Introduction by Andrew Walden
In 2009 HB 1504, CD 1 became Act 11 over Linda Lingle's veto creating the Hawaii Health Authority "to develop a comprehensive plan to provide universal health care in Hawaii". Akamai readers will remember that HHA board member and single-payer advocate Stephen Kemble MD detailed his disputes with the implementation of ACA in Hawaii in this prophetic June, 2013 article: Email Chain Reveals Hawaii Obamacare Leaders Debating “Inevitable Failure”. Focusing on Medicaid, Kemble co-authored: Open Letter: Hawaii MDs Challenge “Severely Dysfunctional” Medicaid Program.
Responding to the failure of the Hawaii Health Connector, Governor Abercrombie told the March 9, 2014 Star-Advertiser: "A single-payer system is one of several options in achieving universal health care coverage, which is the ultimate goal." In a March 23, 2014 commentary published in the Star-Advertiser, HMSA CEO Michael Gold opined, "I believe conditions are right for truly universal health care coverage in Hawaii." He also thanked ACA for adding 18,000 new Medicaid customers to his rolls.
ACA designed to fail? Of course. But now that the failure is upon us, should Hawaii follow the path even deeper into State-controlled medical care?
In response to HB 1504, CD 1, Hawaii Insurance Division administrator Lloyd Lim, in a letter to the then-director of DBEDT, Georgina Kawamura, details the pitfalls of organizing a 'Single Payer' healthcare insurance system in just one state. This letter is reproduced, with permission of the author, from Lloyd Lim's February, 2014 Book: Beyond Obamacare--Solving the Healthcare Cost Problem.
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To: The Honorable Georgina K. Kawamura, Director, Department of Budget and Finance
Re: Single Payer and the Hawaii Health Authority (HB 1504, CD 1)
From: Lloyd Lim
Dear Director Kawamura: May 8, 2009
Although I work for the State government, I write to you solely in my capacity as a private citizen and not in any official capacity. One of the purposes behind the recently created Hawaii Health Authority is to create a healthcare plan for all of Hawaii’s citizens. This is a noble goal, but I wanted to comment on one aspect of it.
One possible solution (albeit not the only solution) could be a single payer system for Hawaii only. I will be up front in saying that while I would not oppose a single payer system for the entire United States, I don’t think that doing one for Hawaii alone is a good idea. My main purpose in writing this letter is to flag issues on the single payer concept so that they can be looked into by your staff. Because I do health insurance regulation I have some familiarity with the single payer issue. I realize that your Department did not necessarily support HB 1504 and I am not seeking to put you on the spot.
Coverage is a big issue in health insurance, but the biggest issue is rising healthcare costs. If we do single payer for Hawaii we will not only need a big tax increase up front (about $3 billion), but we may need big tax increases almost every year thereafter. If we don’t do that, then healthcare will suffer over time. The problem is that given a political trade off between raising taxes versus helping doctors and sick people, it would not be surprising if politicians favored the concerns of taxpayers over the much smaller and (in the case of the sick) less cohesive group. If we look at single payer systems around the world, we see that this underfunding sometimes manifests itself in the form of long waiting periods. Does the Hawaii Legislature have the commitment to fully fund healthcare for the next 300 years? No way to know that. No way to promise it. But compromised funding is often what happens in politics. That is not a fault particularly of Hawaii legislators. It is a feature of trying to reconcile competing interests and concerns in any political environment with limited total dollars. Because you are the Director of Finance you know that government funding is a zero sum game. But not everyone understands that completely.
Some doctors have been wary of single payer systems because they believe they will end up with the short end of the stick in the form of lower compensation. Indeed, a survey of single payer systems or other governmental interventions in healthcare from around the world often shows that these fears are well founded. Now, this stomping down on doctor compensation may more or less work in places like Germany, for example. The problem with doing a single payer system for only one State is that there is much greater mobility State to State than there is country to country. If we end up stomping down on doctor compensation in Hawaii, there isn’t much of a barrier to stop many doctors from going to another State. Do doctors think about money? Of course they do, just like everybody else. It may not have been their principal motivation for becoming physicians, but when you are smart and you put a lot of time in on something and you work hard you naturally want to be paid fairly. Do Hawaii doctors compare themselves to doctors in other States in determining pay equity? Could be.
