Single Payer IQ Test – Question 6: How would the single payer control costs?

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Answer: Costs would increase. The single payer would try to limit spending with wage and price controls and possibly a global budget.

When something is perceived as being “free” or nearly so, demand increases, as all human experience verifies and as illustrated in the classic supply-demand curve below. But of course, someone is paying. When demand increases, prices naturally tend to increase, attracting more suppliers to meet the demand. But the single payer can’t increase spending without limit.

The government has only one tool: the hammer of wage and price controls. This has been deployed repeatedly, for 40 centuries, [1] always with the same results: shortages, black markets, corruption, crime, and human suffering. Increasing repression is needed as the economic situation worsens. Roman emperor Diocletian imposed the death penalty for violating the controls (“price gouging”) or withholding goods from the market (“hoarding”). (He was forced out in 4 years.)

Attempts to control the supply of wheat in Egypt led to famine and to the end of the reign of the Pharaohs in 3,000 B.C. Hammurabi’s price controls weakened the Babylonian economy so much that the empire eventually collapsed. At the time of the Continental Army, price controls nearly ended the American Revolution. Supply and demand cannot equilibrate if prices are not allowed to fluctuate.

Medicare increased demand so much that the imposition of price controls began in the early 1980s with a freeze on physicians’ fees. Challenged by some AAPS physicians in Whitney v. Heckler, the freeze was upheld on the grounds that Medicare is voluntary. [2] Fees dictated by the Resource-Based Relative Value Scale (RB-RVS) followed in the early 1990s. [3] Spending, however, continued to soar, as the volume of services rendered was increased to maintain revenue. “Payment for value” methods are meant to eliminate this compensatory mechanism, and pay for quality instead of quantity.

In Venezuela today, the price of bread is set so low that popular staples have disappeared, and stores are filled with high-cost products that nobody wants. Similarly, in Medicare, services such as an unhurried consultation with a physician are disappearing, while end-of-life counseling is well paid.

Single-payer advocates such as Physicians for a National Health Program (PNHP) propose a “global budget.” An institution gets a fixed amount of money, no matter what. In Montreal, patients wait and operating rooms are idle when the budget runs out.

Both patients and physicians try to circumvent the system when desired services are unobtainable or payment inadequate. In managed-care systems, this means going out of network. But California is taking the lead in trying to block this option and impose price controls even on doctors who are not contracted with a managed-care plan. In the guise of protecting patients against “surprise billing,” California’s AB72 allows private companies to dictate the fees of independent physicians, based on Medicare rates. AAPS is challenging this unprecedented attack on private medicine in AAPS v. Brown, heard in federal court in Sacramento on Oct 19.

Short of conscripting physicians—an idea that inexorably comes up in the context of enforcing a “right to health care,” single-payer systems including American Medicare have the problem of enforcing price controls if physicians can find a way to practice outside the system. Imposing Medicare price controls in ObamaCare marketplaces is already proposed in NEJM (see here and here).

The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product. [This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.]
Take-home Lessons:

  • Like the law of gravity, the laws of economics, such as the law of supply and demand, cannot be repealed. Violations lead to severe consequences.
  • The only single-payer method of cost containment—wage and price controls or the equivalent—is a violation of the liberty and property rights of both patients and physicians.
  • This coercive mechanism has a long historical record of disastrous consequences.

References:

  1. Scheuttinger RL, Butler EF. Forty Centuries of Wage and Price Controls: How Not to Fight Inflation. Ludwig von Mises Institute; 2014 (orig. pub. 1978).
  2. Orient JM. Is Medicare voluntary? J Am Phys Surg 2010;15:47-50. Available at: http://www.jpands.org/vol15no2/orient.pdf.
  3. Orient JM. The Resource-Based Relative Value Scale: a threat to private medicine. J Am Phys Surg 2012;17:23-25. Available at: http://www.jpands.org/vol17no1/orient.pdf.

Printable PDF of Question #6: https://goo.gl/LJWpXL

Single Payer IQ Test Question Archive: https://aapsonline.org/category/hcriq/

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