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Government run health care: A cost-saver or 'unfair competition'?

Anjalee Khemlani
Senior Reporter

Single payer, or no single payer?

As candidates and policymakers debate health care’s future amid soaring insurance costs, a new study from the University of California San Francisco examined 22 single-payer plan proposals in the past 30 years. It found that a public-run system would save money over time.

Single-payer opponents argue it would increase both costs and inefficiency: Indeed, the UCSF study’s suggested the details would ultimately determine the savings. Yet the data found that single-payer “would save money over time, likely even during the first year of operation.”

James G. Kahn, a UCSF professor and a study’s researcher, said that “even though they start with different single designs and modeling assumptions, the vast majority of these studies all come to the same conclusion.

Kahn added: “This suggests that fears that a single-payer system would increase costs are likely misplaced.”

Advocates, including several 2020 Democratic presidential candidates, support the idea of expanding on the Affordable Care Act, Medicare Advantage and Medicaid — sidelining or altogether removing the vast network of private companies who have a massive stake in health care delivery, and who are taking the blame for surging costs.

Meanwhile, opponents say this approach would be bad for the industry, and for taxpayers.

“You are letting government compete in the same place as the market they regulate, that just does not seem to be fair competition,” Seema Verma, Administrator of the Centers for Medicare and Medicaid, which is part of the U.S. Department of Health and Human Services, told Yahoo Finance at JPMorgan’s health conference last week.

The UCSF study dovetailed with a Congressional Budget Office report published in May, that said the viability of a single-payer system would be contingent on its scope and structure.

“Although a single-payer system could substantially reduce the number of people who lack insurance, the change in the number of people who are uninsured would depend on the system’s design,” the CBO’s analysts wrote.

“Total national health care spending under a single-payer system might be higher or lower than under the current system depending on the key features of the new system, such as the services covered, the provider payment rates, and patient cost-sharing requirements,” it added.

Where the private sector plays a role

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Ahead of the Iowa caucus, leading Democrats have floated proposals to overhaul the country’s health system. While not all of them fully back Medicare for All, most candidates have embraced a government-centric solution to the problem.

Yet a large focus remains on the ultimate cost to taxpayers. Already, the U.S. is on course to spend $4 trillion on health care this year, which accounts for almost 20% of the GDP.

Costly health care translates to profits for those providing products and services. It has spurred large technology companies like Google (GOOG), Apple (APPL), Amazon (AMZN) and Microsoft (MSFT) to offer up solutions to try and compete in the nearly $4 trillion sector.

Changes to the health care system have mostly coalesced around expanding of Medicare — which the CBO points out is an example of a single-payer system, even though private insurers play a “significant role” in delivering benefits outside the structure.

The discussion has taken on increasing prominence as health care costs continue their inexorable rise, and lawmakers grapple with how to bend the cost curve. Medicare spending alone accounted for $582 billion in the FY 2018 federal budget, or about 14%.

Some have suggested that Medicare Advantage (MA), which is where the government pays private insurers to manage plans and members, is like having a public option. This has become a growth sector for some of the largest health plans including CVS-Aetna (CVS) UnitedHealthcare (UNH), Anthem (ANTM), Humana (HUM), Centene (CNC) and Cigna (CI).

Yet even that approach comes with drawbacks, a few people say.

“The government has also paid insurers bonuses to stay in the program,” said Wendell Potter, an ex-Cigna executive who heads Business for Medicare for All, a business group advocating for universal Medicare.

Potter told Yahoo Finance that MA is not a public option, and has allowed insurers to profit from taxpayer money.

“Yes, about a third of Medicare beneficiaries are enrolled in MA plans, but that is because the insurers spend huge sums of money on sales and marketing/advertising to entice people to sign up,” he said

“What they don't tell you is how restrictive the plans can be, and usually are,” Potter added.

Anjalee Khemlani is a reporter at Yahoo Finance. Follow her on Twitter: @AnjKhem

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