The other issue with respect to doing a single payer system only for Hawaii is whether it would attract sick people from the other parts of the US to come here. It does not take 100,000 sick people migrating here to dramatically raise costs. Even adding 1,000 very sick people to the system can significantly raise costs if they have the “right” kinds of illnesses. So it is something that we need to be thoughtful about. The problem with restricting access is that it may raise Constitutional issues.
One of the biggest political supports for a single payer system would be the idea that we would take the responsibility for health insurance off the backs of the private employers by repealing the Prepaid Health Care Act and put these costs on the government. Given that healthcare costs are rising, there is an argument for that. But if that means we have to increase something like the private income tax to do it, we are talking about a major cost shift that some people are not going to like. In addition, the employer based system benefits from the federal tax system because health insurance expenses are deductible. If we do Hawaii single payer, how do we compensate for the loss of that subsidy? The other thing that is good about an employer based system is that we can spread the costs by loading them into the price of goods and services sold to the public (at least up to a point), including nonresidents. Now in the end, the public pays under any system, but the incidence of the burden falls differently depending on whether you are using an employer based system or a government system and which tax base you are using etc. There will be winners and losers and the implications of that have to be considered carefully. Have we thought about whether we might start to lose vital parts of our workforce due to tax increases? Would we lose healthy people and cause the risk pool to degrade and overall system costs to go up? Something worth thinking about. Would there be any negative impact on productivity due to higher taxes? Also note possible restrictions on the form of funding due to issues raised in HIC v. Lingle (Hawaii Supreme Court 2008).
We need to consider whether the single payer system will cover all medically necessary procedures or whether it will cover only selected procedures as in the current system. Of course, the broader the coverage, the higher the cost. If we cover all medically necessary procedures, the costs will be much higher than they are now. But if we don’t cover all medically necessary procedures, it raises a question about whether we can make the single payer system exclusive or whether there will need to be a supplementary private insurance system. If you end up with a dual system, is it really simpler? Is it really going to result in a reduction in administrative costs? Even if we don’t allow for a supplementary private system of insurance, can people get extra care by paying moneys out of their own pockets? These are issues that have been raised in other systems like Canada and Britain, which can be somewhat more authoritarian that some people realize. But the difference that we need to be aware of it that in US we have a Constitution (and related case law) that protects due process, property, privacy, etc. Some thought to a legal opinion on the outcome of possible litigation from consumers, doctors, and/or insurers needs to be given. Otherwise we might end up starting the system one way and then having to change it later which could be very problematic, particularly if in the first iteration we have already wiped out the private insurance companies. That is one of the difficulties with single payer: if you reverse course later, how do you rebuild the private market system? Would there be possible litigation from people whose retirement plans have already vested medical benefits for retirement, including public unions or other private sector people with this issue? That probably also needs to be looked into.
Another issue that needs to be looked at is whether a single payer system is going to do cost control. For example, will it have deductibles, coinsurance and copayments to control utilization? Will there be prior authorizations? Will there be decisions to exclude coverage for treatments that are not cost effective or which are investigational? If so, then may not have a system covering all medically necessary procedures and it raises the issue about whether we end up with a dual system that I raised before. If we do not do cost control, and we expect costs to continue to rise at the levels they are projected to over time, how can the system be self sustaining?
Running a health insurance company is very complicated and requires a lot of talent. Does the State government have the ability to pay the kinds of salaries that we would need to get the best people? If we are going to outsource major functions of a single payer, does the State end up in a sole source position where a private entity can dictate the money it makes off the government? If so, can we control costs over time? Something worth thinking about.
In insurance we like to see a fairly big reserve because targeting revenues to match expenses exactly can be tricky. Where is the reserve for the single payer system going to come from? If you don’t have a reserve and expenses exceed revenues, then what is the solution? Premiums are not hugely different from taxes in the sense that it is all green money, but they are more flexible and precise. Since taxes depend on variable private sector revenues and we want to be able to handle catastrophic events like an epidemic, we need to think about a reserve.
