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The rationale for an all-payer system for doctors and hospitals

Written by Diane Archer

Unlike other developed countries, which negotiate or set uniform rates with doctors and hospitals regardless of who is paying the bill, an “all-payer system,” the United States takes a hands-off policy with regard to provider rates for private insurers and the uninsured. The result—except in the two states with an all-payer system for hospital services–is wildly varying rates that can be exorbitant, as Gerard Anderson and Ge Bai recently showed in their analysis of hospital prices. Health economist Uwe Reinhardt argues that if the U.S. had an all-payer payment system, we could more effectively control costs and help ensure that charges to patients were fair.

Looking at steep hospital price increases in California and Oregon during the Great Recession, 2005-2009, Reinhardt shows that even in a weakened economy insurers were not able to control costs. He does not buy the argument that these increases were necessary to offset payments from Medicare and Medicaid. There is every reason to believe that hospitals and doctors negotiate for the largest rates they can get from insurers, regardless of their government payment rates.

Put differently, private insurers are not forced to pay hospitals and doctors rates that are high to compensate for lower Medicare and Medicaid rates. That’s a myth. Hospitals and doctors are charging private insurers high rates because they can, because the health care market is broken.

Moreover, if insurers lack the leverage to rein in costs for whatever reason, they should not be responsible for controlling costs. And, if provider rates are in any sense rational, how do you explain the huge differences in rates for the same services even within small geographic areas?

According to Reinhardt, an all-payer system eliminates price discrimination in the health care marketplace. It prevents people from being charged wildly different amounts for the same service depending upon their insurer or their lack of insurance. It also simplifies the system for everyone and reduces administrative costs considerably.

Our current system of giving insurers responsibility for negotiating provider rates adds no value to the system. They generally can’t control them effectively. Moreover, it incents providers to keep pushing prices higher.

At a minimum, we should give everyone the option of enrolling in Medicare, as Robert Reich explains in this video.  It’s far more effective at controlling costs than private insurers.



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