Single-Payer vs. HSA Exchange


In March 2006, PNHP Senior Health Policy Fellow Dr. Don McCanne debated Dr. James Knight, past President of the San Diego County Medicial Society and CEO of Consumer Directed Health Care, Inc., on KPBS in California. Following the program, Dr. McCanne and Dr. Knight engaged in the following email exchange.

Dr. McCanne

It was a pleasure to debate you on KPBS on the issues of CDHC and HSAs. We’ll certainly never agree on healthcare reform, but we really should agree on the objective data in the health policy literature. Bending or breaking the data does not advance the dialogue on reform.

As with other CDHC supporters, you cited the RAND HIE as demonstrating that the decreased utilization due to patient cost sharing did not change healthcare status. But you are likely aware that economists rightfully have questioned the external validity of this study. Innumerable other studies have demonstrated a significant impairment in access and outcomes resulting from cost sharing. Even a closer look at the RAND HIE data confirmed that cost sharing did have a negative impact on sub-sectors such as hypertensives. The internal validity of the RAND HIE study would apply only to very healthy populations followed for a short enough period of time such that chronic disease would continue to have a very low prevalence in that population.

If you wish to read more, my message on the new RAND study is at the following link:

Dr. Knight

I enjoyed debating with you too. First, it is important for both of us to remember that each of us is genuinely interested in improving the situation; we just disagree on the best approach. Also, there are large numbers of studies that may contradict each other.

If HSA were simply high-deductible insurance, as was the basis of RAND HIE, perhaps what you opine would have more validity. As you know, unlike the HIE, with HSAs, the high-deductible coverage is paired with a tax-free health savings account. As you know, the Rand HIE was a randomized (e.g. socio-economic status, health status, etc.) prospective study ( Here is some relevant language verbatim from the Rand HIE, and further comments from me below:

Health Status Outcome Results

- Page 34, Paragraph 3: “For the person with mean characteristics, we can rule out clinically significant benefits from the additional services in the fee-for-service free plan relative to either the cost sharing plans or the HMO experimental group. For poor adults (the lowest 20 percent of the income distribution) who began the experiment with high blood pressure (specifically, who were in the upper 20 percent of the diastolic blood pressure distribution), there was a clinically significant reduction in blood pressure in the free fee-for-service plan compared with the plans with cost sharing. Epidemiological data imply that the magnitude of this reduction would lower mortality about 10 percent each year among this group.”

- Page 35, Paragraph 1: “The specific gains in health just described were all for relatively prevalent chronic problems (of course we had difficulty detecting effects for rare problems) that are relatively inexpensive to diagnose and remedy. One can infer that programs targeted at these problems would be much more cost effective in achieving these gains in health than free care for all services. For example, more than half the benefit of free care for high blood pressure (and presumably for risk of dying) was available from a onetime screening examination, whose cost is a small fraction of free care for all services” (Keeler et al., 1985).

I would describe these very limited imputed health benefits for very small subsets as entry phenomena. If one is a poor person with little prior access to healthcare entering into a study with pre-existing, undiagnosed, and untreated
illnesses and suddenly has access to free care, then, of course, many diagnoses will be made and many treatments begun, with improved long-term health. However, I think the authors’ conclusion is also reasonable: “One can infer that programs targeted at these problems would be much more cost effective in achieving these gains in health than free care for all services.”

HSAs are quite different from the parameters in the Rand HIE. With HSAs, the savings on insurance premiums arising from the conversion of first-dollar coverage to high-deductible coverage now become tax-free money to be used for first-dollar expenditures.

And, as you know, the law allows preventive care coverage underneath the deductible. First-dollar preventive and diagnostic care is now completely free, up to the amount the employer contributes no matter how wealthy or sick you are!

Dr. McCanne

Thanks, Jim. I really do appreciate your response. There are now many studies that, in total, show that people of modest means and with significant health problems will deplete their accounts and experience impaired outcomes due to lack of affordable access. One major flaw is in the HDHP. As you know, a plan that truly covers 100 percent of healthcare costs after the deductible no longer exists, even though they’re promoted that way. The financial exposure for this population will be staggering.