There is also the question of how a single payer system will integrate with the Medicaid and Medicare programs. Right now private sector insurers help to implement those programs, at least in part. Will they still be allowed under a single payer system? Can we assume that Medicaid dollars from the federal level will flow into a single payer system? That needs to be worked out. If private insurers are only allowed to serve the Medicare and Medicaid populations, will that demand be big enough to create sufficient supply of, and competition between, private insurers to meet our service requirements and price expectations?
Will the single payer system suffer from mission creep over time and have increased costs that we need to project now? Consider social services that may be bundled with more traditional healthcare for some conditions or, for example, long term care. Those are separate now, but will they stay that way under public pressure?
We also need to factor in the law of unintended consequences. No matter how smart anyone is, there is always some weird issue that comes back to bite you that you didn’t anticipate.
In 2008, for private sector health insurers, administrative costs were 9.9% of total expenses or an aggregate of $232 million. Is this enough to defray the costs of adding 100,000 additional insureds to the system, after netting out the administrative costs of running a single payer system? Do we have a good handle on whether the anticipated reduction in administrative costs for the healthcare providers will materialize? If the average premium per person is about $3,000 and we use that as a rough proxy for costs, then adding 100,000 people to the system should cost around $300 million. At first blush, it doesn’t sound like a wash. And of course if we have a dual system as I have discussed before, then we might not expect as big an administrative cost savings.
While testifying before a Legislative committee some years ago I said that I didn’t see how merely changing the financing system did anything about reducing healthcare costs. One of the single payer advocates explained that I didn’t understand that covering preventive care will reduce costs. Actually, some studies show that preventive care either does not reduce costs or it increases costs. However, it depends on what one means by preventive care and that is presumably something that will develop over time as medical technology develops. Also, some preventive care is covered under the current system so the issue is the incremental benefit of care that is not already covered, assuming one can identify what that is (or will be). Of course it would be nice if we could go to the doctor, take a pill and never get sick or injured, but medical science is just not there yet. When people talk about preventive care and the related cost reductions, we should ask them exactly what they are talking about. I support preventive care because it should help people be healthier, but I don’t jump to the conclusion that we are going to get major cost reduction out of it over time. We may or may not and it is not like we cannot incorporate it into the current system if we want to.
Some of the single payer advocates have talked about cost reduction through a consolidated information system for everyone. No doubt we can learn a lot from this kind of information, but we should distinguish an insurer database from one that extends all the way through the healthcare provider system. They may not be the same thing. In addition, a lot depends on the kind of data that is being collected and what analysis is made of that data. Medical outcome analysis sometimes requires more than simple statistical comparison because causes of things may involve more than one variable. Doing this kind of analysis on a comprehensive basis may not be as cheap as people think. In addition, if we are going to cover all medically necessary procedures and not try to stamp down on cost-inefficient procedures, then why would we think data collection and analysis would reduce costs substantially? This is the kind of issue that sounds like something great at first blush, but when you drill down into it you see that it might not be all that it seems. So far, magic bullets have been scarce in dealing with healthcare costs. Also, it should be obvious that if we stamp down on cost-inefficient procedures, not everyone is going to be happy about it. Patients and doctors come to mind.
One other way to save money is to cut back on the scope of coverage. Of course this may result in under-insurance and may not be advisable from a medical standpoint. Eliminating coverages means that we are not spreading the costs of the care to the public generally in those areas and we shift those costs to the individuals who get sick or injured. Cost-shifting to individuals has to be done carefully, particularly in a government run system because one could start to make legal arguments regarding fairness of treatment between different cases. Also, if we cut off funding of one set of doctors versus another set, there may be some discontent.
