Abolishing the middleman won't make health care a free lunch

Have you ever heard that Medicare, or single-payer systems in Europe, have much lower overhead costs than does private insurance?  Don't fall for that trick.  My NYT column drives home what ought to be a familiar point:

Medical insurance, whether private or government, is always going to be faced with a fundamental problem: patients and doctors will try to get the most out of any system.  When they aren’t paying directly, patients will seek extra care and doctors will be happy to oblige.  To deal with that problem, health care systems can offer services indiscriminately and write off the resulting losses, spend money on monitoring, or limit services and prices.  An analogous problem is faced by retail stores: they must either put up with theft, hire security to limit theft, or carry lower-value items.

Tiffany's, which sells diamonds, has higher overhead costs than does a 7-11 store.  When you work through the different options, the overhead costs can be shifted or transformed, but they don't go away:

Just as some items are harder to shoplift than others, so some medical services are less prone to overuse.  European systems are relatively good at providing prenatal care or mending someone hit by a car.  Few people would try to get these services unless they were really needed. No one but an expectant mother, for instance, will show up for a prenatal checkup; nor would excess prenatal checkups cost a great deal. The unwillingness of European systems to spend on overhead means they will do best specializing in these kinds of services.

When it comes to expensive, discretionary health care benefits, single-payer systems are more likely to resort to queueing, lack of comfort or convenience (compare U.S. and European hospital rooms) or to remove the service altogether.  My conclusion:

...as populations age and the value of medical technology grows, the overhead costs of private insurance will prove an increasingly wise investment.  For all its high immediate expenses, the American health care system is looking toward the future rather than the past.  In the long run, the hidden and indirect costs of single-payer systems are harder to measure and thus are ultimately harder to control.

I should note that I drew the point about young vs. old (see the full article) from a Bloggingheads.TV dialogue (Megan McArdle vs. Henry Farrell), though it was not possible to cite that in the published piece.

Addendum: Mark Thoma offers commentary and Paul Krugman cites.