would act on that incentive is In addition to its potential effects on the health care sector, unknown. a single-payer system would affect other sectors of the economy that are beyond the scope of this report. For example, labor supply and employees’ compensation could change because health insurance is an important part of 7. The estimate of national health care spending is from Centers employees’ compensation under the current system. for Medicare & Medicaid Services, National Health Expenditure Accounts, “National Health Expenditures by Type of Service and Source of Funds: Calendar Years 1960–2017” (accessed Design Components and Considerations for February 15, 2019), https://go.usa.gov/xEUS6. To estimate the Establishing a Single-Payer System share of national health care spending that comes from private This report focuses on the following key design compo- sources, CBO adjusted those published figures to include the nents and considerations for policymakers interested in federal tax exclusion for employment-based health insurance as establishing a single-payer system: a part of spending from public sources. The federal government subsidizes a substantial part of private spending (as defined in the National Health Expenditure Accounts), primarily through •• How would the government administer a single-payer the tax exclusion for employment-based health insurance. That health plan? tax exclusion cost the federal government about $300 billion in 2018. See Congressional Budget Office, “Reduce Tax Subsidies for Employment-Based Health Insurance,” Options for Reducing •• Who would be eligible for the plan, and what benefits the Deficit: 2019 to 2028 (December 2018), www.cbo.gov/ would it cover? budget-options/2018/54798. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 7 •• What cost sharing, if any, would the plan require? also offer more expansive benefits but be responsible for the additional costs. If a state decided not to accept fed- •• What role, if any, would private insurance and other eral funding, it would probably not be required to adopt public programs have? a single-payer health plan, much like states’ current voluntary participation in the Medicaid program.9 In •• Which providers would be allowed to participate, addition, states would need to establish agreements with and who would own the hospitals and employ the other states to address issues such as payment for services providers? received out of state and the eligibility and plan contri- butions of nonresidents who work in a state. •• How would the single-payer system set provider payment rates and purchase prescription drugs? In other countries, single-payer systems are administered at different levels of government. England’s single-payer •• How would the system be financed? system is administered at the national level. In Canada, the provinces and territories administer the system, and How Would the Government Administer a the federal government imposes certain requirements in Single-Payer Health Plan? exchange for federal funding. The federal government could administer a single-payer health plan at the national level; the federal government Standardized Information Technology could administer some functions and delegate other Infrastructure functions to state and local governments; or state gov- A standardized IT system could help a single-payer ernments could administer the single-payer health plan system coordinate patient care by implementing porta- with broad federal oversight. Regardless of the level of ble electronic medical records and reducing duplicated administration, a standardized information technology services. To achieve those potential benefits, the IT sys- (IT) system could help the single-payer system coordi- tem would need to accommodate all types of providers, nate patient care. The design and infrastructure of the particularly those in small practices or rural areas, and single-payer system would affect its administrative costs. address compatibility issues between existing electronic medical records systems.10 Establishing an interoperable Federal and State Roles IT system under a single-payer system would have many A single-payer health plan administered at the federal of the same challenges as establishing an interoperable IT level could be modeled on the medical benefit portion of system in the current health care system with its many the Medicare fee-for-service (FFS) program.8 By contrast, different providers and vendors. The IT system would a state-based single-payer health plan could follow the also need to overcome the challenges of interfacing across Medicaid program, with some or all costs of the system multiple state and federal agencies. appearing in the states’ budgets. Alternatively, the federal government could contract with a third party to admin- 9. The Medicaid program was created in 1965. State participation ister the benefits of the single-payer plan. is voluntary, and participating states receive federal funds for providing a defined set of medical and long-term care benefits For a single-payer health plan administered at the state to the eligible population. Nearly all states adopted Medicaid by level, the federal government could still mandate certain January 1970, but Alaska did not join until 1972 and Arizona implemented Medicaid through a waiver program in 1982. See nationwide design features and determine the amount Kaiser Family Foundation, A Historical Review of How States Have of flexibility states would have in specifying their own Responded to the Availability of Federal Funds for Health Coverage design features. For example, the federal government (August 2012), https://tinyurl.com/yc7pqtbj (PDF, 438 KB). could give states matching funds if they met certain min- See also National Federation of Independent Business v. Sebelius imum standards for eligibility, covered benefits, or other 567 U.S. 519 (2012). conditions. States could then accept the federal funding 10. See Julia Adler-Milstein and others, “Electronic Health Record and implement a single-payer health plan, or they could Adoption in US Hospitals: Progress Continues, but Challenges Persist,” Health Affairs, vol. 34, no. 12 (December 2015), pp. 2174–2180, https://doi.org/10.1377/hlthaff.2015.0992; 8. This report uses the common practice of referring to the Dawn Heisey-Grove and Jennifer A. King, “Physician and traditional Medicare program as the Medicare FFS program, even Practice-Level Drivers and Disparities Around Meaningful Use though the program pays for some services on an FFS basis and Progress,” Health Services Research, vol. 52, no. 1 (February 2017), other services using other methods. pp. 244–267, https://doi.org/10.1111/1475-6773.12481. 8 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 Taiwan’s single-payer program has a robust IT system. who have newly entered the country to become eligible Participants have National Health Insurance cards that could also be implemented. store personal information, including recent visits to health care providers, diagnoses, and prescriptions. Under a state-administered single-payer system, states Providers must report all services delivered to patients each could establish their own residency and eligibility day to the National Health Insurance Administration, requirements, such as providing coverage for noncitizens which tracks use of services and costs in near-real time. who are not lawfully present. However, the federal gov- Other IT initiatives in Taiwan track patients’ medical ernment might impose certain conditions in exchange history and monitor prescription drugs.11 for providing matching funds. Administrative Costs Certain groups, such as veterans and indigenous people, The design of the single-payer system and its infrastruc- could continue to be covered through other public pro- ture would affect its administrative costs. In the United grams. In Canada, a separate federal health care system States, administrative costs as a share of total expendi- covers indigenous people, refugees, veterans, military tures vary greatly by type of insurer. In 2017, the federal personnel, federal police officers, and those in federal government’s cost of administering the Medicare program prison, even though its single-payer system is adminis- accounted for 1.4 percent of total Medicare expenditures. tered by the provinces and territories.13 When the administrative costs of Medicare Advantage and Part D plans are included, total administrative costs Opting Out for the Medicare program accounted for about 6 per- Another key decision for a single-payer system is cent of its expenditures. By comparison, private insurers’ whether it would allow people to opt out of receiving administrative costs averaged about 12 percent in 2017.12 benefits offered by the public plan. The system could allow people to opt out for moral or religious reasons. It Who Would Be Eligible for the Plan, and might also allow people to opt out and purchase private How Would People Enroll? insurance that duplicated the benefits of the single-payer Policymakers designing a single-payer system would need health plan as an alternative, but such a system would be to determine whether the entire U.S. population would more akin to a multipayer system. be eligible to participate and whether the system would allow for any opt-outs among the eligible population. To If people could opt out, policymakers would need to ensure that everyone eligible for the single-payer system decide if they would be required to contribute to the received coverage, the system would need to establish an single-payer system and, if so, how much they would infrastructure to verify eligibility and enroll participants. need to contribute. Those people could still be required to contribute fully to support the single-payer system, or Eligibility they could receive a tax credit or tax deduction to offset A single-payer plan could restrict eligibility to U.S. citi- some or all of their premium payments for private insur- zens and lawfully present noncitizens, a group that CBO ance. If contributions were mandatory, the single-payer estimates accounted for about 97 percent of the U.S. system could enforce compliance through existing auto- population in 2018. Other people, such as noncitizens matic payroll withholdings and taxes. who are not lawfully present, might be ineligible for cov- erage, eligible for full coverage, eligible for a limited set Verification and Enrollment of benefits, or able to buy into the system without any A single-payer system would need a way to verify eli- government subsidies. A waiting period for noncitizens gibility and enroll participants in the system. Verifying eligibility would be easier than it currently is for public 11. See Tsung-Mei Cheng, “Reflections on the 20th Anniversary of programs, such as with Medicaid’s income verification, Taiwan’s Single-Payer National Health Insurance System,” Health because the single-payer system would have fewer eligi- Affairs, vol. 34, no. 3 (March 2015), pp. 502–510, https:// doi.org/10.1377/hlthaff.2014.1332. bility exclusions. A verification and enrollment system 12. That estimate of private insurers’ administrative costs also includes profits. See Centers for Medicare & Medicaid Services, 13. See Nancy Miller Chenier, Federal Responsibility for the Health National Health Expenditure Accounts, “NHE Tables” (accessed Care of Specific Groups (Library of Parliament, Canada, February 15, 2019), Table 4, https://go.usa.gov/xEPqW. December 2004), https://tinyurl.com/y4pnvbs7. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 9 could build on the current Medicare Part A enrollment Some single-payer systems cover other health care system. People could also be automatically enrolled when services, such as dental, vision, and hearing, that are not they were issued Social Security numbers, newborns typically covered by Medicare FFS. Those services could could be enrolled in hospitals at birth, and other eligible be covered for everyone under a single-payer system, individuals could be enrolled when they sought medical or coverage could be restricted to low-income people. care. If coverage was restricted to low-income people, those services could be administered through the single-payer What Health Care Services Would the system or through a residual Medicaid program that Plan Cover? only covered cost sharing and LTSS for low-income and The benefit package included in a single-payer health disabled people. Some provinces in Canada provide cov- plan could resemble the essential health benefits pro- erage to certain low-income populations for prescription vided by the Affordable Care Act (ACA), Medicare, or drugs and other services that are not covered under its Medicaid, or it could be based on something else, such as single-payer systems.16 a cost-effectiveness criterion or the federal government’s willingness to pay to cover certain services. The benefit Although covering a wider range of services under a package could cover some or all services that are not single-payer system would provide greater financial typically covered by private insurance or by Medicare, protection to enrollees, it would also increase costs to the such as long-term services and supports (LTSS). A government. People who received an additional health single-payer system would also need a way to decide care benefit for the first time would probably increase which new treatments and technologies it would cover. their use of that benefit, and that increase might be If a single-payer system was implemented at the state greater initially because of previously unmet health care level, the federal government could define some specified needs. Cost-sharing requirements or utilization manage- benefits but allow states to cover additional benefits, in ment could mitigate the increase in use, but government the same way that states currently can cover optional spending would increase even for people with existing Medicaid benefits. 