I’ll say a word about doctor commentary on this issue, albeit that this is obviously not the result of a scientific study. One doctor who served on a panel on this issue said: “I don’t care who pays me”. Of course, the issue is not who pays, but how much. Another doctor wrote a pro-single payer editorial in the newspaper, but said not one word about money, cost or source of financing. When talking about a financing system, you usually have to talk about money. I asked another doctor I know what he thought about single payer. He said “what is that?” My point is that not everyone in the medical community may be totally up to speed on this issue and we need to recognize that as we plan the way forward. For single payer to work, we’re going to need the doctors (and the nurses and other providers) to be on board. We don’t want them waking up one day under the new system and saying “this is not what I thought it was going to be” or worse that “this is not what you told me.”
There may be other ways to handle the question of covering the uninsured. For example, we might try guaranteed issue plus mandatory purchase plus subsidies. See e.g. plans by Hillary Clinton and Mitt Romney. Or we could have a government program that handles people that can’t get their insurance elsewhere, although we would have to figure out a way for it not to turn into a dumping ground for higher risks. Should we consider something like the HJUP, if we could only get around the issue of volume? Of course, anything that involves subsidies means either tax increases or program cuts or both. Also, as they are finding out in Massachusetts, fixing the coverage issue may not hold up over time if you don’t get on top of the healthcare cost issue. Finally, if the federal government is plotting a solution for the uninsured, then perhaps Hawaii need not act at all. As of the date of this letter, it looks like the Obama Administration means to act on this coverage issue.
Of course the problem of the uninsured is a very serious one and neglecting them just because we generally rely on a market system for most things is a real failing of ours because medical care is more essential than many (but perhaps not all) types of goods and services. But if we are going to take on the responsibility of financing healthcare for everyone, we need to do it right so that some people don’t end up in a worse position than they currently are in. I don’t think it is a good trade off to harm 90% of people for the sake of helping 10%. Single payer makes sense in theory, but in practice it depends on how we design it and whether it gets funded properly over time.
The single payer advocates are a well intentioned group of people and as someone who has worked in government for a long time I appreciate their faith in government solutions, but when dealing with healthcare finance one has to be a pragmatist. There are probably others in the healthcare area besides me that have concerns with single payer, but they generally seem to be reluctant to speak up at least at this stage of the game. Of course because I do health insurance regulation I have something of a conflict of interest on this issue, but my main concern is for consumers of healthcare and taxpayers.
Now my focus here has been on single payer, which means one payer. It could be that due to cost or legal issues or policy choices we might consider a dual system in which the government provides some basic coverage to all and then individuals can buy up in the private sector to fill gaps if they choose to. This would raise some, but not all of the same issues that I raised on single payer. Also, I would be concerned about underinsurance, which is a problem that the Prepaid Health Care Act has generally protected us from, but which is a serious problem on the mainland. If we are reducing coverage for many people, they obviously aren’t going to like it. We also have to be careful about understanding exactly what we mean by a “basic coverage” plan. If you look at a health plan, it can be hard to know exactly what can be cut out. Some things can be cut fairly easily, but if you go too far you will hurt people and doctors. Perhaps a better way to get to a basic coverage plan is to not cut back too far on the scope of coverage, but rather to simply have a high deductible. We would also have to consider that if people who are buying up in the private sector are doing it on their own dollar, then we might want to think about some kind of guaranteed issue requirement. High deductibles are good devices, but taking a one sized fits all approach might not be the best thing. For someone like me, given that I am healthy and have some money set aside a high deductible is no problem. But for someone who is chronically ill and may be less well off financially, it might not work very well. Each case is different. I also would be concerned that the system would be complicated for consumers and doctors to deal with. However, I general this is probably something worth looking at in more detail. We should be careful to understand that this kind of a dual system would not be a single payer system, but a hybrid government payer plus private payer system.
I have copied a number of people on this letter because I think some of the articles we see in the press from time to time on the single payer issue are at too high a level of generality to be useful. This is potentially an important debate and it needs a lot of community thought and input. My hope is that when the Executive Branch finally reports back to the Legislature on the healthcare plan for Hawaii, the pros and cons are fully illuminated so they can make good policy decisions. I should note that I do not call for a veto of HB 1504 because to me it is better to get these issues vetted than to keep kicking the can down the road.
