Tuesday, February 2, 2016

qotd: Himmelstein and Woolhandler set the facts straight on Thorpe’s analysis

Huffpost Politics
January 29, 2016
On Kenneth Thorpe's Analysis of Senator Sanders' Single-Payer Reform Plan
By David Himmelstein and Steffie Woolhandler

Professor Kenneth Thorpe recently issued an analysis
of Senator Bernie Sanders' single-payer national health insurance
proposal. Thorpe, an Emory University professor who served in the
Clinton administration, claims the single-payer plan would break the bank.

Thorpe's analysis rests on several incorrect, and occasionally
outlandish, assumptions. Moreover, it is at odds with analyses of the
costs of single-payer programs that he produced in the past, which
projected large savings from such reform (see this study
<http://www.mffh.org/mm/files/ShowMe3a.pdf>, for example, or this one

We outline below the incorrect assumptions behind Thorpe's current analysis:

*1. He incorrectly assumes administrative savings of only 4.7 percent of
expenditures, based on projections of administrative savings under
Vermont's proposed reform.*

However, the Vermont reform did not contemplate a fully single-payer
system. It would have allowed large employers to continue offering
private coverage, and the continuation of the FEHBP and Medicare
programs. Hence, hospitals, physicians' offices, and nursing homes would
still have had to contend with multiple payers, forcing them to maintain
the complex cost-tracking and billing apparatus that drives up
providers' administrative costs. Vermont's plan proposed continuing to
pay hospitals and other institutional providers on a per-patient basis,
rather than through global budgets, perpetuating the expensive hospital
billing apparatus that siphons funds from care.

The correct way to estimate administrative savings is to use actual data
from real world experience with single-payer systems such as that in
Canada or Scotland, rather than using projections of costs in Vermont's
non-single-payer plan. In our study
<http://www.nejm.org/doi/full/10.1056/NEJMsa022033> published in the New
England Journal of Medicine we found that the administrative costs of
insurers and providers accounted for 16.7 percent of total health care
expenditures in Canada, versus. 31.0 percent in the U.S. - a difference
of 14.3 percent. In subsequent studies, we have found
<http://content.healthaffairs.org/content/33/9/1586.abstract> that U.S.
hospital administrative costs have continued to rise, while Canada's
have not. Moreover, hospital administrative costs in Scotland's
single-payer system were virtually identical those in Canada.

In sum, Thorpe's assumptions understate the administrative savings of
single-payer by 9.6 percent of total health spending. Hence he
overestimates the program's cost by 9.6 percent of health spending --
$327 billion in 2016, and $3.742 trillion between 2016 and 2024.
Notably, Thorpe's earlier analyses projected much larger administrative
savings from single-payer reform -- closely in line with our estimates.

*2. Thorpe assumes huge increases in the utilization of care, increases
far beyond those that were seen when national health insurance was
implemented in Canada, and much larger than is possible given the supply
of doctors and hospital beds.*

When Canada implemented universal coverage
<http://www.nejm.org/doi/pdf/10.1056/NEJM197311292892206> and abolished
copayments and deductibles there was no change in the total number of
doctor visits; doctors worked the same number of hours after the reform
as before, and saw the same number of patients. However, they saw their
healthy and wealthier patients slightly less often, and sicker and
poorer patients somewhat more frequently. Moreover, the limited supply
of hospital beds precluded the kind of big surge in hospitalizations
that Thorpe predicts. In health policy parlance, "capacity constraints"
precluded a big increase in system-wide utilization.

Thorpe bases his estimates on what has happened when a small percentage
of people in a community have had copayments eliminated or added. But in
those cases there are no capacity constraints, so it tells us little
about what would happen under a system-wide reform like single-payer.

Thorpe does not give actual figures for how many additional doctor
visits and hospital stays he predicts. However, his estimates that
persons with private insurance would increase their utilization of care
by 10 percent and that those with Medicare-only coverage would increase
utilization by 10 to 25 percent suggest that he projects about 100
million additional doctor visits and several million more
hospitalizations each year - something that's impossible given
real-world capacity constraints. There just aren't enough doctors and
hospital beds to deliver that much care.