14 coverage because the funding for such services would shift from private sources to the government. Covered Services In most other countries with single-payer systems, such New Treatments and Technologies as England and Taiwan, the benefit package provides Decisions about which new treatments and technolo- comprehensive major medical coverage, including hos- gies would be covered would have a significant effect on pital and physician care, as well as mental health ser- patients’ access to those innovations, as well as on the vices, diagnostic tests, and prescription drugs. Canada’s development of new treatments and technologies over single-payer system does not cover outpatient prescrip- time and the costs of the single-payer system.17 An inde- tion drugs, and it is up to provincial and territorial pendent board could recommend whether or not new governments to administer their own prescription drug treatments and drugs should be covered after their clinical benefit program. (Most Canadians have access to pre- and cost-effectiveness had been demonstrated—a role scription drug coverage through a combination of private fulfilled in England by the National Institute for Health and public insurance plans.)15 Care and Excellence.18 Alternatively, coverage decisions could be limited to items or services that were judged to 14. Medicaid has a set of mandatory benefits that states are required 16. See Commonwealth Fund, International Profiles of Health to provide and a set of optional benefits that states can cover if Care Systems (May 2017), https://tinyurl.com/ybx6hj3v they choose. The Medicaid benefit package varies across states (PDF, 3.35 MB). because states can choose which optional services to provide. If a single-payer system was based on the Medicaid benefit package, 17. See James D. Chambers and others, “Medicare Is Scrutinizing policymakers would need to decide which Medicaid benefit Evidence More Tightly for National Coverage Determinations,” package would be used. See Centers for Medicare & Medicaid Health Affairs, vol. 34, no. 2 (February 2015), pp. 253–260, Services, “Mandatory and Optional Medicaid Benefits” (accessed https://doi.org/10.1377/hlthaff.2014.1123. February 15, 2019), https://go.usa.gov/xEUhc. 18. See Commonwealth Fund, International Profiles of Health 15. See Government of Canada, “Prescription Drug Insurance Care Systems (May 2017), https://tinyurl.com/ybx6hj3v Coverage” (August 13, 2018), https://tinyurl.com/y2nm3qd8. (PDF, 3.35 MB). 10 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 be reasonable and necessary for the diagnosis or treat- Even if coverage for LTSS remained the same as under ment of illness and injury, similar to Medicare’s existing current law, the use of such services would probably national coverage determination process.19 If states increase relative to current use because of the broader administered the single-payer system, then they would expansion of health insurance coverage. For example, need to make those decisions. people who are currently eligible for but not enrolled in Medicaid LTSS benefits might become more aware of Long-Term Services and Supports such benefits through greater outreach efforts.21 A single-payer system could cover LTSS, such as nursing home and home health services, for everyone enrolled In England, the National Health Service (NHS) pays for in the system or only for those with low income and few some LTSS, but most LTSS benefits are provided at the assets (as with Medicaid). If the single-payer system did local level and by the private sector. Local authorities are not cover LTSS, however, the government could retain required to assess the needs of everyone who requests it, the Medicaid program to cover such services. but LTSS benefits funded by the local government are not guaranteed, and such benefits are typically based on Public spending would increase substantially relative income and need. to current spending if everyone received LTSS bene- fits. Under the current system, many people receive In Canada, LTSS benefits are not mandated; each prov- Medicaid benefits for such services but use their own ince and territory funds such services, but coverage varies funds to pay for LTSS before they qualify for Medicaid; by area. About half of the provinces provide home care state Medicaid programs currently pay about half of the without regard to income, although access may depend cost of such services. Private insurance accounts for a on availability and priority.22 small portion of LTSS spending.20 Under a single-payer system, government payments could replace payments What Cost Sharing, If Any, Would the by individuals and private insurance. Further, if the Plan Require? single-payer system eliminated the Medicaid program, Under a single-payer system, enrollees could pay noth- federal spending on LTSS would increase consider- ing or pay a portion of the cost when they received care. ably unless the system required states to continue their Enrollees in private insurance plans and Medicare gener- current funding or unless state (or local) governments ally share costs for most services. covered LTSS benefits entirely. Cost sharing affects beneficiaries’ financial well-being Currently, much of LTSS is unpaid (or informal) and total health care spending. Under a single-payer care provided by family members and friends. If a system, greater cost sharing would expose beneficiaries to single-payer system covered LTSS with little or no cost more financial risk, whereas less cost sharing would shift sharing, a substantial share of unpaid care might shift to costs from private to public sources. Moreover, existing paid care. That effect could be particularly large if the evidence indicates that people use more care when their single-payer plan covered home- and community-based services. 21. See Julie Sonier, Michel H. Boudreaux, and Lynn A. Blewett, “Medicaid ‘Welcome-Mat’ Effect of Affordable Care Act Implementation Could Be Substantial,” Health Affairs, vol. 32, no. 7 (July 2013), pp. 1319–1325, https://doi.org/10.1377/ 19. See Centers for Medicare & Medicaid Services, “Medicare hlthaff.2013.0360; Julie L. Hudson and Asako S. Moriya, Coverage Determination Process” (March 6, 2018), https:// “Medicaid Expansion for Adults Had Measurable ‘Welcome tinyurl.com/ybj9t57j. Mat’ Effects on Their Children,” Health Affairs, vol. 36, no. 9 (September 2017), pp. 1643–1651, https://doi.org/10.1377/ 20. In 2016, total spending on LTSS was $366 billion. Medicaid hlthaff.2017.0347; and Benjamin D. Sommers, Genevieve accounted for 42 percent of such expenditures, Medicare M. Kenney, and Arnold M. Epstein, “New Evidence on the accounted for another 22 percent, and other public programs Affordable Care Act: Coverage Impacts of Early Medicaid accounted for another 6 percent. Out-of-pocket expenses, Expansions,” Health Affairs, vol. 33, no. 1 (January 2014), private insurance, and other private sources accounted for an pp. 78–87, https://doi.org/10.1377/hlthaff.2013.1087. additional 16 percent, 8 percent, and 7 percent, respectively. See Congressional Research Service, Who Pays for Long-Term 22. See Commonwealth Fund, International Profiles of Health Services and Supports (August 2018), https://fas.org/sgp/crs/misc/ Care Systems (May 2017), https://tinyurl.com/ybx6hj3v IF10343.pdf (340 KB). (PDF, 3.35 MB). May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 11 cost is lower, so little or no cost sharing in a single-payer for low-value services.26 Similarly, a value-based design system would tend to increase the use of services and might have no cost sharing for generic prescription drugs lead to additional health care spending, as well as more but substantial cost sharing for brand-name drugs that government spending.23 The extent to which use of have generic substitutes. Because some judgment would services would increase in response to less cost sharing be required to determine the value of services, some of under a single-payer system could be constrained by those determinations would be imperfect, and the use of providers’ capacity to supply those services.24 value-based insurance design would increase the admin- istrative complexity and costs of the single-payer system. In addition, a change in use of services in response to changes in cost sharing in one part of the health care sys- Beneficiaries’ responsibility for cost sharing could also tem could affect use of services and spending in another vary by income level or other factors. People with low part of the system. For example, one study found that incomes could be eligible for cost-sharing reductions, when Medicare beneficiaries faced higher cost sharing on and people with certain catastrophic conditions, such as physicians’ services and drugs, the savings from reduced cancer or HIV, could receive cost-sharing exemptions. use of those services were partially offset by an increase in Currently, the ACA requires insurers that participate in inpatient hospital use and spending.25 the health insurance marketplaces to offer cost-sharing reductions to eligible people; the size of the subsidy Cost sharing could vary across services in a single-payer varies with the recipient’s income. Although an income- system. A value-based insurance design could elimi- based cost-sharing structure would be more difficult nate cost sharing for effective or high-value care, such to administer because of the need to collect and verify as certain preventive services, but require cost sharing income, that process could be simplified by building on existing systems, such as the current income tax system. 23. According to the RAND Health Insurance Experiment, the Cost sharing in a single-payer system could include one price elasticity of health care is -0.2. In other words, a 10 percent or more of these components: decrease in out-of-pocket costs would lead to a 2 percent increase in total health care spending. See Emmett B. Keeler and John E. Rolph, “The Demand for Episodes of Treatment •• A deductible—the amount patients pay out of pocket in the Health Insurance Experiment,” Journal of Health before an insurance plan starts to pay; Economics, vol. 7, no. 4 (December 1988), pp. 337–367, https:// doi.org/10.1016/0167-6296(88)90020-3. Findings in subsequent •• A copayment—a fixed dollar amount paid for studies are largely consistent with that estimate of -0.2 from a specific health care service (after reaching the the RAND experiment. See Aviva Aron-Dine, Liran Einav, and Amy Finkelstein, “The RAND Health Insurance Experiment, deductible, if applicable); Three Decades Later,” Journal of Economic Perspectives, vol. 27, no. 1 (Winter 2013), pp. 197–222, https://dx.doi.org/10.1257/ •• Coinsurance—a fixed percentage of costs paid for jep.27.1.197. a specific health care service (after reaching the 24. The estimates of patients’ use of services in response to changes deductible, if applicable); and in cost sharing are based on changes in cost sharing for a limited segment of the population, so the supply of providers would •• An out-of-pocket maximum—a limit on a patient’s probably be able to meet any increase in demand. The supply of total cost sharing. providers might not be able to meet the demand under a single- payer system, however, because any change under that system would affect the entire population. Although the government could establish policies designed to increase the supply of providers to meet the increased demand from less cost sharing, 26. Several organizations have assessed the value of services, such as patients might face longer wait times or a decrease in quality the Choosing Wisely campaign in the United States, the U.S. until the supply of providers adjusted. Those effects could worsen Preventive Services Task Force, the National Institute for Health if provider payment rates were simultaneously lowered or more Care Excellence in England, and the Canadian Agency for Drugs stringent cost-containment methods were implemented. and Technologies. By one estimate, 2.7 percent of Medicare 25. See Amitabh Chandra, Jonathan Gruber, and Robin McKnight, spending is on low-value services. See Aaron L. Schwartz and “Patient Cost-Sharing and Hospitalization Offsets in the Elderly,” others, “Measuring Low-Value Care in Medicare,” JAMA Internal American Economic Review, vol. 100, no. 1 (March 2010), Medicine, vol. 174, no. 7 (July 2014), pp. 1067–1076, https:// pp. 193–213, https://dx.doi.org/10.1257/aer.100.1.193. dx.doi.org/10.1001/jamainternmed.2014.1541. 12 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 In the current system, private insurers and public plans vision, or hearing. It could also reduce enrollees’ cost typically use a combination of those four cost-sharing sharing, like the private plans that many Medicare components. The Medicare FFS program has different beneficiaries purchase. cost-sharing requirements for different services.27 Most Medicare Part D plans have a tiered cost-sharing struc- •• Substitutive insurance, which duplicates the benefits ture, with less cost sharing for generic drugs and more of the single-payer health plan, could be offered cost sharing for more expensive brand-name drugs. to people who are not eligible for the single-payer Medicaid imposes little or no cost sharing, depending on system, such as noncitizens who have recently entered the type of enrollee. the country or temporary visitors. It could also be an alternative source of coverage if people were allowed Cost-sharing rules in private insurance plans vary widely, to opt out of the single-payer system.30 but most plans require copayments or coinsurance for physician visits, hospital services, and prescrip- •• Other types of private insurance could provide tion drugs. In 2018, 85 percent of workers covered by benefit enhancements, such as faster access to care, employment-based health insurance plans also had to private rooms instead of semiprivate rooms for pay deductibles, and the average deductible was about inpatient stays, and a greater choice of providers that $1,500 for a single plan.28 do not participate in the single-payer system. The limit on out-of-pocket spending varies by type of If such private insurance was allowed, policymakers plan. Under current law, most employment-based and would need to decide whether it would be required to nongroup plans are required to have an out-of-pocket cover people with preexisting conditions and whether maximum below a specified amount: $7,900 for an premiums could vary by health status, age, sex, or other individual plan and $15,800 for a family plan in 2019.29 factors. Another consideration is whether the govern- The actual out-of-pocket maximum varies by plan and ment would encourage the use of private insurance usually falls below that level. The Medicare FFS program through tax credits, tax deductions, or penalties. If and Part D plans do not have a limit on out-of-pocket employers sponsored the private insurance, policymakers spending, but Medicare Advantage plans do. would need to determine whether to exclude employers’ premium contributions from taxation.31 For example, Cost sharing varies among countries with single-payer sys- although Australia has a single-payer system, the govern- tems. Canada and England have no or minimal cost shar- ment encourages people to enroll in private insurance ing for physicians’ and hospital services, whereas Sweden that offers benefit enhancements and supplemental and Taiwan require some cost sharing on most services. coverage by providing a tax rebate. People with income above a certain amount must pay a penalty if they do not What Role Would Private Health have private insurance.32 Insurance Have? A single-payer system offering comprehensive benefits 30. See Jodi L. Liu and Robert H. Brook, “What Is Single-Payer would probably limit the role of private insurance to Health Care? A Review of Definitions and Proposals in the U.S.,” three main categories: Journal of General Internal Medicine, vol. 32, no. 7 (July 2017), pp. 822–831, https://doi.org/10.1007/s11606-017-4063-5. •• Supplemental insurance could cover services not 31. Under current law, contributions made by employers to pay for included in the single-payer plan, such as dental, employees’ health care costs and the amount that employees pay for their share of premiums are excluded from income and payroll taxes; those exclusions cost the federal government about 27. For example, inpatient hospitalization and physicians’ services $300 billion in forgone revenue in 2018. See Congressional require a deductible, and physicians’ services also require Budget Office, “Reduce Tax Subsidies for Employment-Based 20 percent coinsurance. Other services, such as preventive care, Health Insurance,” Options for Reducing the Deficit: 2019 to 2028 home health visits, and laboratory tests, require no cost sharing. (December 2018), www.cbo.gov/budget-options/2018/54798. 