Health Reform WK-EDGE CBO analyzes costs for five hypothetical single-payer health systems
Wednesday, January 13, 2021

CBO analyzes costs for five hypothetical single-payer health systems

By Jeffrey H. Brochin, J.D.

The CBO’s analysis centers on scenarios based on Medicare’s fee-for-service program and the impact each one would have on the cost of federal subsidies for health care.

A Congressional Budget Office (CBO) working paper projects that federal subsidies for health care in 2030 would increase by amounts ranging from $1.5 trillion to $3.0 trillion under the illustrative single-payer options—compared with federal subsidies in 2030 projected under current law—raising the share of spending on health care financed by the federal government. The analysis also projected that health insurance coverage would be nearly universal and out-of-pocket spending on health care would be lower, resulting in increased demand for health care under the design specifications that the CBO analyzed. The supply of health care would increase because of fewer restrictions on patients’ use of health care and on billing, less money and time spent by providers on administrative activities, and providers’ responses to increased demand (CBO Report, December 10, 2020).

CBO methods for analysis. The CBO has developed methods to analyze a single-payer health care system in the U.S. The working paper on the subject describes those methods and illustrates their use by estimating the effects of various illustrative single-payer systems on the federal budget, total U.S. health care spending, and other outcomes. The analytic framework that the CBO developed builds on a report that the agency published last year about some of the design considerations for a single-payer system (see Decisions on key design components impact projected cost of single-payer health care system, May 2, 2019).

The paper shows how CBO’s methods can be applied by analyzing five hypothetical single-payer systems, all based on Medicare’s fee-for-service (FFS) program, with differing design features. The design specifications used for the analysis are not recommendations; rather, it should be noted that many alternative designs for a single-payer system are possible, and the effects of such a system would depend crucially on its specifications. In addition, policies other than a single-payer system could provide health insurance to a similar number of people.

Replacing private health insurance plans. Under each of the five illustrative options in this analysis, the single-payer system would replace comprehensive private health insurance plans and Medicare. It would also replace all of the coverage provided by Medicaid—except that under most of the options, Medicaid would continue to provide long-term services and supports (LTSS), which help people with functional or cognitive limitations perform routine daily activities for an extended period.

Common features among the five options. All five of the options that the CBO analyzed share some major features that are consistent with proposals for single-payer systems introduced in the 116th Congress (2019-2020):

  • Coverage and eligibility. Each option would cover a broad range of medical services, including services provided by hospitals, physicians, and other health care providers; prescription drugs; dental, vision, and hearing care; and school-based health services. In addition, each option would cover nearly all residents of the United States (including residents who were not lawfully present in the country).
  • Payment method. Each option would use a fee-for-service approach—similar in many ways to the Medicare FFS program—in which health care providers would be paid for each service (or bundle of services) they performed. Under that approach, the federal government would set payment rates for health care administratively (including prices for prescription drugs) and would pay providers directly. Providers would not be owned or operated by the single-payer system. Providers would be allowed to furnish covered services outside the single-payer system, and be paid only by patients, if those providers opted not to receive any payment from the system during a given year. Private insurance for such services would not be allowed.
  • Administration. In each option, the single-payer system would be administered using the processes of the Medicare FFS program—including using tools to manage enrollees’ use of health care and monitor providers only to the extent that the Medicare FFS program is projected to do so in CBO’s baseline budget projections. CBO assumed that such utilization management would be less intensive, on average, under the single-payer system than it is projected to be under private insurance in CBO’s baseline.

Nearly universal coverage. The design features in all of the single-payer options that the CBO considered would result in higher federal spending (and the need to finance that spending), nearly universal health insurance coverage, and lower total out-of-pocket spending on health care. The demand for health care would increase under all of the options that the CBO analyzed, and the supply of care would also increase, mainly because of three types of factors: fewer restrictions on patients’ use of health care and providers’ billing, less money and time spent by providers on administrative activities, and providers’ responses to increases in demand.

The total amount of health care used would rise, and overall access to care would expand. The CBO estimated that the increase in demand under its single-payer options would exceed the increase in supply, resulting in more unmet demand. That increase in unmet demand would correspond to greater congestion in the health care system, including delays and forgone care.

High degree of uncertainty. Perhaps by way of a disclaimer, the paper notes that "a high degree of uncertainty surrounds CBO’s estimates. That uncertainty stems from many factors, including estimates of how providers and patients would respond to the single-payer system, administrative costs under the system and under current law, how regulations and other administrative actions following enactment of the legislation creating the system would affect costs, health care spending and economic conditions in the future under current law, spending on certain components of health care today, and aftereffects of the current coronavirus pandemic."

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