Dangerous territory for an experiment.

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Colorado's Single-Payer Health Care Would Die a Fiery Death

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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There are a lot of people in the U.S. who dream of single-payer health care. And what a dream it is! Government as the only entity paying for care, able to drive down costs while ensuring universal coverage. There are not a lot such dreamers who think that the transition to such a system is imminent here.

Republicans don’t even like Obamacare, a comparatively moderate  program. There seems little hope that they will vote for single payer anytime soon … and even if Democrats somehow manage to get control of White House, the House of Representatives and 60 votes in the Senate, swing-state senators with a nervous eye on their next election are unlikely to support such an ambitious shift to the left.

What do to, then, if you’re an advocate for single payer? Well, take your campaign to the state level. Our national politics seems deadlocked. But at the state and local levels, the partisan divide is much sharper: We have red states like Kansas that can attempt a massive rollback of the size of government, and presumably, blue states that can do something like single payer. And since states are supposed to be the laboratories of democracy, a successful demonstration at the state level may make a convincing case for bringing your model to a wider audience.

Except. That small-government experiment in Kansas doesn’t seem to be going all that well, politically. And single payer at the state level has so far also crashed and burned. Vermont’s program attracted a lot of excitement right up to the point where people saw what it would cost, which is to say, substantially more than the entire annual tax haul in the state of Vermont. Farewell, Vermont single payer, farewell.

However, the death of Vermont’s single-payer proposal does not mean that the dream of a state-level system also died. Colorado now has a proposed plan, Amendment 69, which would create a similar system, funded both by taxes and by transferring money out of various federal programs and into the coffers of ColoradoCare.

Supporters of the new plan are pretty excited about some polls that have seemed to show support. I’m pretty skeptical, for the same reason I was pretty skeptical about the Vermont program: the cost. Building this new entitlement would cost more than 140 percent of the total current state budget. Since there are no plans that I’m aware of for the Colorado state government to stop doing all its other functions, that means that everyone in Colorado would have to take whatever check they are currently sending to their state government, tear it up, multiply the total by 2.4, and write a new check. It’s a bold political project. I’m not sure, however, that it is a winning one.

And that’s just the initial check; a nonpartisan analysis suggests a high risk that the system would quickly run into the red, even with a massive boost in taxes. At which point the government of Colorado could raise taxes even further, cut benefits, slash payments to providers, or experiment with some mix of two or three of the above.

Raising taxes, on top of the whacking great increase you just passed, is apt to be difficult. So is cutting benefits, since everyone in the state is now dependent on them. And while cutting payments to providers always sounds easy when some earnest young policy wonk is standing in front of a PowerPoint slide; when you get into the state capitol and try to actually make those cuts, it turns out to be extraordinarily difficult.

There are basically two groups of providers whose incomes you can cut. You can attack local provider groups -- hospitals, doctors, health-care unions -- who are politically very well-connected and make sympathetic victims for outraged ads running nonstop during election time. Or you can attack out-of-state vendors, like the people who sell you medical equipment and pharmaceuticals. You will easily divine that state legislators would much rather cut payments to nasty, heartless out-of-state corporations than to the swell health-care workers who live, work and vote in their state.

The problem is that those heartless corporations have the option of refusing to sell you the stuff they make. Colorado cannot fix national prices; it cannot break patents. All it can do is use the negotiating leverage of its sizable patient base, forcing companies to decide whether they’d rather sell to those patients at a lower cost or give up the Colorado market entirely. Colorado has a population of around 5 million people, tiny compared to a major pharmaceutical benefit manager like Express Scripts or a health insurer like Aetna. If Aetna and Express Scripts haven’t been able to negotiate lower prices, Colorado can’t either. Even bigger problems will occur when Colorado tries to negotiate with local providers in other states (which it will have to, unless it plans to build a wall and prevent its citizens from ever traveling beyond its borders). Pfizer might be moved, somewhat, by the prospect of losing access to the Colorado patient base. A random hospital in New York City probably doesn’t care at all.

State-level policy innovation is real, and valuable. Successful activist groups more than occasionally manage to export their policies even beyond the borders of the state: Trial lawyers successfully created plaintiff-friendly jurisdictions that effectively set class-action policy for the whole country, and California managed to become a sort of secondary automobile regulator for the entire country. But some policies just don’t work very well at the state level. Single-payer health care is one of them.

Not that I’m saying single payer would work well at the federal level, because I don’t think it would. But it would probably work better at the federal level than it ever could locally. State governments are more hostage to special interest groups like health-care unions and doctors (who are prominent among the affluent citizens that state legislators must regularly tap for campaign donations). States do not have the regulatory muscle or population to credibly threaten large corporations at the bargaining table. State budgets generally have to balance every year, meaning that during recessions, a single-payer system will put massive, painful pressure on other programs. And states cannot keep either their citizens, or their health-care workers, from going out of state to places where reimbursements are a lot higher -- or their taxpayers from fleeing to some place with lower income taxes.

Politically, it may be easier to get a single-payer system on the ballot in a blue state than it is to get it onto the floor of the U.S. Congress. But practically, it’s even harder to implement one that doesn’t bankrupt the government and enrage the citizenry. Such an experiment would certainly have effects on health-care policy for the rest of the nation -- presumably a swing away from single payer.

  1. Badly designed, expensive and inefficient, yet nonetheless, comparatively moderate.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Megan McArdle at mmcardle3@bloomberg.net

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