28. See Kaiser Family Foundation, Employer Health Benefits: 32. In December 2018, 45 percent of the Australian population 2018 Annual Survey (October 2018), http://tinyurl.com/y8bjvazq had private hospital coverage and 54 percent had general (PDF, 18.1 MB). treatment coverage. See Australian Prudential Regulation 29. See Centers for Medicare & Medicaid Services, “Affordable Care Authority, Statistics: Quarterly Private Health Insurance Statistics, Act Implementation FAQs—Set 18” (accessed June 1, 2018), December 2018 (February 2019), https://tinyurl.com/y44v9ova https://go.usa.gov/xQfbJ. (PDF, 1 MB). May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 13 In the United States, most beneficiaries in Medicare FFS with substitutive insurance less attractive to providers have supplemental insurance plans that reduce their by requiring providers who treated both publicly and pri- out-of-pocket expenses.33 Because those plans lessen or vately insured patients to spend a minimum number of eliminate cost sharing, they contribute to greater use of hours in the single-payer system or to treat a minimum services and spending.34 Supplemental insurance and number of publicly insured patients. other types of private insurance are also common in countries with single-payer systems, including Canada Conversely, allowing substitutive insurance could benefit and many members of the European Union.35 some patients and providers. Some people might prefer to enroll in a substitutive insurance plan that suited their By contrast, proposals to establish single-payer systems needs better than the public plan. Substitutive insurance often prohibit substitutive insurance because of concerns might also improve the quality of care for people in both that it might interfere with the operation of the pub- private and public plans. For example, private plans lic plan.36 If it was allowed, some high-income people might introduce innovative design features to compete might prefer to purchase substitutive insurance that with the public plan, such as selectively contracting with offered more generous benefits or greater access to pro- higher-quality providers. That might encourage all pro- viders. If providers were allowed to participate in both viders to improve their quality, which could also benefit the single-payer system and the substitutive insurance publicly insured patients. Allowing private plans might market and if provider payment rates in the substitutive also increase providers’ income. insurance plan were higher than in the single-payer sys- tem, providers might prioritize treating those enrollees. If Other types of private insurance provide benefit many people enrolled in substitutive insurance, patients enhancements. In England, private insurance gives in the single-payer health plan might have longer wait people access to private providers, faster access to care, times. or coverage for complementary or alternative therapies, but participants must pay for it separately in addition to Instead of prohibiting substitutive insurance, policy- paying their individual required tax contributions to the makers could discourage it by requiring individuals NHS.37 In Australia, private insurance covers services who purchased it to make full contributions toward the that the public plan does not, such as access to private single-payer system, in addition to paying the cost of hospitals, a choice of specialists in both public and pri- the substitutive insurance. However, that requirement vate hospitals, and faster access to nonemergency care.38 could make substitutive insurance unaffordable for many people. Policymakers could also make enrollees Private insurance that provides benefit enhancements could potentially hinder the operation of a single-payer system. Allowing privately insured patients faster access 33. In 2015, 87 percent of noninstitutionalized beneficiaries in the to care could create inequity in access to care (as dis- Medicare program had some type of supplemental coverage or participated in Medicare managed care. See Medicare Payment cussed above with substitutive insurance), but private Advisory Commission, A Data Book: Health Care Spending and the Medicare Program (June 2018), p. 29, https://go.usa.gov/ xEU4R (PDF, 1.58 MB). 34. See, for example, Medicare Payment Advisory Commission, 37. See Thomas Foubister and Erica Richardson, “United Kingdom,” Exploring the Effects of Secondary Coverage on Medicare Spending in Anna Sagan and Sarah Thomson, eds., Voluntary Health for the Elderly (August 2014), https://go.usa.gov/xQdGG Insurance in Europe, Country Experience (European Observatory (PDF, 388 KB). on Health Systems and Policies, 2016), p. 157, https:// 35. For example, about 11 percent of the United Kingdom’s go.usa.gov/xEUhY (PDF, 2.5 MB); Thomas Foubister and others, population has some form of voluntary private insurance. Private Medical Insurance in the United Kingdom (European See Commission on the Future of Health and Social Care in Observatory on Health Systems and Policies, 2006), p. 4, https:// England, The UK Private Health Market (King’s Fund, 2014), tinyurl.com/y66ux4xj (PDF, 444 KB). https://tinyurl.com/y37zg72s (PDF, 60.8 KB). 38. See Commonwealth Fund, International Profiles of Health 36. See Jodi L. Liu and Robert H. Brook, “What Is Single-Payer Care Systems (May 2017), https://tinyurl.com/ybx6hj3v (PDF, Health Care? A Review of Definitions and Proposals in the U.S.,” 3.35 MB); Sharon Wilcox, “Promoting Private Health Insurance Journal of General Internal Medicine, vol. 32, no. 7 (July 2017), in Australia,” Health Affairs, vol. 20, no. 3 (May/June 2001) pp. 822–831, https://doi.org/10.1007/s11606-017-4063-5. pp. 152–161, https://doi.org/10.1377/hlthaff.20.3.152. 14 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 insurance could also relieve some of the pressures on a covered by the single-payer health plan. For example, publicly funded system.39 Medicaid could continue to provide LTSS benefits and premium and cost-sharing subsidies only for low-income A single-payer system could permit private insurers to populations. The Indian Health Service, TRICARE, and deliver the benefits, much like the Medicare Advantage VHA, which operate their medical facilities and also pay program does. A key design choice for the system is how for care delivered by private providers, could also remain policymakers would structure the competition among as separate systems and provide benefits to their spe- private insurers. Such a system could be more akin to cific populations. Similarly, in Canada, veterans receive a multipayer system than a single-payer system (see health care through Veterans Affairs Canada rather than Box 1). However, some analysts would consider that through the single-payer systems of the provinces and type of system—in which private insurers play a larger territories.40 role, including paying providers—to be a single-payer system if the government defined the eligible population, What Rules Would Participating specified the covered services, collected the resources Providers Follow? needed for the plan, required the eligible population to As with any insurer under the current system, a contribute toward financing the system, and showed the single-payer plan would need to establish a process to receipts and expenditures associated with the plan in the certify and accredit physicians and facilities to provide government’s budget. care to its beneficiaries. It could adapt Medicare’s stan- dards and procedures to select providers who are eligible If the single-payer system banned private insur- to participate in the system. For eligible providers who ance entirely or limited its role—such as, to contract decided to participate in the single-payer plan, it could work providing administrative services and claims further establish guidelines for billing and for the treat- processing—many workers in the health insurance ment of private-pay patients. industry would be displaced. However, that reduction in private-sector employment would probably be partially Balance Billing offset by an increase in government workers needed to In establishing a single-payer system, policymakers could administer the new system. Under those circumstances, decide whether providers would be allowed to “balance workers who were displaced could receive job training bill” patients. Balance billing occurs when a provider bills assistance or financial benefits, and shareholders of for- a patient for the difference between the provider’s charge profit insurers could receive compensation, which would and the amount allowed under an insurance policy. For increase government spending. example, a physician might attempt to charge $200 for a service, but the allowed amount for that service—which What Role Would Other Public could be paid by the individual as cost sharing, by the Programs Have? insurer, or by both—might only be $150. Billing the The federal government would need to determine patient for the $50 difference between the two amounts whether other public programs, such as Medicaid, would be balance billing. TRICARE (the health care program of the Department of Defense), and programs of the Veterans Health Nearly all physicians have agreed not to balance bill Administration (VHA) and the Indian Health Service, Medicare patients for Medicare-covered services. Such would continue to exist alongside the single-payer sys- physicians are designated “participating providers” in tem. Those public programs were created to serve popu- Medicare. By one estimate, 96 percent of physicians and lations with special needs. Under a single-payer system, other health care professionals are participating provid- some components of those programs could continue to ers. About 4 percent are nonparticipating providers; they operate separately and provide benefits for services not 39. See Joseph White, “Gap and Parallel Insurance in Health Care Systems With Mandatory Contributions to a Single Funding Pool for Core Medical and Hospital Benefits for All Citizens in Any Given Geographic Area,” Journal of Health Politics, Policy, 40. See Nancy Miller Chenier, Federal Responsibility for the Health and Law, vol. 34, no. 4 (August 2009), pp. 543–583, https:// Care of Specific Groups (Library of Parliament, Canada, doi.org/10.1215/03616878-2009-015. December 2004), https://tinyurl.com/y4pnvbs7. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 15 may choose whether to balance bill Medicare patients on were allowed or the system’s payment rates were low a claim-by-claim basis, up to a certain limit.41 and enough private patients were willing to pay for their services. Conversely, if the single-payer health plan Other types of providers, such as hospitals and skilled covered a comprehensive set of services and care could be nursing facilities, are not allowed to balance bill accessed in a timely manner, the demand for private care Medicare patients. Balance billing is prohibited for all would probably be limited, and fewer providers would providers in Medicaid. Most private insurers prohibit opt out. balance billing for providers in their networks, but they allow balance billing for out-of-network providers.42 The rules for providing private care for covered services vary across single-payer systems. In England, specialists A prohibition on balance billing in a single-payer system in the NHS system can provide private care in their spare would help ensure affordability for patients. If provider time within designated private units of NHS hospitals payment rates under such a system were much lower or at private hospitals, and private providers can con- than average rates under current law, however, prohibit- tract with the NHS to provide public care.44 In Canada, ing balance billing could discourage some providers from providers are generally prohibited from providing both participating—particularly if they could treat private-pay public and private care.45 patients for higher amounts. If the single-payer system permitted balance billing, it could set a limit on that Who Would Own the Hospitals and Employ amount (as in Medicare), which would help ensure the Providers? affordability and access to care. Regulations that made Currently, about 70 percent of U.S. hospitals are pri- the billing process transparent would also protect bene- vately owned: About half are private, nonprofit entities, ficiaries against unexpected charges. Many international and 20 percent are for-profit.46 Almost all physicians single-payer health systems prohibit balance billing for are self-employed or privately employed. A single-payer participating providers.43 system could retain current ownership structures, or the government could play a larger role in owning hospitals Private-Pay Patients and employing providers. In one scenario, the govern- Another key question is whether the single-payer plan ment could own the hospitals and employ the physicians, would allow participating providers to offer services as it currently does in most of the VHA system. A greater that the plan covered to private-pay patients and, if so, government role could also include converting for-profit under what conditions. For example, if participating hospitals to nonprofit hospitals or quasi-public provid- providers could treat private-pay patients, policymakers ers. In quasi-public organizations, the government or its might consider whether to impose any restrictions on appointees would oversee or manage daily operations. that activity—for example, by specifying the number of private-pay patients they could treat or the amount By owning and operating hospitals and employing they could charge. If a single-payer system did not allow physicians, the government would have more control providers to treat private-pay patients, some providers over the health care delivery system, but it would also might opt out, especially if substitutive insurance plans take on more responsibilities. The transition from the 41. Fewer than 1 percent of all physicians and other health care 44. See Seán Boyle, “United Kingdom (England): Health System professionals opt out of Medicare entirely and have private Review,” Health Systems in Transition, vol. 13, no. 1 (2011), contracts with their Medicare patients; about half who opt out pp. 1–486, https://tinyurl.com/lqw8k2t (PDF, 7.5 MB). are psychiatrists. See Cristina Boccuti, “Paying a Visit to the 45. See Health Canada, Canada Health Act Annual Report 2016– Doctor: Current Financial Protections for Medicare Patients 2017 (February 16, 2018), https://tinyurl.com/y8q2lfst. When Receiving Physician Services” (Kaiser Family Foundation issue brief, November 30, 2016), https://tinyurl.com/ybcf8ywz. 46. Fewer than 20 percent of hospitals are owned by state and local governments, and fewer than 5 percent are federally owned; most 42. See Karen Pollitz, “Surprise Medical Bills” (Kaiser Family federal facilities are military and veterans’ hospitals. See American Foundation issue brief, March 17, 2016), https://tinyurl.com/ Hospital Association, “Fast Facts on U.S. Hospitals, 2019” ybjc34rn. (accessed February 15, 2019), https://tinyurl.com/y8nquhjs. 43. See Commonwealth Fund, International Profiles of Health Outside the VHA system, uniformed military health care Care Systems (May 2017), https://tinyurl.com/ybx6hj3v providers, and the Indian Health Service, physicians are largely (PDF, 3.35 MB). privately employed. 16 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 Box 1. Key Features of Multipayer Health Care Systems That Aim to Achieve Universal Coverage A multipayer health care system is one in which more •• A robust mandate to purchase insurance or another than one insurer provides health insurance coverage and mechanism to ensure enrollment and compliance. With also pays for enrollees’ health care services. In multipayer regulated benefit design and regulated premium rating, systems that aim to provide coverage to almost everyone, people who expect low health care spending, such as the federal and state governments would probably play a young and healthy people, might not want to purchase smaller role in the health care system than they would in any coverage. An effective enforcement mechanism could a single-payer system with that same goal. In a multipayer discourage such selective disenrollment and stabilize the system, a greater share of total national health care spending insurance market through robust participation. A strongly would be financed through private sources (private insurers, enforced mandate could include automatic payroll with- employers, and individuals) and might not appear in federal holdings, the loss of a tax benefit, or fines and penalties. and state budgets. People who did not enroll in a health plan on their own could be automatically enrolled. The United States currently has a multipayer system, but it has not achieved universal coverage. A multipayer system •• Subsidized insurance costs to ensure affordability. Multi- designed to achieve universal coverage for all U.S. citizens payer health systems typically impose cost sharing for ser- and lawfully present noncitizens could use design elements vices and require tax or premium contributions to finance commonly observed in multipayer systems that have achieved the system. Multipayer health systems that aim for universal universal coverage (for example, in Germany and Switzerland). coverage typically feature a cap on out-of-pocket costs, as In the United States, some of those elements are already in well as exemptions from cost sharing for preventive care. place in the health insurance marketplaces established under In addition, cost sharing and tax or premium contributions the Affordable Care Act. may be reduced or waived for certain groups, including low-income beneficiaries, the elderly, the disabled, chil- A multipayer system that aims to achieve universal coverage dren, students, and pregnant women. could have the following elements: Germany and Switzerland include those four elements in their •• Guaranteed issue and community rating of premiums. multipayer systems, although their approaches differ in some In a system with guaranteed issue, insurers are required to respects. In both countries, health insurance is mandatory for issue policies to all applicants regardless of health status, all citizens and lawfully present noncitizens. Both countries age, sex, or other factors that might affect their use of impose fines on people who do not have coverage. People health care services. Under community rating, insurers are obtain coverage from one of the competing nonprofit insur- prohibited from varying premiums on the basis of health ers, each of which offers a comprehensive benefit package status or past use of health care services. Without those established by the central government in consultation with regulations, people with characteristics that are associated stakeholders. Insurers cannot deny coverage to anyone. with high medical spending, such as old age and chronic conditions, could be denied coverage or face prohibitively Cost sharing is assessed for most services in Germany and high premiums. Switzerland. In Germany, children under age 18 are exempt from cost sharing, and cost-sharing payments for adults are •• Highly regulated benefit design across insurers. To capped at 2 percent of annual household income. That cap ensure access to a specified set of health care services, is lower for people with certain chronic illnesses. In Switzer- the mandated set of benefits typically includes hospital and land, maternity care, some preventive services, and hospital physician care and prescription drugs, but individual health inpatient care for children and young adults are exempt plans within the multipayer system could be permitted from cost sharing. About a quarter of Swiss residents also to vary certain features of their plans, such as provider receive income-related subsidies to reduce or eliminate their networks, cost sharing, and drug formularies, or to cover premiums. additional services that are not mandated. Variation across plans would be minimal, however, if the plan design was Compared with a single-payer system, establishing a multi- highly regulated and the mandated set of benefits was payer health system in the United States that aimed to achieve comprehensive. universal coverage would have several advantages: Continued May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 17 Box 1.Continued Key Features of Multipayer Health Care Systems That Aim to Achieve Universal Coverage •• The United States could build on its existing insurance mar- region (or a provider association). Instead of negotia- ket and infrastructure for care delivery and payment, which tions, the government could set the rates administratively would help reduce disruption to health insurers, providers, for all insurers and providers. In Maryland, an all-payer manufacturers, and beneficiaries during the transition and rate-setting system is used in conjunction with a global after the system was implemented. budget to pay acute-care hospitals. Alternatively, the government or an independent body could set a ceiling on •• Multipayer systems have historically had fewer provider provider payment rates and allow insurers and providers to capacity issues (such as waiting lists and rationing of care) negotiate payment rates subject to that ceiling. For exam- than single-payer systems because of specific design ele- ple, West Virginia uses a state-based rate-setting system to ments of single-payer systems, such as financing and pay- regulate hospital rates for private payers by setting both a ment methods.1 For example, because nearly all national ceiling and a floor, and hospitals and payers can negotiate health care spending under a single-payer system would the payment methods and rates as long as they are within appear on the government’s budget and would become the those limits.2 responsibility of taxpayers, the system would face greater budgetary pressure to contain costs and manage the •• Because people can choose among different plans under a population’s health. Without sufficient incentives through multipayer system, they might choose health plans based the payments they receive, providers might opt out of a on their health status or expected medical spending. That single-payer system. behavior (called risk selection) could lead to instability in the insurance market and therefore higher costs. Highly •• Multipayer systems offer a greater choice of insurer and regulated benefits could limit the variation across plans and health benefits than single-payer systems, which might mitigate the selection issue. Risk-adjustment mechanisms address the needs of a broader group of people. For exam- can minimize the impacts of risk selection, but those mech- ple, young and healthy people might prefer to purchase anisms only work well if predictions about people’s health coverage with high deductibles or fewer benefits. Multi- care use are accurate. payer systems might also be able to adjust more quickly than single-payer systems to meet patients’ needs, such as •• Administrative costs under a multipayer system would prob- covering new treatments or procedures. ably be higher than those of a single-payer system because insurers under a multipayer system would probably incur But multipayer systems tend to have higher total spending than additional costs, such as for marketing activities, sales, single-payer systems for several reasons: and profits. In addition, administrative costs per benefi- •• Single-payer systems typically have stronger purchasing ciary would probably be higher for each insurer under a power than multipayer systems to achieve lower prices. As multipayer system than under a single-payer plan because a result, payment rates under multipayer systems tend to the multipayer system would have fewer gains from its be higher. Control of health care spending in such systems scale. Insurers’ administrative costs under a multipayer could be enhanced by adopting an all-payer rate-setting system could be regulated by requiring insurers to spend a system. Under such a system, all insurers typically pay minimum share of premiums collected on medical services providers using the same payment method and price for and other activities that improve the quality of care, as they each service, but the price could vary across providers. The are currently. Providers’ administrative costs under a multi- payment methods and rates could be determined through payer system would also probably be higher than under a negotiation between all insurers in a region (or an agency single-payer system because they would need to deal with representing the health insurers) and all providers in that different payment methods and rules for each insurer. 1. See Joseph White, “Gap and Parallel Insurance in Health Care Systems With Mandatory Contributions to a Single Funding Pool for Core Medical and Hospital Benefits for All Citizens in Any Given Geographic Area,” Journal of 2. See Robert Murray and Robert A. Berenson, Hospital Rate Setting Health Politics, Policy, and Law, vol. 34, no. 4 (August 2009), pp. 543–583, Revisited (Urban Institute, November 2015), https://tinyurl.com/yyuvkmvq https://doi.org/10.1215/03616878-2009-015. (PDF, 1.16 MB). 