I agree that HSA enrollment will increase amongst those who benefit from the tax advantages and who believe that they will likely remain healthy until they’re 65, though aware that there potentially is some risk. But the funds diverted into these pensions (unspent HSAs) will no longer be available to pay for the expenses of those who do have greater healthcare needs: the 20 percent of people who use 80 percent of healthcare. Theoretically, the HDHPs could cover that 80 percent of costs but only if medical underwriting were prohibited and the plans really did cover 100 percent after the deductible. But if that were the case, HDHPs would suddenly become prohibitively expensive. And the insurance industry will continue to avoid that market.

Your model works well for those who don’t mind taking some risk for a potential retirement benefit and who just want to take care of their own needs and ignore the needs of others. But for those of us who do believe in the social contract, your model is terrible because it underfunds care for those with modest income but with greater healthcare needs. That is the crisis in healthcare today, and your model totally sidesteps it.

Dr. Knight

Contrary to what you apparently believe, by federal law (Section 223, c, 2, ii), with an HSA-qualifying HDHP plan, “The sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed” the federally proscribed annual maximum out of-pocket limits (MOP, COLA adjusted annually). The actual insurance policy MOP limit can be lower than the federal limits but not higher. If the insurers break the law, I can assure you I will help any consumer(s) prevail in federal court as a class action.

Dr. McCanne

The operative term is “covered benefits.” For example, with Blue Shield of California’s HSA-compatible Shield Spectrum PPO Savings Plan 4000/8000, services that are not covered benefits, such as maternity care, do not apply to the out-ofpocket maximum. Also, the disallowed charges for services provided by nonpreferred providers do not apply to the maximum. “When members use nonpreferred providers, they must pay the applicable co-payment or co-insurance plus any charges that exceed Blue Shield’s allowable amount. Charges above the
allowable amount do not count toward the plan deductible or the calendar year out-of-pocket maximum.” Although it is easier to adhere to Blue Shield’s list of preferred providers, there are instances where that may not be possible, and many other plans are much more restrictive in their provider lists. The HSA accounts do not enable free choice of providers unless patients are willing to accept severe financial penalties for using out-of-network providers. Also, the maximum out-of-pocket limit is almost always higher than the plan deductible.

Now explain to me once again how the federal law is “contrary to what I believe.”

Dr. Knight

What I very strongly disagree with is in the notion that any solution for the many must be built around the needs of the few. If we can reduce the rate of acceleration, or hopefully even begin to decelerate the growth in cost of health coverage through HSAs, this will free up a lot of money that can be used to create a stably funded safety net for the incapacitated and destitute. We will never agree on this, but at least we ought to agree to disagree.

Covered benefits are a contractual necessity, or else anything including bubble-gum therapy can be approved. Even in a single-payer world, there will be the equivalent of covered benefits. Moreover, network-based restrictions also are necessary, even in a single-payer world, or people can go anywhere and get stuff
done for whatever price, for instance another state or country, and would the government-run healthcare system then be responsible to pay for it without restriction? These are the same realities under any system. Rest assured however, with CDHC once people are spending their own money, they’ll be far more careful about where they receive their care and how much is costs. CDHC is a self-regulating free market, which I suspect is a repellent idea to you, but exceedingly attractive to me.

Dr. McCanne

You don’t seem to be very well informed on the single-payer model. It does include all beneficial services, though not bubble-gum therapy. It does not have closed networks except for integrated health systems like Kaiser. Patients have complete free choice of providers. Prices are not an issue since they are established through negotiation with the single-payer entity. Single payer is portable, providing coverage in other states.

The single-payer model has been subjected to independent micro-simulation by noted authorities such as Kenneth Thorpe and John Shiels. They have demonstrated that absolutely everyone would have truly comprehensive coverage and healthcare spending would decrease. Thorpe’s analysis for NCHC showed that healthcare spending would decrease by $1.1 trillion over the next decade under single-payer reform.

