Why Single-Payer Health Care Saves Money
Lingering uncertainty about the fate of the Affordable Care Act has spurred the California legislature to consider adoption of a statewide single-payer health care system.

By analogy, suppose that your state’s government took over road maintenance from the county governments within it, in the process reducing total maintenance costs by 30 percent. Your state taxes would obviously have to go up under this arrangement.

But if roads would be as well maintained as before, would that be a reason to oppose the move? Clearly not, since the resulting cost savings would reduce your county taxes by more than your state taxes went up. Likewise, it makes no sense to oppose single-payer on the grounds that it would require additional tax revenue. In each case, the resulting gains in efficiency would leave you with greater effective purchasing power than before.

Total costs are lower under single-payer systems for several reasons. One is that administrative costs average only about 2 percent of total expenses under a single-payer program like Medicare, less than one-sixth the corresponding percentage for many private insurers. Single-payer systems also spend virtually nothing on competitive advertising, which can account for more than 15 percent of total expenses for private insurers.

The most important source of cost savings under single-payer is that large government entities are able to negotiate much more favorable terms with service providers. In 2012, for example, the average cost of coronary bypass surgery was more than $73,000 in the United States but less than $23,000 in France.

Despite this evidence, respected commentators continue to cite costs as a reason to doubt that single-payer can succeed in the United States. A recent Washington Post editorial, for example, ominously predicted that budget realities would dampen enthusiasm for single-payer, noting that the per capita expenditures under existing single-payer programs in the United States were much higher than those in other countries.