18 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 current system to publicly owned hospitals and publicly revenues would, in turn, affect their incentives to deliver employed physicians would entail significant changes for services. providers, and those changes could lead to lower quality of care for patients. To limit those changes, the govern- Provider Payment Methods ment could attempt to employ as many of the current A single-payer system could pay participating pro- health care providers as possible, in addition to setting viders on a fee-for-service basis, with bundled and up an effective governance system to administer publicly episode-based payments, through global budgets, by owned hospitals and publicly employed physicians. capitation, with a salary, or through a combination of those methods. Another consideration is whether integrated delivery systems that provide both insurance and care, such as Fee for Service. In an FFS system, providers are paid Kaiser Permanente or Geisinger Health System, would for each service they deliver. That method is the most be allowed to continue to operate. Allowing that type of common form of provider payment in the United States. system to operate alongside a single-payer health plan Under an FFS system, the payer assumes the financial would lead to a multipayer system because people in risk if enrollees use more care than projected. Many ana- some areas would have a choice between the public plan lysts have noted that the financial rewards inherent in an and the integrated delivery system. As a result, policy- FFS payment system give providers incentives to deliver makers would need to address issues that are inherent in too much care. Pay-for-performance incentives could be multipayer systems, such as selective enrollment based combined with an FFS system to temper the incentives on information not known to insurers and competition to deliver too much care.50 In Canada, general practi- among insurers (see Box 1 on page 16). tioners (GPs) and specialists are mostly paid on an FFS basis, although the payment method varies by province.51 Single-payer systems in other countries involve both public and private provider ownership. In Canada, Bundled and Episode-Based Payments. With bundled most hospitals are private, nonprofit entities, but hos- and episode-based payments, providers receive a fixed pital ownership varies across provinces, and physicians payment to cover all services furnished during a single are mostly self-employed or privately employed.47 episode of care. The fixed payment can cover different In England, most hospital beds are in public NHS types of providers, including physicians and hospitals. hospitals.48 Most specialists are salaried employees of Under such payment arrangements, providers bear the NHS hospitals, but most primary care physicians are financial risk if the cost of delivering care within the self-employed or privately employed.49 episode exceeds the payment from the insurer. Providers therefore have an incentive to deliver fewer services per How Would a Single-Payer System episode, but they also have an incentive to deliver more Pay Providers and Set Payment Rates? episodes of care. Episodes can be defined by a diagnosis Two primary concerns of a single-payer health care during an event, such as a hospitalization or admission to system are the methods it would use to pay providers and a skilled nursing facility, or over a certain period of time. set their payment rates, both of which would directly Diagnosis-related groups (DRGs), which are an exam- affect government spending, national health care spend- ple of bundled or episode-based payments, currently ing, and providers’ revenues. The impact on providers’ form the basis of Medicare’s hospital inpatient payment system. The payment rate for each DRG is based on an 47. See Gregory P. Marchildon, “Canada: Health System Review,” amount determined in advance for a given condition, Health Systems in Transition, vol. 15, no. 1 (2013), pp. 1    79; –1 which is then adjusted to account for factors such as the Commonwealth Fund, International Profiles of Health Care Systems (May 2017), https://tinyurl.com/ybx6hj3v (PDF, 3.35 MB). 50. See James C. Robinson, “Theory and Practice in the Design 48. See Seán Boyle, “United Kingdom (England): Health System of Physician Payment Incentives,” Milbank Quarterly, Review,” Health Systems in Transition, vol. 13, no. 1 (2011), vol. 79, no. 2 (June 2001), pp. 149–177, https:// pp. 1–486, https://tinyurl.com/lqw8k2t (PDF, 7.5 MB). doi.org/10.1111/1468-0009.00202. 49. See Commonwealth Fund, International Profiles of Health Care 51. See Commonwealth Fund, International Profiles of Health Care Systems (May 2017), https://tinyurl.com/ybx6hj3v Systems (May 2017), https://tinyurl.com/ybx6hj3v (PDF, 3.35 MB). (PDF, 3.35 MB). May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 19 patient’s principal diagnosis, secondary diagnoses, and all-payer rate-setting system for hospital care, in which procedures. In England, hospitals are also paid through all payers (Medicare, Medicaid, commercial insurers, nationally determined DRG rates.52 and private-pay patients) pay essentially the same rates. A state agency specifies each hospital’s annual budget, A bundled or episode-based payment can include a range which determines the total amount of annual revenue of services. For example, Medicare has a bundled-payment the hospital can receive from all payers for inpatient, program that covers comprehensive care for joint replace- outpatient, and emergency department services. Each ments from 2016 to 2020. The bundled payment is hospital’s budget is calculated from data on its historical designed to capture all necessary patient care related to provision of services, expected changes in the provision the joint replacement during the inpatient hospitaliza- of services, and projected changes in regulated prices. tion and for 90 days after discharge, and it includes all During the year, hospitals receive payments from each services covered by Medicare Parts A and B, including payer for the services they deliver, and those payments inpatient hospital care, physician care, and postacute are periodically compared with the hospital’s budget, care. When the program began, participation was man- which is set by the state agency. Each hospital adjusts its datory for providers in 67 metropolitan areas. In 2018, payment rates periodically so that its total revenues equal participation became voluntary for providers in about its budget. A hospital can also have its budget changed half of those areas. About a quarter of the providers in during the year to account for significant unexpected areas with voluntary participation opted to continue changes in patient volume.56 participating.53 Single-payer health systems typically include some form Global Budgets. With global budgets, providers receive of global budgeting. Most hospitals in Canada operate a fixed payment amount for a specific time period under annual global budgets.57 Some countries define (usually a year). Under that arrangement, providers bear global budgets more broadly to cover total health care the financial risk if the cost of delivering care exceeds spending or spending for major categories of services. the global budget.54 Because providers face greater risks (For additional information about how a single-payer under global budgets, the single-payer system could con- system might use global budgets to help contain costs, tinuously monitor each provider’s financial health and see page 26.) adjust payment amounts as necessary to ensure quality of care. Capitated Payments. Capitated payments—a pre- determined amount paid monthly or annually per Global budgets are not common in the United States, patient—can be used to pay for nearly all covered although Maryland is operating a global budgeting sys- services in a single-payer system. The payment amount tem for hospitals.55 Insurers in the state operate under an for each patient is fixed regardless of the amount of care provided, but it is typically adjusted for the expected 52.Ibid. health care costs of that patient. This payment method can apply to individual physicians, groups of health 53. See Centers for Medicare & Medicaid Services, “Comprehensive Care for Joint Replacement Model” (accessed February 15, 2019), https://go.usa.gov/xQdGH. 54. See James C. Robinson, “Theory and Practice in the Design of Physician Payment Incentives,” Milbank Quarterly, yxhyqao3; and Susan Haber and Heather Beil, “Another Look vol. 79, no. 2 (June 2001), pp. 149–177, https:// at the Evidence on Hospital Global Budgets in Maryland: Have doi.org/10.1111/1468-0009.00202. They Reduced Expenditures and Use?” Health Affairs (blog, 55. An early evaluation of Maryland’s global budget system found May 14, 2018), http://tinyurl.com/y3vvfobu. aggregate hospital savings of 4 percent for Medicare during the 56. See Eric T. Roberts and others, “Changes in Hospital Utilization first three years of global budgets (2014–2016) relative to the Three Years Into Maryland’s Global Budget Program for baseline period. Expenditures for commercial plan members did Rural Hospitals,” Health Affairs, vol. 37, no. 4 (April 2018), not increase more slowly in Maryland than in the comparison pp. 644– 653, https://doi.org/10.1377/hlthaff.2018.0112. group in the first two years of statewide adoption, however, and an analysis of the Medicaid population has yet to be undertaken. 57. See Gregory P. Marchildon, “Canada: Health System Review,” See RTI International, Evaluation of the Maryland All-Payer Health Systems in Transition, vol. 15, no. 1 (2013), pp. 1    79, –1 Model: Third Annual Report (March 2018), http://tinyurl.com/ https://tinyurl.com/y2px2nvu (PDF, 5.67 MB). 20 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 care professionals, provider organizations, or insur- payment as salary or on an FFS basis carries the least ers.58 Public programs in the United States use capi- risk for providers. By contrast, payments from global tated payments when the government contracts with budgets or capitation place providers at greater risk. For private insurers to deliver health care benefits, such as insurers, paying providers a salary or paying them from in Medicare Advantage and Medicaid managed care. global budgets or capitation brings less risk, whereas FFS Single-payer systems can also use capitated payments to payments have greater risk. pay physicians for a subset of services. In England, for example, the NHS mostly uses capitation to pay GPs for Payment methods and their inherent financial risks may providing essential services.59 affect providers’ behavior, which can affect the costs and cost-containment strategies of a single-payer system. For Salaried Physicians. Instead of paying physicians for example, in Taiwan, physicians and hospitals are both paid each service provided, medical groups (or health care on an FFS basis. Because Taiwan has an overall national systems) sometimes employ them and pay them a health care budget, however, the FFS payment system salary. In the United States, Kaiser Foundation Health has created fierce competition for patients among provid- Plans exclusively contracts with its in-network physi- ers because one provider’s gain is another provider’s loss cians, who are paid a salary by the Permanente Medical because of the fixed budget.63 Groups.60 In England, physician specialists are nearly all employees of NHS-owned or -contracted hospitals Determining Payment Rates and are paid a salary.61 In this type of payment arrange- A single-payer system could determine provider pay- ment, providers have fewer incentives to increase their ment rates through administrative rate setting, nego- productivity or deliver more services relative to an FFS tiation, or a combination of those approaches. In system. administrative rate setting, the government would set provider payment rates using formulas specified by law Incentives and Risks Under Different Payment Methods. or by regulation. By contrast, provider payment rates Combining the various provider payment methods can determined through negotiations would depend on the mitigate the effects of the incentives inherent in each relative market power of the provider and insurer, which payment method. Health care systems can use value- or is affected by the number of competing providers in a quality-based payment methods, such as pay for perfor- particular market. mance, alongside those payment methods. Although GPs in England are paid mostly by capitation for essential Administered Rates. A single-payer system administered services, some services (such as vaccinations for at-risk at the national level in the United States could follow populations) are paid on an FFS basis. An optional a process similar to that of the Medicare FFS program pay-for-performance arrangement is also available.62 in administratively setting a uniform fee schedule; a single-payer system administered by states could be mod- Different payment methods carry different degrees eled on the Medicaid program. Medicare FFS pays for of financial risk for providers and insurers. Receiving hospital inpatient care using a DRG system, adjusting for factors such as geographic variation in input costs, 58. See Robert A. Berenson and others, Primary Care Capitation operating a medical resident training program, having (Urban Institute, June 2016), https://tinyurl.com/yy3bxwwz. a large share of uninsured and low-income patients, 59. See Commonwealth Fund, International Profiles of Health and whether a case has costs that exceed a specified Care Systems (May 2017), https://tinyurl.com/ybx6hj3v threshold.64 A single-payer system could also follow the (PDF, 3.35 MB). Medicare FFS process for setting payment rates for new 60. See Jesse Pines and others, Kaiser Permanente—California: 63. See Tsung-Mei Cheng, “Reflections on the 20th Anniversary of A Model for Integrated Care for the Ill and Injured (Brookings Taiwan’s Single-Payer National Health Insurance System,” Health Institution, May 2015), https://tinyurl.com/yxskyoz6 Affairs, vol. 34, no. 3 (March 2015), pp. 502–510, https:// (PDF, 202 KB). doi.org/10.1377/hlthaff.2014.1332. 61. See Commonwealth Fund, International Profiles of Health 64. See Jared Lane Maeda and Lyle Nelson, An Analysis of Private- Care Systems (May 2017), https://tinyurl.com/ybx6hj3v Sector Prices for Hospital Admissions, Working Paper 2017-02 (PDF, 3.35 MB). (Congressional Budget Office, April 2017), www.cbo.gov/ 62.Ibid. publication/52567. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 21 treatments or procedures. Currently, the Medicare FFS practices to increase their bargaining power with com- program adjusts the DRG classification system at least mercial insurers.67 annually to account for changes in treatment patterns, technology, and other factors that might affect the use of Other Considerations. Another decision for policymak- hospital resources.65 ers is whether government support for graduate medical education and for hospitals that treat a high propor- Under administered pricing, a single-payer system could tion of low-income patients would continue under a set payment rates in a variety of ways. For example, it single-payer system, and if so, how those payments could set the rates to match current Medicare FFS rates would be structured. For example, teaching hospitals or at some other level, such as an average of the rates could have higher payment rates or receive compensation that public and private insurers pay. The system could for their teaching costs through direct payments outside also adjust payment rates over time if certain services or the single-payer system. Similarly, hospitals that treat a certain markets experienced a supply shortage. large portion of low-income patients could receive addi- tional government support. Negotiated Rates. Alternatively, a single-payer system could establish provider payment rates through nego- Implications of Alternative tiations. Organizations representing providers, such Payment Methods and Rates as the American Medical Association, could negotiate Provider payment rates under a single-payer system payment rates with the system, and those negotiations would have important implications for government could occur within broad budgetary guidelines such as a spending, national health care spending, and providers’ national spending limit. In England, the British Medical revenues. The rates would also affect providers’ incentives Association, which represents privately employed GPs, to deliver services, both initially and over the long term. negotiates the General Medical Services contract with the The effects could vary across providers, depending on government. In Canada’s single-payer health care system, their current mix of patients and how the payment rates physicians’ professional associations negotiate FFS sched- they currently receive for those patients compare with ules with provincial ministries of health, and hospitals the payment rates under the single-payer system. negotiate their annual global budgets with provincial ministries of health.66 Under the current health care system, the rates com- mercial insurers pay providers for most services are In the United States, insurance companies establish and higher than Medicare FFS rates—sometimes substan- update provider payment rates through negotiations. tially higher. CBO found that three major insurers’ Private commercial insurers negotiate payment rates commercial payment rates for hospital inpatient admis- with hospitals, physicians, and other providers directly, sions in 2013 were 89 percent higher, on average, than although for individual physicians and many physician Medicare FFS payment rates for the same types of groups, the payment rate insurers offer is often “take it or leave it” because of the relatively weak bargaining power 67. See Robert A. Berenson and others, “The Growing Power of individual physicians. In recent years, however, more of Some Providers to Win Steep Payment Increases From Insurers Suggests Policy Remedies May Be Needed,” physicians have joined hospital systems or larger group Health Affairs, vol. 31, no. 5 (May 2012), pp. 973–981, https://doi.org/10.1377/hlthaff.2011.0920; David B. Muhlestein and Nathan J. Smith, “Physician Consolidation: Rapid Movement From Small to Large Group Practices, 2013–15,” Health Affairs, vol. 35, no. 9 (September 2016), pp. 1638–1642, https://doi.org/10.1377/hlthaff.2016.0130; David R. Austin and Laurence C. Baker, “Less Physician Practice 65. Section 1886(d)(4)(C) of the Social Security Act requires the Competition Is Associated With Higher Prices Paid for Common Secretary of Health and Human Services to adjust the DRG Procedures,” Health Affairs, vol. 34, no. 10 (October 2015), classifications and relative weights at least annually. See Centers pp. 1753–1760, https://doi.org/10.1377/hlthaff.2015.0412; for Medicare & Medicaid Services, “MS-DRG Classifications and and Laurence C. Baker, M. Kate Bundorf, and Daniel P. Software” (August 3, 2018), https://go.usa.gov/xEUhb. Kessler, “Vertical Integration: Hospital Ownership of Physician 66. See Commonwealth Fund, International Profiles of Health Practices Is Associated With Higher Prices and Spending,” Care Systems (May 2017), https://tinyurl.com/ybx6hj3v Health Affairs, vol. 33, no. 5 (May 2014), pp. 756–763, (PDF, 3.35 MB). https://doi.org/10.1377/hlthaff.2013.1279. 22 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 admissions, although rates varied widely by geographic supplemental payments, Medicaid rates for 18 Medicare area.68 Commercial rates for physicians’ services are also Severity DRGs (MS-DRGs) averaged just 78 percent of higher than Medicare FFS rates, although the difference Medicare rates. After including supplemental payments, between the two payers varies greatly by type of service.69 MACPAC found that the Medicaid payment rate was 6 percent higher, on average, than the Medicare rate.72 By contrast, Medicaid payment rates for physicians’ The commission examined only 18 MS-DRGs, however, services are significantly lower than both commercial and the results might have been different if they had and Medicare payment rates.70 Evidence has been mixed, included more MS-DRGs. An additional complication however, in comparisons of Medicaid payment rates for in analyzing Medicaid rates for inpatient care is that, in hospital services with commercial and Medicare pay- 2018, all states made supplemental payments to hospi- ment rates. On the one hand, Selden and others found tals, and most made additional payments to hospitals that Medicaid rates were essentially equal to Medicare that treat a disproportionate share of low-income and FFS rates in 2012—and, according to that paper’s Medicaid patients. appendix, the Medicaid estimate did not include supple- mental payments to hospitals.71 On the other hand, the Government spending and total national spending on Medicaid and CHIP Payment and Access Commission health care would be lower if provider payment rates (MACPAC) found that, before accounting for Medicaid under a single-payer system were set at Medicare FFS rates rather than at a higher level, such as average com- 68. According to that analysis, Medicare Advantage payment rates mercial rates. Setting payment rates equal to Medicare were similar to Medicare FFS payment rates. See Jared Lane FFS rates under a single-payer system would reduce the Maeda and Lyle Nelson, “How Do the Hospital Prices Paid by average payment rates most providers receive—often Medicare Advantage Plans and Commercial Plans Compare substantially. Such a reduction in provider payment rates With Medicare Fee-for-Service Prices?” Inquiry, vol. 55 (June would probably reduce the amount of care supplied 2018), pp. 1–8, https://doi.org/10.1177/0046958018779654. Another study found that inpatient hospital payment rates of and could also reduce the quality of care. Studies have private insurers were about 10 percent higher than Medicare’s found that increases in provider payment rates lead to rates over the 1996–2001 period and increased to about a greater supply of medical care, whereas decreases in 75 percent higher in 2012. See Thomas M. Selden and others, payment rates lead to a lower supply.73 But because those “The Growing Difference Between Public and Private Payment Rates for Inpatient Hospital Care,” Health Affairs, vol. 34, no. 12 (December 2015), pp. 2147–2150, https://doi.org/10.1377/ 72. This analysis was based on Medicaid Analytic Extract data from hlthaff.2015.0706. calendar year 2010 and Medicare payment data from fiscal year 2011, and it used MS-DRGs to compare Medicaid payment 69. A recent analysis by CBO found that commercial insurance rates with Medicare payment rates for hospital inpatient services. payment rates were, on average, 11 percent higher than Medicare MS-DRGs, which were developed for the Medicare population, FFS rates for office visits for established patients and more than group patients by characteristics such as principal diagnosis, double Medicare FFS payment rates for magnetic resonance secondary diagnoses, procedures, sex, and discharge status. See imaging procedures. Medicare Advantage payment rates were Medicaid and CHIP Payment and Access Commission, Medicaid similar to Medicare FFS payment rates. See Daria Pelech, “Prices Hospital Payment: A Comparison Across States and to Medicare (issue for Physicians’ Services in Medicare Advantage and Commercial brief, April 2017), https://go.usa.gov/xQdAT (PDF, 249 KB). Plans,” Medical Care Research and Review (June 2018), pp. 1–21, https://tinyurl.com/y3kb7wae. 73. Evidence suggests that both physicians and hospitals respond to changes in payment rates. One study found that, on average, 70. See Stephen Zuckerman, Laura Skopec, and Marni Epstein, a 2 percent increase in Medicare’s physician payment rates Medicaid Physician Fees After the ACA Primary Care Fee Bump was associated with a 3 percent increase in the supply of care (Urban Institute, March 2017), https://tinyurl.com/yaand3mz (PDF, to Medicare beneficiaries; see Jeffrey Clemens and Joshua 424 KB). Under current law, however, Medicare’s payment rates for D. Gottlieb, “Do Physicians’ Financial Incentives Affect physicians’ services are projected to fall below Medicaid’s payment Medical Treatment and Patient Health?” American Economic rates by 2035. See Centers for Medicare & Medicaid Services, Review, vol. 104, no. 4 (2014), pp. 1320–1349, https:// Office of the Actuary, “Projected Medicare Expenditures Under an dx.doi.org/10.1257/aer.104.4.1320. A 10 percent decrease in Illustrative Scenario With Alternative Payment Updates to Medicare Medicare FFS hospital inpatient payment rates was associated Providers” (June 2018), https://go.usa.gov/xEMzV (PDF, 440 KB). with a 4.6 percent decrease in the number of elderly discharges; 71. See Thomas M. Selden and others, “The Growing Difference see Chapin White and Tracy Yee, “When Medicare Cuts Hospital Between Public and Private Payment Rates for Inpatient Prices, Seniors Use Less Inpatient Care,” Health Affairs, vol. 32, Hospital Care,” Health Affairs, vol. 34, no. 12 (December 2015), no. 10 (2013), pp. 1789–1795, https://doi.org/10.1377/ pp. 2147–2150, https://doi.org/10.1377/hlthaff.2015.0706. hlthaff.2013.0163. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 23 studies are based only on changes in Medicare’s payment In addition to the short-term effects discussed above, rates for a given set of services within the context of a changes in provider payment rates under the single-payer multipayer system, the results may be less relevant to a system could have longer-term effects on the supply of single-payer system, and providers’ responses to changes providers. If the average provider payment rate under a in payment rates are difficult to predict under such a single-payer system was significantly lower than it cur- system. Under a multipayer system with different pay- rently is, fewer people might decide to enter the medical ment rates, providers might be able to offset their loss of profession in the future. The number of hospitals and income from one payer by adjusting their rates for other other health care facilities might also decline as a result of payers, as well as by adjusting their patient mix toward closures, and there might be less investment in new and payers with higher payment rates, but such opportuni- existing facilities. That decline could lead to a shortage of ties would be eliminated or limited under a single-payer providers, longer wait times, and changes in the quality system. of care, especially if patient demand increased substan- tially because many previously uninsured people received If average provider payment rates were lower under a coverage and if previously insured people received more single-payer system relative to current law, several factors generous benefits. How providers would respond to such might help ease the transition for providers. First, the changes in demand for their services is uncertain. To system could initially set provider payment rates at the encourage the supply of providers in the longer term, dollar-weighted average across all payers under current the government could more heavily subsidize the cost law but then gradually reduce them to Medicare FFS of graduate medical education to encourage people to rates. Although a longer transition period would mitigate continue to enter medical professions. the impact on providers’ income, the government’s cost to establish a single-payer system would be substantially How Would the Single-Payer System higher. Purchase Prescription Drugs? A single-payer system could use several different meth- Second, if participating providers were allowed to pro- ods to pay for prescription drugs, including negotiated vide private care, they might still be able to offset a loss pricing, value-based pricing, reference pricing, and of income from lower payment rates. For example, if par- administered pricing.75 It could also use different pay- ticipating providers were allowed to provide private care ment methods for different types of drugs. For example, at higher prices, physicians could privately contract with it could exempt drugs that treat certain catastrophic patients or see privately insured patients. Although that conditions, such as cancer or HIV, from the regular option would allow providers to increase their income, pricing mechanism. How prescription drug prices are it could also lead to longer wait times for people in the set by the single-payer system would affect the profits of single-payer system. drug manufacturers, which could affect their incentives to develop new drugs. Finally, a single-payer system might give providers new opportunities to lower their costs. Because providers Determining Prescription Drug Prices would need to deal with only one payer and one pay- Prescription drugs accounted for about 10 percent of ment method, they would probably be able to reduce personal health care spending nationally in 2017, which their administrative costs; the single-payer system could is substantially smaller than the share of such spending then adjust provider payment rates to reflect those lower for hospital services (33 percent) and physicians’ services administrative costs. A single-payer system that suc- (20 percent).76 Thus, the payment rates for drugs under ceeded in delivering universal coverage would substan- a single-payer system would have a less direct effect on tially reduce bad debt, uncompensated care, and charity care for providers.74 75. See Darius N. Lakdawalla, “Economics of the Pharmaceutical Industry,” Journal of Economic Literature, vol. 56, no. 2 (2018), pp. 397–449, https://dx.doi.org/10.1257/jel.20161327. 74. Some bad debt, uncompensated care, and charity care might 76. See National Health Expenditure Accounts, “National Health remain if certain groups of people are excluded from coverage Expenditures by Type of Service and Source of Funds: Calendar and are unable to pay for their care, such as noncitizens who are Years 1960–2017” (accessed February 15, 2019), https:// not lawfully present or temporary visitors. go.usa.gov/xEPqW. 