Dr. Knight

I’m curious how one negotiates with a single payer? Does one just say no and go out of business (seeing as there are no other payers), or accept what the government offers??? I suppose it really doesn’t matter since you and I won’t be around to practice medicine in the future you envision.

Under the current circumstances, in 2030 there will be a $48-trillion deficit for the U.S. government as compared to a $35-trillion gross domestic product. And, under current conditions, it will cost every American age 20-64 (working or not) about $32,000 a year just to pay for Social Security, Medicare, and Medicaid for retirees in 2030.

Only half of California’s physicians take Medicaid (less for specialists). Despite having dodged a bullet this year for a 4.4 percent decrease in Medicare, physicians have been forced to eat Medicare rates that don’t keep up with medical inflation, a net loss of about 25 percent over eight years. Many primary care physicians tell me they cannot survive on current Medicare reimbursement.

In 24 years, will workers who are already strapped with $32,000 per year on average in taxes, just to take care the boomer generation, embrace additional taxes to pay for the healthcare services that future generations of physicians must render, or will the government just respond, as it currently does, by decreasing reimbursement in an environment where saying no is no longer possible? What will be the consequences in terms of quality and access to care? As the Canadian Supreme Court said, having a place in the queue for needed services is not the same thing as having access to care.

A single-payer system in California alone would require $100+ billion in new taxes. We borrowed to pay down $38 billion in unpaid state bills and currently have a $4.7 trillion accumulated federal deficit.

Like the Soviet Union where bread was nearly free, one had to stand in line all night but only a few at the front of the line actually got any bread. What you propose is lowest common denominator health care funded by a government which is by all measurable standards is currently insolvent, with even worse future prospects.

Dr. McCanne

How does one negotiate with single payer? The entire healthcare budget is adjusted annually for inflation, demographic changes, and beneficial innovations in technology and healthcare delivery. Hospitals negotiate global budgets with separate budgets for capital improvements (capacity). Physicians collectively negotiate for
costs plus fair profit. Funding is not unilaterally dictated by the government.

How can we pay the future costs of Social Security, Medicare, and Medicaid? Social Security requires only tweaking. Funding of healthcare requires comprehensive reform. A single-funding system (single payer) would dramatically reduce administrative waste, improve the efficiency of the delivery system by reducing detrimental (but not beneficial) high-tech excesses, and improve quality while reducing costs by reinforcing the primary-care infrastructure. The single-payer budgeting mechanisms described above would slow the rate of healthcare inflation to a sustainable level. Medicare and Medicaid would be eliminated.

The SGR method of setting physician rates for Medicare is flawed. The budget reconciliation act requires the administration to provide Congress with options for reform. Under a single-payer system, physicians participate in the negotiations for fair rates.

Regarding the retirement of the baby boomers, all other industrialized nations, which do have universal healthcare systems, successfully address the problems created by the demographics of the aging population. It is a problem that is not well addressed by private markets but is much more effectively managed by public (government) action.

Regarding new taxes to pay for a single-payer system, the important number is not how much is paid privately and how much is paid through the tax system, but rather how much is our total healthcare spending, public and private combined? In a micro-simulation of a single-payer model that we prepared for the California Health Care Options Project, the Lewin Group demonstrated that we would provide comprehensive services for everyone while reducing total healthcare spending by $7 billion per year. New healthcare taxes are more than offset by reductions in private healthcare spending.

The single-payer proposal is hardly analogous to the Soviet Union breadlines, but it is as American as our other systems of social insurance: Social Security and Medicare. Like you, I also was chairman of the board of a very successful community bank. In the years that the regulators were shutting down banks on a wholesale basis, we were the only bank in the nation to receive a special award from Findley for being a Premier Performing Bank for ten consecutive years. Our secret? While other banks were using their customers to improve their bottom lines, we directed our efforts to meeting the banking needs of our customers and of the community at large. The bottom line followed. I make this point because it applies to healthcare in America. We don’t need a system that uses patients to maximize the return for insurers, HSA managers, and other superfluous intermediaries. We need to make every effort to meet the healthcare needs of our patients and of the nation at large. The bottom line of a healthier nation will follow.