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How All-Payer Healthcare Might Bring Down the Price of Insulin

We examine the difference between single-payer healthcare and an all-payer system, which actually has been tried in some states.

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In a recent Glu Question of the Day poll, some commenters suggested collective bargaining power is needed to bring down the high price of insulin. Many associate this collective bargaining power with single-payer healthcare (sometimes called Medicaid for All), but it’s actually the main characteristic of another healthcare system idea – the all-payer rate setting.

Let’s look at the difference between these two healthcare reform ideas.

Single-payer is the more well-known idea – it guarantees basic healthcare to all citizens who pay a tax in place of healthcare premiums¹. In a single-payer healthcare system, the government foots the bill for all healthcare. Advocates say that single payer can reduce costs by maximizing efficiency and reducing the overhead necessary in insurance companies under the current multi-payer system. Single payer achieves these goals by consolidating all health insurance plans into one².

The all-payer rate setting differs in that it would retain individual insurance carriers, but require them to go to the negotiating table together along with the VA, Medicaid, and Medicare. They would all negotiate as one.

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In the current system, a pharmaceutical company negotiates separately the price of insulin with United Healthcare, Blue Cross, and Medicare; this can lead to a different price for insulin from all three insurance providers. Every time a patient walks through the door, a billing clerk needs to look up what that patient should be charged based on their carrier and plan. In an all-payer system, however, the pharmaceutical company negotiates with United, Blue Cross, and Medicare as a collective group, thus increasing the bargaining power of the insurers. They all agree to one fixed price for every patient that walks through the door. This could have the potential to lower overhead and maximize efficiency.

All-payer systems leave some power in the hands of the consumer because they are still choosing between various insurers. This motivates competition among insurers to innovate services within private insurers, but the mandated joint negotiations can minimize costs. While an all-payer system may promote innovation within insurance carriers, critics fret that there will be less money to innovate because the all-payer group may refuse to pay for newer and often-more expensive treatments².

Five countries currently use all-payer rate setting – France, Germany, Japan, Switzerland, and The Netherlands. Japan currently has over 3500 health insurance providers, and only saw a 0.8 percentage-point increase in healthcare spending from 2000 to 2012. During that same period, the US saw a 2.7 percentage-point increase².

All-payer has seen some success in the US in the past. In the 1980s, ten states implemented all-payer systems for hospitals; the systems reduced the cost of each hospital visit from anywhere between 12 percent to 26 percent. About a decade later, however, the all-payer system faced a stress test with the rise of Health Maintenance Organizations (HMOs), which promised to negotiate even lower rates. During this time, healthcare costs were growing at a much lower rate, so state regulators didn’t see the harm in deregulation and allowed HMOs to leave the systems². In most states, the all-payer system fell apart once HMOs left the plan.

Maryland did not abandon all-payer and still maintains an all-state system today. The state has not seen an overall decrease in costs under the system – while the price of hospital admission has been lower with all-payer, the number of hospital admissions increased during that time and this offset the savings². To mitigate this increase in hospital admissions, Maryland recently set a global budget for each hospital under its all-payer rate setting system. While this budget was experimental and voluntary, every hospital in the state signed up for the global budget scheme in the first six months. In the first year, Maryland reports that the global budget plan saved Medicare over $100 million³ and decreased hospital readmission rates to below the national average⁴.

Healthcare is complicated, and the current US model has added a layer of inefficiencies that has increase costs. While single payer is currently a political lightning rod, all-payer may offer a solution that could insert the efficiencies of single payer into the current healthcare system.

References

  1. What is Single Payer? Physicians for a National Health Program. http://www.pnhp.org/facts/what-is-single-payer. Published 2016.
  2. Kliff S. All-payer rate setting: America’s back-door to single-payer? Vox. https://www.vox.com/2015/2/9/8001173/all-payer-rate-setting. Published 2015.
  3. Cornish A, Hsu A. In Maryland, A Change In How Hospitals Are Paid Boosts Public Health. National Public Radio. https://www.npr.org/sections/health-shots/2015/10/23/451212483/in-maryland-a-change-in-how-hospitals-are-paid-boosts-public-health. Published 2015.
  4. Patel A, Rajkumar R, Colmers JM, Kinzer D, Conway PH, Sharfstein JM. Maryland’s Global Hospital Budgets–Preliminary Results from an All-Payer Model. N Engl J Med. 2015;373(20):1899-1901. doi:10.1056/NEJMp1508037

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