Delivering Healthcare: Single Payer v/s Multi Payer

Posted on November 11, 2008


 All universal healthcare access systems (UHC) are based on the same principle as a standard insurance scheme, i.e. a sufficiently large pool of individuals has more healthy individuals than those that are sick or in need of healthcare and hence premia collected from all pool members allow the expenses of the sick, which are usually much greater than their premium, to be subsidised by the healthy. In return the now healthy are guaranteed that if in future they fall sick or are incapacitated otherwise, the pool premia will, in turn, support their expenses.

A UHC, indeed any insurance scheme, though simple in its principle leads to the question of who administers the system – collecting the premia and reimbursing the expenses of the sick. Two separate systems have evolved in answer to the question:

  1. Single Payer system– In this system a single provider, usually the government or its nominee, administers the UHC and has a monopoly over setting the premia, collecting it and reimbursing the expenses.
  2. Multi Payer system– In this system two or more providers administer the UHC and usually do so in competition with each other. The government, or its nominee, may or may not be an active participant, but usually is expected to set the rules of the competition and monitor the system to ensure fair and equitable service.

There is a ton of literature, comparing the two systems, their advantages and disadvantages. A quick summary of these comparisons is presented below. The following parameters usually receive attention:

  1. The effect the Profit Motive– As noted in the definition, the multi payer system assumes competition with each provider seeking to maximise its profit. This search for profit is seen to be counterproductive to the idea of fair and comprehensive UHC. There is a large body of documented evidence showing how private insurers make it difficult to claim, and often outright refuse, reimbursement of legitimate expenses. By eliminating competition and the attendant competition, a single payer system is designed to be more friendly to the sick. However,there exist doubts on whether lack of competition and hence alternatives, make the single payer system more exploitative and corrupt. We often see this degeneration in services where the government is or has been the sole provider, for e.g. telecommunication and road infrastructure in India.
  2. Sales & Geneal Administrative overheads– A multi payer system usually results in each provider duplicating administrative resources such as billing and payment. Furthermore, competition requires each provider to spend on sales and marketing expenditures. Clearly all these expenses eat into the premia money collected and hence reduce the total value of the expenses that may be reimbursed. A single payer system eliminates these duplicated and “wasteful” expenses and thus allows for greatest possible coverage and reimbursement of expenses.
  3. Innovation and cost reduction– A single payer system has no inherent compulsions to innovate and/or reduce costs. Multi payer system on the other hand have to continuously innovate to stay ahead of the competition. It is seen that such innovation usually leads to customer benefits as service providers strive to bring newer products to the market and do so at the least possible cost.
  4. Limitation of choice of care providers– Competition amongst the service providers usually results in competition amongst other participants in the ecosystem. Typically it has been seen that in a multi player system, the service provider, to gain advantage and differentiation, tends to direct patients to a limited number of preferred care providers thus reducing the options for the patients, perhaps even compromising what is in the best interest of the patient.

The above discussion clearly shows that in theory the single payer system is significantly better and in greater interest of the society. However, like all other monopolies, there exist a well founded and legitimate fear that all its advantages are undone by the drawbacks that are inherent to a monopoly. This dichotomy continues to divide advocates of the UHC and will be a topic that we will return to many times in future.

For a more detailed discussion on the two systems please click here.