24 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 government spending and national health care spending longer study period or more years of data could improve than the payment rates for hospital and physicians’ ser- the quality of such measures. But if that information was vices. Prescription drugs are an important part of medi- required at the time a drug was approved by the FDA, cal practice, however, and the designers of a single-payer it would take longer for new drugs to become available. system would need to consider whether a substantial Because such an approach might delay some drugs that reduction in drug prices would reduce manufacturers’ could potentially extend the lives of people with seri- incentive to develop new drugs. Under any of the pricing ous conditions, alternative payment methods might be approaches discussed below, a single-payer system could needed. In Sweden, for example, manufacturers are free decide to exclude certain drugs or place those drugs on a to submit drug prices for new drugs, and the government nonpreferred drug list because they are too expensive or can reject drugs that it deems not cost-effective at the because they do not have any additional benefit. In such proposed price. If the government rejects a drug, the cases, enrollees would either not have access to those manufacturer can resubmit an application with a lower drugs or face higher cost sharing. price in the hope that it will be accepted.78 Negotiated Pricing. Direct negotiations between a Similarly, the price for a prescription drug could be single-payer system and manufacturers could determine based on its comparative effectiveness or its additional prescription drug prices, much like the negotiations that benefit relative to existing treatments. The same system take place between individual insurers and manufacturers for evaluating a drug’s cost-effectiveness could be used now. A single-payer system would have more negotiat- to evaluate its effectiveness relative to existing drugs. ing leverage with manufacturers than private insurers However, comparative effectiveness has many of the same have; however, it is uncertain whether the single-payer limitations as cost-effectiveness. In Germany, new drugs plan could use the threat of excluding certain drugs are evaluated within six months of their introduction from the formulary as a negotiating strategy. It is also to determine their additional benefit. If a drug is deter- unclear whether a single-payer system could withstand mined to have additional benefits, the manufacturer and the political pressure that might result from excluding the insurance association negotiate the price; if they can- some drugs. By contrast, private insurers can threaten not agree, an arbitration panel determines the final price. to exclude drugs from their formularies and can follow If a new drug is determined not to have any additional through on that threat. Alternatively, a single-payer benefits compared with existing drugs, insurers are only system could require higher cost sharing for some drugs required to pay the price they pay for existing drugs. If instead of excluding them. Although those price-control the manufacturer chooses to sell its products at a higher tools would affect patients’ access to certain drugs, the price, patients can pay the difference out of pocket.79 negotiated prices would probably be lower for drugs with more competitors in the same therapeutic class. Reference Pricing. A single-payer system could also base prices for prescription drugs on the prices of drugs in a Value-Based Pricing. Prescription drug prices could reference group, which could be an internal reference also depend on the value of a particular drug, which is group of drugs in the same therapeutic class or an exter- typically measured by its cost-effectiveness or its cost nal reference group of peer countries.80 Internal reference relative to the number of quality-adjusted life years gained.77 The government could set up an independent 78. See Steven Morgan, Summaries of National Drug Coverage board to evaluate the cost-effectiveness of each drug, or and Pharmaceutical Pricing Policies in 10 Countries: Australia, it could require manufacturers to submit information Canada, France, Germany, the Netherlands, New Zealand, on a drug’s cost-effectiveness at the time the Food and Norway, Sweden, Switzerland, and the U.K., Working Papers Drug Administration (FDA) approved it or after the for the 2016 Meeting of the Vancouver Group in New York, NY drug had been on the market for a certain period of (2016), https://tinyurl.com/y22guwgv (PDF, 636 KB). time. Cost-effectiveness measures are imperfect, however, 79. See Karl Lauterbach, John McDonough, and Elizabeth Seeley, because information about safety and effectiveness may “Germany’s Model for Drug Price Regulation Could Work in be lacking, especially over the short term. Requiring a the US,” Health Affairs (blog, December 29, 2016), https:// tinyurl.com/yy89jvo5. 77. Quality-adjusted life years, which include both quality of life and 80. See Kai Ruggeri and Ellen Nolte, Pharmaceutical Pricing: The Use number of life years gained from a treatment, are commonly used of External Reference Pricing (RAND Corporation, 2013), https:// to measure cost-effectiveness. tinyurl.com/y6gcevku (PDF, 493 KB). May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 25 pricing could determine the cost of new drugs in a ther- Implications of Alternative Payment Methods for apeutic class, and external reference pricing could inform Prescription Drugs pricing decisions for new, innovative drugs. The reference Under current law, prices for prescription drugs vary price could be determined by a measure of the range of greatly by payer. CBO found that, after accounting for prices in the reference group, such as the median, aver- rebates and discounts, the average price per prescrip- age, or lowest price, or something else. tion for 50 top-selling brand-name specialty drugs was nearly twice as high in Medicare Part D as in Medicaid.83 The reference price could be used as a benchmark for Therefore, the payment rates under a single-payer system setting or negotiating prices. For example, the reference would affect manufacturers differently depending on their price could be the maximum amount that a single-payer current payer mix. If the single-payer system used an aver- health plan would contribute to the cost of a drug. age of FSS, Medicaid, and Medicare Part D prescription Canada and many European countries use the internal drug prices, the average price would decline for drugs that and external reference pricing approach. are currently purchased mostly by people with commer- cial insurance, but the average price might increase for Although the use of external reference pricing has gen- drugs currently purchased mostly by Medicaid enrollees erally been associated with a decrease in drug prices and (with some exceptions) and by the VHA. lower spending by the government and patients in coun- tries that use that approach, a possible trade-off is delayed The impact of a single-payer system on manufacturers market access to new drugs. A drug typically cannot be is uncertain because pharmaceutical products are sold launched in a country that uses external reference pricing globally. The United States is the largest single market for until it has been launched in the reference countries. In pharmaceuticals, however, and its drug prices are currently addition, drug manufacturers sometimes delay launching the highest among industrialized nations.84 If average drugs in countries that have an external reference pricing prescription drug prices fell under a single-payer system, mechanism that would result in a low price.81 manufacturers might be able to counter at least some of those declines in average U.S. prices if they could convince Administered Pricing. Finally, a single-payer system health systems in other countries to raise their prices. could base the prices for existing prescription drugs on current administered prices and use alternative meth- If manufacturers could not offset the price decline in the ods to price new drugs. For example, the system could United States by obtaining higher prices in other coun- use the average of the current Federal Supply Schedule tries, they might reduce research and development of (FSS), Medicaid, and Medicare Part D prices as a start- new drug products. For example, if a single-payer system ing point for drugs already on the market, and the prices paid for a new drug on the basis of its additional benefit could increase annually with some measure of inflation. relative to existing drugs, manufacturers might refocus Using an average of FSS, Medicaid, and Medicare Part D their research and development on drugs that provide prices to set prices for existing drugs would result in significant additional benefits instead of drugs that pro- prices that are significantly lower than the average prices vide marginal improvements over other existing drugs. that exist today because, under current law, FSS and Medicaid pricing is based either on a drug product’s low- How Would a Single-Payer System Contain est price paid to any commercial insurer or on statutory Health Care Costs? requirements.82 The single-payer system could base prices The cost of a single-payer system would depend on for new drugs on an assessment of their cost-effectiveness various design choices, such as the services covered, or comparative effectiveness or on a reference price. cost-sharing requirements, and provider payment rates. In addition to those design choices, policymakers could 81. See Darius N. Lakdawalla, “Economics of the Pharmaceutical Industry,” Journal of Economic Literature, vol. 56, no. 2 83. See Congressional Budget Office, Prices for and Spending on (June 2018), pp. 397–449, https://dx.doi.org/10.1257/ Specialty Drugs in Medicare Part D and Medicaid (March 2019), jel.20161327. www.cbo.gov/publication/54964. 82. See Congressional Budget Office, Prices for Brand-Name Drugs 84. See Commonwealth Fund, International Profiles of Health Under Selected Federal Programs (June 2005), www.cbo.gov/ Care Systems (May 2017), https://tinyurl.com/ybx6hj3v publication/16634. (PDF, 3.35 MB). 26 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 consider using two other techniques to contain the multipayer systems that have many different payment sys- growth of government spending on the single-payer plan tems and payers, but global budgets are commonly used in and total health care spending: global budgets and utili- single-payer systems.87 One major exception is Maryland’s zation management. current global budget program for hospitals, which oper- ates under an all-payer system. Medicare has attempted Although such techniques could contain costs, increasing to control costs by setting spending targets for a broad set financial pressure for providers to lower their costs could of services, such as the sustainable growth rate for spend- adversely affect access to and quality of care by causing ing on physicians’ services and the former Independent providers to supply less care to patients covered by the Payment Advisory Board for overall Medicare spending, public plan. Less spending on medical services could also but those attempts were not successful.88 alter manufacturers’ incentive to develop new technol- ogies or providers’ incentive to invest in capital, which England and Taiwan both set national global budgets could affect patients’ choices over the longer term. for their single-payer systems.89 In England, the global budget is allocated to approximately 200 local organiza- Global Budgets tions that are responsible for paying for health care. Since Global budgets, which are a possible payment method 2010, the global budget in England has grown by about for individual providers (see page 19), have also been 1 percent annually in real (inflation-adjusted) terms, extended to establish national or regional global budgets compared with an average real growth of about 4 per- for major sectors of a system or for an entire system. The cent previously. The relatively slow growth in the global government could set the global budget administratively, budget since 2010 has created severe financial strains or it could negotiate the budget with providers. If it set on the health care system. Provider payment rates have the budget administratively, the starting point could been reduced, many providers have incurred financial reflect the expected use of services in the next year.85 In deficits, and wait times for receiving care have increased. future years, the government could update the budget on In Taiwan, the global budget is set nationally for five the basis of anticipated changes in need and resources, major service categories and is allocated across six geo- or it could tie the budget to a macroeconomic metric graphic regions. Within each region, provider payment such as nominal gross domestic product per capita or the rates are periodically adjusted to keep spending within consumer price index. To enforce the budget if it was the budget.90 The national global budget in Taiwan is exceeded, the government could adjust the global budget determined each year through negotiation among key proactively by lowering the payment rates in the next stakeholders with the goals of containing costs while year or retroactively by taking back the amount paid to ensuring access to care. The growth of the global budget individual providers in excess of the budget allocated to them in the current year.86 87. See Patrice R. Wolfe and Donald W. Moran, “Global Budgeting in the OECD Countries,” Health Care Financing Review, vol. 14, Global budgets are rarely used as cost-control tools in the no. 3 (1993), pp. 55–76, www.ncbi.nlm.nih.gov/pmc/articles/ United States because they are difficult to implement in PMC4193373. 88. The sustainable growth rate was designed to control the costs of 85. For example, the starting point for setting that budget could physicians’ services in the Medicare FFS program. At the time be the National Health Expenditure accounts under current it was replaced in 2015, physicians would have faced a cut in law with necessary adjustments for the differences in expected payment rates of more than 20 percent if the spending targets use of services between the current system and a single-payer had been enforced. The Independent Payment Advisory Board system. Those differences would include the difference in average was created under the ACA to control the costs of Medicare by payment rates, the costs of expanding coverage to the currently targeting the growth in spending per capita, and it was repealed uninsured population, the difference in the design of an average in early 2018 before it was established. plan under the current system and that of the single-payer health plan, and changes in the economic conditions after the 89. See Commonwealth Fund, International Profiles of Health implementation of a single-payer system. Care Systems (May 2017), https://tinyurl.com/ybx6hj3v (PDF, 3.35 MB). 