Single-Payer and All-Payer Health Insurance Systems Using Medicare's Payment Rates
This paper updates and expands upon CBO's earlier estimates of two approaches by which both universal health insurance coverage and greater control over health care costs might be achieved.
Although the United States is a leader in medical research and has the ability to deliver health care of the highest quality, there is widespread dissatisfaction with its health care system. Critics find fault with two aspects of the system—that a substantial number of people lack health insurance coverage, and that health care costs are high compared with countries where coverage is universal.
This paper examines two approaches by which both universal health insurance coverage and greater control over health care costs might be achieved. It updates and expands earlier estimates by CBO of the effects of single-payer and all-payer systems presented in a study called Universal Health Insurance Coverage Using Medicare's Payment Rates. The estimates here make use of new information on health care spending and on Medicare's payment rates relative to those of other payers. Revised results are shown for the single-payer and all-payer options discussed in the earlier study, and new results are presented for two alternative versions.
A single-payer (SP) system is one in which all covered health care services are insured and paid for by a single insurer. An all-payer (AP) system is one in which services are covered and paid for by multiple insurers, but where all payers adopt the same payment methods and rates.
The paper presents estimates for four illustrative payment systems:
- SP1 is like the single-payer plan examined in CBO's earlier study, with hospital and physician reimbursement based on Medicare's current payment methods, but with hospital rates increased 11 percent to cover current average costs per case fully. Insurance coverage would be universal, and the plan's benefits would be actuarially equivalent to the average benefits now paid under Medicare and private insurance. Copayments would be required of patients, similar to the copayment requirements now typical in the United States, but balancebilling (collecting the difference between the provider's charge and the insurer's payment rate from patients) would be prohibited.
- SP2 is a Canadian-style single-payer system. Coverage would be universal, and no copayments would be required of patients. Although physicians would be paid based on Medicare's rates, hospitals would be funded through global budgets and would maintain only very limited management information systems.
- API is like the all-payer plan examined in CBO's previous study. As with SP1, all hospitals and physicians would be reimbursed based on Medicare's payment methods, and copayments but not balance-billing would be required of patients. Coverage would be universal-Medicare would cover people currently uninsured, and there would be no change in insurer for others.
- AP2 is like API except that coverage would not be universal. Those currently without insurance would remain without coverage.
The Illustrative estimates presented in this paper are not cost estimates. The cost estimates that CBO prepares for specific legislative proposals require much more detail about the characteristics of the proposals, and they show the impact on the federal budget. The estimates here indicate what national health expenditures would have been had any of the alternative payment systems been fully effective throughout 1991. They show only the immediate effects of each option-savings on insurers' and providers' overhead expenses, savings from lower average payment rates, and the costs of extending coverage to the uninsured (for all but AP2). Additional savings might accrue if the new systems provided for effective cost containment through, for example, expenditure caps or price and utilization controls. If such features were included, spending might be significantly lower than for the options shown.
The methods and assumptions underlying the estimates presented in this paper differ from those used in the previous CBO study in significant ways. First, these results are for 1991, while the previous results were for 1989. Second, this paper makes use of new information on the differences between Medicare's payment rates and those of other payers that shows that Medicare's rates are lower than assumed in the previous study. Third, the estimated increase in health spending for the newly insured is larger here, based on more recent survey data. Fourth, this paper includes estimates of the effects on spending for insured services in addition to the hospital and physician services considered in the previous study. Fifth, more stringent assumptions are used to develop estimates of savings on overhead costs. Finally, this paper includes estimates of uncompensated costs (or bad debt) for insured groups, costs ignored in the previous study.