I hope these thoughts are useful to you. No response to this letter is necessary, but if you have any questions I can be reached at 586-2804. If you need to show this letter to a single payer advocate to get a response, I don’t mind; provided they understand that I am speaking as a private citizen and not on behalf of the government.
That brings me back to where I started.
Sincerely (and thanks for your time),
cc: President Colleen Hanabusa, Senator David Ige, Senator Rosalyn Baker, Senator Josh Green, M.D., Senator Donna Mercado Kim, Senator Brian Taniguchi, Senator Dwight Takamine, Senator Suzanne Chun Oakland, Speaker Calvin Say, Representative Ryan Yamane, Representative Robert Herkes, Representative Marcus Oshiro, Representative Marilyn Lee, Representative John Mizuno
 Not all single payer systems are designed the same, of course. In addition, not all foreign countries have a single payer system, although they often have some element of governmental intervention. There is a reasonably good chapter (14) on four such systems in Bodenheimer & Grumbach, Understanding Health Policy: A Clinical Approach (Lange Medical Books/McGraw-Hill 2002). There was also a good Frontline program on systems around the world, but the exact name eludes me.
 For an extended critique of single payer from a healthcare standpoint, see Goodman, Musgrave et. al. Lives at Risk: Single Payer National Health Insurance Around the World. It can be purchased on Amazon.com. Also, although waiting periods don’t sound bad, I heard of one woman who used to work in England’s system and her whole job was to take dead people off the waiting list. By that I mean that when they got put on the waiting list, they were still alive. That is certainly cost control, but I don’t know if it is healthcare.
Medicare is a government payor system. Underfunding is a chronic problem and it is getting worse over time and costs rise.
 They also get some benefits, as I remember, such as subsidized medical education.
 The Lewin Group report on single payer assumed that we would keep the Prepaid Health Care Act and the employer based finance system that it created. But if that is so, then it is hard to see where the political clout comes from to enact single payer. I think the assumption the Lewin Group made was that single payer enactment would be a heavy lift so that an incrementalist approach was better than more radical changes.
 The Prepaid Health Care Act is somewhat problematic because of the low proportion of premium costs that can be allocated to the employee and the incentive it creates to put people on part time work status. However, it also has many benefits. The Act gives Hawaii a smaller uninsured population. By creating a larger risk pool that contains both healthy and sick people it may lower premiums overall. By conforming plans to the prevalent plans more people get a richer benefit package which reduces underinsurance and generally make things simpler for consumers.
One might argue that without a healthcare burden, employers might be willing to raise wages. Perhaps. But would they raise wages enough to produce enough to cover the cost of the single payer system? If we expect that, we should make sure that we get it in writing.
 If we hit the personal income tax, we might be talking about a 190% increase.
 In other words with an employer based system, some percentage of the income generated to pay health insurance coverage for Hawaii’s citizens is paid by citizens of other States and foreign countries. Employers pay for health insurance benefits out of their revenues, the expense is tax deductible, and to that extent is shared by all tax payers nationally. In addition, the income of many employers comes from a base even broader than the tax base. This holds true for any industry that markets its products worldwide, not only for Hawaii’s hotel and tourist industry, but also for export products.
 Adverse selection is a pretty familiar concept to insurance professionals, but this situation of a single State single payer system is not on all fours with the standard situation so it is hard to quantify what would happen.
 Currently, medically necessary procedures are covered unless the benefit plan specifically excludes the procedure. It should also be noted that some procedures that might be thought of as medically necessary are, by definition, not medically necessary if there is a less costly alternative. Whether a less costly alternative is really a good alternative can, as you might expect, be a contentious issue.
 As one of the few people in the US who has actually worked for a government run insurer (HHRF), I can tell you that this is not a fake issue.
 Note however that there are different types of prevention, depending on your definitions. Some prevention, such as those involving lifestyle changes, may have good benefits and relatively low costs from a treatment standpoint. Also it should be noted that health depends on more things than just medical care such as good housing, transportation, education, jobs and other social factors.