Instead of a huge surge in utilization, more realistic projections would
assume that doctors and hospitals would reduce the amount of unnecessary
care they're now delivering in order to deliver needed care to those who
are currently not getting what they need. That's what happened in Canada.

*3. Thorpe assumes that the program would be a huge bonanza for state
governments, projecting that the federal government would relieve them
of 10 percent of their current spending for Medicaid and CHIP --
equivalent to about $20 billion annually.*

No one has suggested that a single-payer reform would or should do this.

*4. Thorpe's analysis also ignores the large savings that would accrue
to state and local governments -- and hence taxpayers -- because they
would be relieved of the costs of private coverage for public employees.*

State and local government spent $177 billion last year on employee
health benefits
<http://ajph.aphapublications.org/doi/abs/10.2105/AJPH.2015.302997> -
about $120 billion more than state and local government would pay under
the 6.2 percent payroll tax that Senator Sanders has proposed. The
federal government could simply allow state and local governments to
keep this windfall, but it seems far more likely that it would reduce
other funding streams to compensate.

*5. Thorpe's analysis also apparently ignores the huge tax subsidies
that currently support private insurance, which are listed as "Tax
Expenditures" in the federal government's official budget documents.*

These subsidies totaled $326.2 billion last year
<http://ajph.aphapublications.org/doi/abs/10.2105/AJPH.2015.302997>, and
are expected to increase to $538.9 billion in 2024. Shifting these
current tax expenditures from subsidizing private coverage to funding
for a single-payer program would greatly lessen the amount of new
revenues that would be required. Thorpe's analysis makes no mention of
these current subsidies.

*6. Thorpe assumes zero cost savings under single-payer on prescription
drugs and devices.*

Nations with single-payer systems have in every case used their clout as
a huge purchaser to lower drug prices by about 50 percent. In fact, the
U.S. Defense Department and VA system have also been able to realize
such savings.

In summary, professor Thorpe grossly underestimates the administrative
savings under single-payer; posits increases in the number of doctor
visits and hospitalizations that exceed the capacity of doctors and
hospitals to provide this added care; assumes that the federal
government would provide state and local governments with huge windfalls
rather than requiring full maintenance of effort; makes no mention of
the vast current tax subsidies for private coverage whose elimination
would provide hundreds of billions annually to fund a single-payer
program; and ignores savings on drugs and medical equipment that every
other single-payer program has reaped.

In the past, Thorpe estimated that single-payer reform would lower
health spending while covering all of the uninsured and upgrading
coverage for the tens of millions who are currently underinsured. The
facts on which those conclusions were based have not changed.

/Drs. David Himmelstein and Steffie Woolhandler are professors of health
policy and management at the City University of New York School of
Public Health and lecturers in medicine at Harvard Medical School. The
opinions expressed here do not necessarily reflect the views of those



Comment by Don McCanne

In the political battle over Bernie Sanders' proposal for a single payer
national health program, it is unfortunate that the perspective of just
how much single payer would benefit Americans is being lost in all of
the clamor.

This is not an issue with two opposing sets of facts. There is only one
truth and that is that a well designed single payer system would bring
comprehensive health care to everyone, while removing financial barriers
to care and making our national health expenditures sustainable well
into the future.

It is not at all clear why so many progressives have decided to attack
Sanders' single payer proposal. Most of them do understand the clear
advantages in improving access while controlling costs, but they seem
fixated on opposing it based on the alleged lack of political
feasibility. It is fine to condemn the politics, but that should give us
even more reason to advance a clearly superior model of health care
financing reform.

The latest attack that is being circulated widely is that by Kenneth
Thorpe, a highly respected Emory University professor. David Himmelstein
and Steffie Woolhandler lay the record straight. It is crucial that we
not be caught up in the numbers being bandied about - the trees - when
we need to see the forest - the fundamental principles of the single
payer model.

/Physicians for a National Health Program (PNHP) is a nonpartisan
educational organization. It neither supports nor opposes any candidates
for public office./

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