86. For a more detailed discussion of the design choices and U.S. examples of global budgets, see Congressional Budget 90. See Winnie C. Yip and others, “Managing Health Expenditure Office, Key Issues in Analyzing Major Health Insurance Inflation Under a Single-Payer System: Taiwan’s National Health Proposals (December 2008), pp. 157–160, www.cbo.gov/ Insurance,” Social Science and Medicine (forthcoming), https:// publication/41746. doi.org/10.1016/j.socscimed.2017.11.020. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 27 has not fallen as sharply in Taiwan as it has in England Other countries with single-payer systems also use since 2010, and Taiwan has not experienced the adverse various forms of utilization management. In Canada’s effects that England has experienced recently. single-payer system, some provinces make lower pay- ments to specialists when a patient has not been referred Utilization Management by a primary care physician.93 In England, access to spe- Utilization management refers to methods used by or on cialists generally requires a referral from a primary care behalf of payers to manage health care costs by steering provider. Taiwan monitors use of services and costs in patients toward appropriate care.91 Utilization man- near-real time through its IT system to identify wasteful agement can include care coordination and utilization spending and inappropriate care. review. The administrator of the single-payer plan could enforce utilization patterns that are deemed appropriate How Would a Single-Payer System by monitoring claims and identifying outliers. Be Financed? Government spending on health care would increase Under the current U.S. health care system, with its substantially under a single-payer system. In 2017, just fragmented payment and delivery systems, coordination under half of the $3.5 trillion in national health care of care is difficult, and a comprehensive review of care is spending came from private sources. Shifting a large challenging because no centralized utilization database amount of expenditures from private to public sources exists. A single-payer system that collected comprehen- would significantly increase government spending and sive data on patients’ use of health care services could require additional government resources, but it would potentially manage available resources more efficiently.92 also reduce or eliminate the costs incurred by private But the transition to a standardized IT system across sources, such as employers’ and employees’ contributions all providers would require considerable efforts, such as for employment-based insurance. reaching a consensus for a standard among stakeholders, enforcing that standard, and addressing privacy issues Financing for a single-payer system could come from related to data sharing. federal, state, and local governments. If the federal government administered the single-payer system, In the United States, public programs have implemented some health care costs that state governments currently few utilization management programs, but private pay would shift to the federal budget. The amount insurers have increasingly used them to lower costs. Some of that shift would be smaller if the federal govern- private insurers require prior authorization for patients ment required states to maintain their current level of seeking expensive therapies, for example, and Medicare funding. Part D plans offer low or no copayments to patients who use cheaper generic medications. Many of those strategies In a federally administered single-payer system, the asso- could be continued under a single-payer system. The uti- ciated cash flows would be federal transactions, in CBO’s lization management in such a system might not be much view, and the spending and revenues for the system of a change for people who were previously enrolled in a would appear in the federal budget. That would be true private plan, but it would impose new constraints on the even if the federal government contracted with one or choice of health care services for those who were previ- more private insurers to administer the program, and if ously enrolled in the Medicare FFS program. the responsibilities of those insurers included collecting premiums and paying providers. Because those insurers 91. See Institute of Medicine (U.S.), Committee on Utilization would be acting as agents of the federal government, the Management by Third Parties, Marilyn Jane Field and Bradford cash flows would belong in the federal budget.94 H. Gray, eds., Controlling Costs and Changing Patient Care? The Role of Utilization Management (National Academies Press, 93. See Commonwealth Fund, International Profiles of Health Care 1989), www.ncbi.nlm.nih.gov/pubmed/25144100. Systems (May 2017), https://tinyurl.com/ybx6hj3v (PDF, 3.35 MB). 92. Using a standardized IT system, the administrator of a single- 94. See Congressional Budget Office, How CBO Determines Whether payer system could identify outliers in utilization patterns by to Classify an Activity as Governmental When Estimating Its individual providers or patients and reduce health care spending Budgetary Effects (June 2017), www.cbo.gov/publication/52803, by eliminating duplicate services and overtreatments and and The Budgetary Treatment of Proposals to Change the preventing fraudulent claims by some providers. The administrator Nation’s Health Insurance System (May 2009), www.cbo.gov/ could use a similar approach to improve quality of care. publication/41185. 28 Key Design Components and Considerations for Establishing a Single-Payer Health Care System May 2019 Financing for a single-payer system could come from implications for the progressivity of the financing system. several sources: A system financed by debt might require additional taxes in the future. The choice for policymakers between •• Premiums—that is, payments made to purchase imposing taxes today versus boosting them in the future health insurance; would shift the responsibility among different genera- tions of taxpayers. The choice of tax structure would also •• Cost sharing—that is, out-of-pocket payments for have different implications for the labor supply and peo- services covered by health insurance; and ple’s consumption of goods and services, which would affect the overall economy. •• Taxes, including taxes that individuals or organizations pay directly to the government, such An issue related to the progressivity of the single-payer as income and payroll taxes, as well as taxes on goods system’s financing is the progressivity of the entire health and services, such as alcohol and cigarette taxes.95 care system’s financing. That issue would be moot if the single-payer plan covered the entire population. But if The system could also be financed partly by government a significant share of the population was allowed to opt borrowing. The choice of financing method affects who out of the single-payer system, the progressivity of the would pay for the single-payer system and whether single-payer system’s financing and the entire system’s that responsibility would vary with a person’s ability to financing could differ (though such a system would pay, also known as progressivity. A financing method be more akin to a multipayer system as defined in this in which lower-income people contribute a smaller report). For example, if people in better health and with share of their income to pay for the system relative to higher income could opt out and be exempt from con- higher-income people is considered progressive; the tributing to the single-payer system, the financing of the opposite is true of a regressive method. entire health care system would probably be less progres- sive than the financing of the single-payer system. Because health care premiums per person and cost sharing per service are typically set at the same level for For each of the financing methods, the choice of col- beneficiaries of private health insurance, those types of lection method would affect the system’s administrative payments tend to be regressive. In a single-payer system, complexity because some methods would be easier to beneficiaries’ out-of-pocket spending on premiums and enforce than others. Taxes could be collected through the cost sharing could be made more or less progressive existing tax system, and cost sharing could be collected through income-based subsidies or additional contribu- at the point of service. Premiums could also be collected tions from high-income beneficiaries, as is the case for through the existing tax system to take advantage of its some existing public insurance programs. For example, enforcement mechanism. plans purchased through the health insurance market- places provide premium and cost-sharing subsidies that The current U.S. health care system is financed by a vary with income, and high-income Medicare beneficia- mix of premiums, taxes, and out-of-pocket spending ries pay income-related premiums for Parts B and D in (including cost sharing), and that mix of finances varies addition to the regular premiums. by payer. Health care for people enrolled in Medicare is substantially financed by taxes, including payroll taxes Taxes that could finance a single-payer system include and general tax revenue.96 People enrolled in Medicare income taxes (both individual and corporate), payroll Parts B and D pay premiums, which cover about taxes, and consumption taxes, all of which have different one-quarter of those programs’ costs. Out-of-pocket spending on premiums and cost-sharing obligations 95. The collected funds could be put into general revenues or dedicated to the health care system or a combination of the two. 96. In 2018, less than 40 percent of gross federal spending on The trade-offs between those alternatives largely depend on the Medicare was financed by the trust fund’s dedicated taxes, about budget process and policy priorities. See Cheryl Cashin, Susan 15 percent came from offsetting receipts (consisting mostly Sparkes, and Danielle Bloom, Earmarking for Health: From of premiums), and the rest came from other sources (mostly Theory to Practice, Health Financing Working Paper 5 (World transfers from the general fund). See Centers for Medicare & Health Organization, 2017), https://tinyurl.com/ybo9obyj Medicaid Services, “2019 Medicare Trustees Report” (accessed (PDF, 2.55 MB). April 25, 2019), https://go.usa.gov/xQhh4. May 2019 Key Design Components and Considerations for Establishing a Single-Payer Health Care System 29 tends to be lower for low-income beneficiaries employees contributing the remainder.99 The federal because they receive additional assistance and because government subsidizes a portion of those premiums, pri- high-income beneficiaries pay additional premiums.97 marily through the tax exclusion of employment-based insurance. Under the ACA, more than half of enroll- Health care for people enrolled in Medicaid is mostly ees in nongroup health insurance purchase their plans financed jointly by the federal and state governments. through the health insurance marketplaces and receive The federal share, which amounts to more than 60 per- federal subsidies in the form of premium tax credits.100 cent of the total costs, is financed by general revenues. In addition, insurers are required to offer cost-sharing States have some flexibility to determine the sources of reductions to eligible low-income enrollees in the funding for their share of Medicaid spending; the pri- marketplaces. mary source is state general fund appropriations.98 Countries with single-payer systems generally collect In contrast, private insurance is mostly funded funds through the tax system.101 Canada and England through premiums, cost sharing, and tax subsidies. For finance their single-payer systems mostly through general employment-based insurance, employers contribute a revenues. Other means of financing include dedicated greater share of the total premium costs, on average, with flat-rate income taxes (as in Denmark) or payroll-based premiums (as in Taiwan). 99. See Kaiser Family Foundation, Employer Health Benefits: 97. Low-income beneficiaries with Medicaid coverage do not pay 2018 Annual Survey (October 2018), http://tinyurl.com/y8bjvazq Part B premiums, and low-income beneficiaries receive additional (PDF, 18.1 MB). premium assistance for Part D coverage through the Low- Income Subsidy program. High-income beneficiaries pay higher 100. See Congressional Budget Office, Federal Subsidies for Health premiums for Parts B and D. Insurance Coverage for People Under Age 65: 2018 to 2028 (May 2018), www.cbo.gov/publication/53826. 98. See Laura Snyder and Robin Rudowitz, Medicaid Financing: How Does It Work and What Are the Implications? (Kaiser Family 101. See Commonwealth Fund, International Profiles of Health Foundation issue brief, May 20, 2015), https://tinyurl.com/ Care Systems (May 2017), https://tinyurl.com/ybx6hj3v ybuntfed. (PDF, 3.35 MB). About This Document This Congressional Budget Office report was prepared at the request of the Chairman of the House Budget Committee. In accordance with CBO’s mandate to provide objective, impartial analysis, the report makes no recommendations. Jared Maeda and Xiaotong Niu prepared the report with contributions from Kristen Bernie (for- merly of CBO) and guidance from Lyle Nelson. Anna Anderson-Cook, Jessica Banthin, Elizabeth Bass, Tom Bradley, Alice Burns, Sebastien Gay, Heidi Golding, Tamara Hayford, Sarah Masi, Lisa Ramirez-Branum, John Skeen, Robert Stewart, Julie Topoleski, and David Weaver provided useful comments. Charles Blahous of the Mercatus Center, John Holahan of the Urban Institute, William Hsiao of Harvard University, and Jodi Liu of the RAND Corporation also provided helpful comments. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.) Mark Hadley, Jeffrey Kling, and Robert Sunshine reviewed the report. Rebecca Lanning edited it, and Jimmy Chin fact-checked it. Casey Labrack and Jorge Salazar prepared it for publication. An electronic version of the report is available on CBO’s website (www.cbo.gov/publication/55150). CBO continually seeks feedback to make its work as useful as possible. Please send any comments to communications@cbo.gov. Keith Hall Director May 2019