Here’s Proof that a Single Payer Health System Could Break the Bank

Here’s Proof that a Single Payer Health System Could Break the Bank

Both critics and advocates of Obamacare have assumed that a fallback position exists for a collapse in the government-run markets. A failure of the Affordable Care Act would prompt demands to transition from controlled markets to outright socialized medicine. However, Colorado’s experiment has become yet another cautionary tale about the dangers of single-payer systems.

Over the past few years, Obamacare has edged further and further toward the dreaded “death spiral.” Premiums have skyrocketed for policies on the individual markets, and next year’s prices will have even higher increases. Insurance companies have jacked up deductibles to the point where coverage amounts to high-cost catastrophic insurance, which discourages healthier consumers from buying insurance.

Related: Get Ready for Huge Obamacare Premium Hikes in 2017

The ACA’s mandates force insurers to accept every applicant at the same rates no matter what pre-existing conditions they have. That has skewed utilization rates so badly that insurers cannot properly set premiums, which brings us right back to skyrocketing premiums, and starts the cycle all over again.

Over the past year, a new wrinkle has emerged. Federally subsidized co-ops included in the ACA after the defeat of the government-payer “public option” began failing rapidly when Congress limited their potential subsidy to taxes collected through the ACA. Most of them have now closed after having lost access to nearly unlimited amounts of red ink in the HHS budget. Joining them are a growing number of private insurers, unhappy about the losses they continue to absorb in Obamacare exchanges.

In short, the individual markets keep marching closer and closer to collapse. Whether or not the imposition of a single-payer system on all Americans in a crisis was the secret plan all along for ACA advocates, the existential crisis for this market is nearly upon us. This is the time to spring socialized medicine in the US, right?

Related: Obamacare Insurers Are Looking for a Taxpayer Bailout

Wrong, concludes the Colorado Health Institute. Colorado voters will decide whether to approve ColoradoCare, a single-payer system in November, and its advocates made some of the same arguments as Obamacare advocates did six years ago. A single-payer system would make health care more efficient, less costly, and generate budget surpluses from its inception. A government-run system would guarantee the end of uninsured Coloradans – a goal that Obamacare was supposed to accomplish.

CHI’s study found exactly the opposite on almost every point. Colorado spends $37 billion in its status quo, the CHI study notes, and ColoradoCare would only reduce those costs to $36.3 billion in its first year – a savings of less than two percent. Revenues would drop by a billion dollars, “resulting in a first-year deficit of $253 million,” a deficit that “would grow every year.” Revenues projected for ColoradoCare “wouldn’t be able to keep up with increasing health care costs, resulting in red ink each year of its first decade.”

Keep in mind that this is not just Colorado’s problem, either. The economic model of ColoradoCare relies on continuing federal payments to keep from sinking to the bottom of a red-ink ocean, which means that it will cost every American to operate ColoradoCare. Colorado would apply for waivers to Medicaid and Obamacare, and have Washington pay them directly for those programs. Even with that, though, CHI estimated that the state would get $4 billion less from waivers than ColoradoCare advocates estimated.

Related: Obamacare: Costs Go Up, Insurers Drop Out and Consumers Get Screwed

All in all, the single-payer system will create a massive budget deficit at the end of a decade. “The resulting deficit in 2028, after all other revenues and savings are taken into account, would be $7.8 billion,” the study concludes. The new system would not constrain health-care costs, and the disparity “would cause ColoradoCare’s bottom line to worsen every year.”

In a monopolistic government-run system, what options would Colorado residents have to fix these problems? CHI offers three ways to keep ColoradoCare from collapsing. The government-run system “could ask its members to approve tax increases,” (emphasis mine), which would erode buying power across the board and have a negative effect on the economy. Failing that, the government could choose to provide fewer benefits or stiff providers with lower payments.

These are precisely the options left when the government takes over a private-sector function. It operates from a scarcity model, choosing to ration and tax where a healthy market would provide opportunities for price signaling, competition, and increased production. None of the potential solutions to the fiscal crisis that would result from ColoradoCare add to the choices or options consumers would have in the market; it either restricts their buying power, their choices, or their providers. After all, how many doctors will choose to work and live in Colorado in a system where the government restricts what they can make from their work, and keeps reducing their pay?

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Those who see private markets as zero-sum games may never be convinced of the folly of single-payer systems. The rest of us, however, must demand an end to this failing Obamacare system and an end to the fantasy of socialized medicine at the state or federal level. The only way to control health-care costs is to establish lightly regulated markets with price signaling to consumers, encouragement for providers to enter the market and a rational reconstruction of the concept of insurance to its proper place as an indemnification against unforeseen circumstances rather than as a maintenance program.

Until we do, we will continue to generate vast oceans of red ink and destroy an American health industry known for its innovation and expertise.