Get the facts about the projected cost of California Medicare for All from our featured expert, James G. Kahn, MD/MPH, Professor Emeritus of Health Policy, Epidemiology, and Global Health at the University of California, San Francisco (UCSF).
TRANSCRIPT
Edward Barrera (EB): Welcome to HEAL California, your place for news and views on the California Medicare For All movement and the people making it happen. I’m your host, Edward Barrera. Today we’re talking about the $400 billion elephant in the room.
(Multiple voices): No premiums, no deductibles, no copays, but don’t get too excited, it would cost a pretty penny. $400 billion… Michelle, well that’s a huge question. It would cost $400 billion and… $400 billion? No…
EB: $400 billion is how much critics say it’ll cost to have Medicare For All in California. Is that really true? $400 billion sounds like a lot of money. So we decided to ask an expert. Today we’re joined by Dr. James Kahn, professor emeritus of Health Policy, epidemiology, and global health at UC San Francisco. He’ll explain it all. Stick around.
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EB: All right, so today our guest is Dr. Kahn, an expert in health economics. Dr. Kahn, thanks for joining us.
Dr. James Kahn: My pleasure.
Why we need Medicare for All
EB: Dr. Kahn, before we get into costs, let’s talk about why so many people think we need Medicare for All. Bottom line, we spend more and get worse results than everybody else.
Dr. Kahn: That is correct. We have by far the highest spending among the wealthy Democracies in the OECD, Organization for Economic Cooperation and Development, and we have the worst health statistics, including the shortest lifespan. Moreover, in the last year or two we’ve actually seen a drop in lifespan. That is something that has not been seen for many decades in any of the other wealthy Democracies in the OECD.
A California solution
EB: So, we’re spending too much and dying younger. Now to try to deal with this, in 2016, the California Senate passed a single payer bill. In that plan, a public agency would pay all the medical bills and the doctors and hospitals would remain private, for the most part. Everybody would’ve been covered, and better than they are now.
EB: Two studies were done. One by Dr. Robert Pollin from UMass Amherst, and another by the California Senate. The number $400 billion kept coming up.
EB: Dr. Kahn, help us out. Were these studies actually consistent with each other?
Competing studies
Dr. Kahn: Well, the studies were consistent with each other in the sense that they both estimated that we spend about $400 billion per year on healthcare in the state of California, that is well known from our regular tracking of healthcare spending. So the $400 billion number doesn’t mean much in and of itself in terms of the effects of single payer. That’s simply our starting point.
Dr. Kahn: So, the two studies are very different beyond that $400 billion number. The Pollin study was done using well-accepted methods for doing these kinds of economic analyses. They looked at how many people in California are under insured and how many are uninsured and how providing comprehensive coverage to everyone would increase utilization of services and therefore the costs of services and then balance that against the kinds of savings that can be expected with single payer. Most importantly, we spend about 18 cents on the health care dollar for administration of the billing process and about two thirds of that or more could be saved by switching to single payer. So that’s a huge savings. That’s more than 10% of the $400 billion.
Dr. Kahn: We also could save on the cost of drugs, which as everyone knows, are quite high and much higher than any other country in the OECD. Using some of the techniques that they’ve used you can save a lot there as well. There are a couple of other small savings, but when you add all of this together, the increase in costs because people recovered better and the savings due to having a more efficient system and one where we’re paying for prices for drugs, you end up with a net savings. In fact, the Pollin study did find that.
How single payer saves money
EB: So with single payer we could save over 10% just by simplifying the billing process, and we could get even more savings by controlling the cost of medicines like other countries do.
Dr. Kahn: The Pollin study also found that if we are effective at reducing medical waste and fraud, which has long been a goal of the policy community, we can obtain even further savings. That’s hard to do, and especially in the current system where the data available to us to root it out, to root out the fraud and waste, is very mixed and complicated, but under single payer the kind of data we would have on how health services are delivered would be far better and might give us a real chance to achieve that kind of efficiency without in any hurting medical care. In fact, we would probably improve medical care by getting rid of that fraud and waste.
Dr. Kahn: Now, in contrast, the study done for the Senate Appropriations was just literally a couple of pages of explanation with some somewhat mysterious assumptions about how they were doing their work. They didn’t show their calculations. Honestly, it just wasn’t a serious economic study. And somehow or other they came up with an estimate that the spending might go up a little bit, but they didn’t credit the administrative savings. They acknowledged that they would happen, but they simply didn’t put them into the equation. So from my standpoint as a health economist I wasn’t at all pleased with their methods or the way they reported it. And I don’t take the report seriously as a result,
EB: In other words, the Senate Appropriations study is incomplete compared to the Pollin study because it basically leaves the savings out of the equation. No wonder there was confusion about it. Now, let’s get beyond percentages and talk about actual cost in dollars.
Dr. Kahn: Let me give you a few of the numbers from the Pollin study. Using the best available data that study estimated that the current spending on healthcare in the state of California, actually in the year 2017, so the most up to date data at the time this report was released, was about $368 billion each year. With the added coverage provided by single payer, and therefore more people have access to care and utilization goes up, all else equal you would expect to see an increase to about $404 billion. So that’s obviously more spending, but then when you factor in the savings due to the administrative simplification, which decreases the amount by a 10% or so, and then further increases … and then the additional savings due to lower drug prices you get down to about $351 billion. So that’s less than currently spent under the current system.
