Single-Payer Healthcare Might Save Us Money, But At What Cost?

Have you ever seen someone claim universal healthcare would actually save Americans money? There may be some truth to it. According to a review of 22 studies, most of them concluded a single-payer healthcare system in America would be a fiscal net positive.1

Well, great! Sounds like a no-brainer then. U.S. spending on healthcare is almost twice the average of other developed countries, so let’s just switch over and save a bundle!2 Not so fast. The median savings from those studies is only 3.5%. That’s a heck of a long way from the nearly 50% decrease that would be needed just to get us to average.

So, what’s going on here? If the absence of single-payer is, at most, the cause of a small portion of our elevated health spending, what else is causing it?

Three things.

1. U.S. healthcare workers get paid more than in other countries.

… And in most cases it’s not even close. Doctors in the States make around 100k more per year compared to places like Germany, France, the UK, and Canada. They make almost four times more than doctors in Poland!3 It’s less extreme for nurses, but among OECD countries the U.S. is third and is almost 70% higher than the average.4 If we wanted to make a noticeable dent in healthcare expenditures, cutting healthcare workers’ pay would need to be a part of it. Most people think doctors and nurses are underpaid or paid about the right amount. 5 Which suggests lowering the price of healthcare is not always a good thing. In other words, there are costs that come with reducing healthcare costs.

2. Americans are really unhealthy.

The United States lags considerably behind many other developed countries in life expectancy. It’s 30th among OECD nations and 49th in the world.6 Some people quickly jump to blaming it all on the healthcare system, but it’s not the fault of the system if the people using it are simply unhealthy to begin with or get in more accidents. U.S. healthcare has to deal with myriad issues that are not nearly as bad in most other developed countries, such as, car accidents, obesity and diabetes, HIV and AIDS, lung disease, alcohol and drug abuse, low birth weights, and teen pregnancy and sexually transmitted diseases.7 Violent crime is also relatively high in the States, and the U.S. has a higher homicide rate than any European country. Almost certainly, medical costs are going to be driven higher and life expectancy lower if a population is unhealthier and experiences more injuries.

3. Americans subsidize the world’s medical innovations.

The United States is well known for being a powerhouse in healthcare innovation, but many people may not realize the extent to which that’s true. One way of measuring the level of major contributions to medical advancement is to simply look at Nobel prize recipients. Twenty two of the last thirty Nobel prizes in medicine and physiology went either in part or solely to Americans.8 Americans also dominate health sciences research, with an output larger than the next ten countries combined. U.S. researchers author around half the papers in The New England Journal of Medicine, The National Academy of Sciences, and Clinical Infectious Diseases.9

How about the amount of actual new inventions? Americans, again, perform impressively. The World Index of Healthcare Innovation ranks the United States first in science and technology by a wide margin, in part, due to the creation of the most new medical devices and drugs (in total and on a per capita basis).10 Close to half of the world’s new pharmaceuticals are developed in the United States.11 12

However, that innovation doesn’t come cheap. Drug prices in the U.S., for example, are significantly higher than in other OECD countries. Which results in American consumers providing ~70% of the world’s pharmaceutical revenue.13 So, the United States doesn’t just produce half of all medicines, they also fund the creation and production of almost 3/4 of them. Why don’t drug companies get their revenue evenly across countries? Well, because they can’t. Many governments around the world impose strict price controls. This enables those countries to free-ride on the American consumer. If drug prices in Europe were allowed to get somewhat closer to the market price and rise by just 20%, the benefits to Americans would be significant. This study estimated 10 trillion dollars over 50 years.14 This is because there is a very strong correlation between pharmaceutical sales revenue and investment in research and development.15 And that research eventually benefits everyone.

The studies that predict the largest fiscal gains from implementing single-payer assume drug prices will come down considerably.16 As a result of that, research and development will decline considerably as well. Here again, we’ve identified a cost that comes with lower healthcare prices.

Lower prices aren’t everything.

Yes, unfortunately, Americans pay more for healthcare than other countries, but that in itself isn’t necessarily a condemnation of the healthcare system. After all, the U.S. system has to deal with more medical issues than other developed countries, and it pays healthcare workers handsomely. On top of that, a portion of that spending goes toward new medicines for the whole world. While European governments restrict innovation with price controls and free-ride off of American consumers, the United States paves the way in medical discoveries. The U.S. system has its problems, that’s for sure, but it’s far from all bad. At the very least, when it comes to the question of single-payer healthcare, there are significant tradeoffs that need to be acknowledged.