Dr. Kahn: If you, in addition, can achieve some savings around fraud and waste you can bring that down further into the range of $332-$335 billion. So even though there’s a bit of uncertainty in what we can achieve, clearly we will be spending less under single payer according to the Pollin study.
Upcoming review of single payer studies
EB: All right, let me get this straight. The Pollin study shows that single payer would save us $38 billion a year. Do other studies support this?
Dr. Kahn: We’re in the process of reviewing all of the relevant economic studies of different single payer plans in the United States and in the individual states and almost all of them show savings similar to what the Pollin group found. Although, not necessarily the savings around fraud and waste.
EB: How many studies are you reviewing?
Dr. Kahn: We did this study because of the confusion, as your earlier questions indicated, that people have about reconciling different studies, some of them done well, some of them not so well, some based on this single payer plan, some based on another single payer plan using different analytic techniques. And we really wanted to figure out what all of these studies taken together tell us about the anticipated costs of single payer.
Dr. Kahn: What we did is searched for studies, economic studies of the cost of single payer by looking online in medical databases, looking at existing lists of studies and we gathered the studies. We’re currently up to 20 studies, still analyzing a few more, and we characterized each study by what the features of a single payer plan were and how the analysis was done. For example, we noted whether or not they included the savings from simplified administration or from getting lower drug prices.
Dr. Kahn: What we found, as I said earlier, is that almost all of the studies, all but three, found that single payer would save money right out of the blocks, right in the first year. That’s because the savings from administrative costs and lower drug prices and other savings exceed the increase in utilization. The few studies that didn’t show that, one of them had a very luxurious benefit package, which is not like any other single payer plan is proposing, and a couple of studies didn’t include any kinds of significant savings.
EB: And when will it be published?
Dr. Kahn: We are currently getting reviews of the work, finalizing it later this year or in early 2019.
How single payer would improve care
EB: You said we can save money and cover more people. You also said single payer could improve medical care. Can you elaborate on that?
Dr. Kahn: Sure. Well, in at least three ways. First of all, everyone will have really good coverage. The current problem we have is that people who are uninsured or who have, for example, a very high deductible and therefore are under insured may not have the ability to go see a doctor when they need to. In the jargon of the field, there are access problems due to financial barriers. So, that will go away. No more access problem due to financial barriers.
Dr. Kahn: Second, because people will have free choice of doctors, they won’t be locked in to a particular network of doctors who have contracted with an insurance company. People will choose their doctors based on their satisfaction with the care they’re getting, including their perceptions of the quality of care.
Dr. Kahn: So we believe that that people will tend to gravitate to providers who provide high quality care, and those providers who maybe aren’t providing the best quality care will begin to move in the direction of providing better quality in order to keep their patients. It’s a technique that empowers individuals to vote with their feet and to therefore convince providers to provide the best possible services.
Dr. Kahn: Third, and this is also really important. Right now doctors spend a lot of their day dealing with the complexity of medical billing. They’re not happy about that. They didn’t go to medical school and pick this profession in order to be dealing with insurance companies and spend many hours a day, including many after the work day, on the computer dealing with information for billing purposes.
Dr. Kahn: Under single payer, all of that will be greatly simplified. That’s why we have the administrative savings, but, aside from the monetary savings, it will free up providers to focus on patient care, which is why they’re in the field in the first place. So the system, by being simpler, will empower doctors to do the best job they can and that will improve quality.
Dr. Kahn: Actually, a fourth item. I did allude to this earlier. Right now the data that we have available on care patterns comes from many different data sources. It might be some data from AETNA if you can get your hands on it, some from Medicare, some from Medicare Advantage, some form Medicaid and these datasets are often coded differently. They’re hard to combine. You end up looking at only a small subset of all individuals or you deal with a sort of uncertainty in the data.
Dr. Kahn: But under single payer, all of the encountered data, all of the clinical encounter data which will have the patient’s ID, their complaint, their diagnosis, their tests, their team, and all of that will be in one place in one format. And from a geeky health services researcher perspective, a hat which I often wear, that’s just a godsend to have all of this really clean, comprehensive data, to be able to look at care patterns, and to begin to tease out where there might be fraud or waste or just bad practices.
Dr. Kahn: So there are many different reasons to expect that quality of care will improve. This may explain why in all of the European countries, where everyone is covered and the data systems are standardized and much simpler than ours, that they live longer. There are many reasons, perhaps lifestyle is among that, but certainly the ability to provide higher quality care and to better monitor what’s going on in healthcare contributes to that.
EB: So, to reiterate, single payer would not cost California $400 billion a year. A plan like the one passed by the California Senate would actually save $38 billion a year.
EB: And with single payer, our healthcare would be better.
EB: Everybody would be covered. We’d be free to choose the best doctors. Our doctors could focus on us rather than on paperwork. Plus, it would easier to track which treatments work best.
EB: Dr. Kahn, thank you for clearing up the $400 billion myth.
EB: We look forward to next time, for a deeper dive on how single payer would save us money.
Dr. Kahn: Well, thank you very much for talking with me today. I hope that the information I could provide is useful for the podcast listeners and I look forward to chapter two.
EB: Well, that’s it for today’s HEAL California podcast. If you like what you’ve heard, please share, follow, and like us on Twitter and Facebook, subscribe to our email updates at HEAL-ca.org. This is a project of the California One Care Education Fund, and I’m Edward Barrera.
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