Democratic leaders and the Obama Administration deliberately excluded advocates for a single payer model from being part of the main health care reform effort. But recently Max Baucus reportedly said this exclusion was a mistake.

He conceded that it was a mistake to rule out a fully government-run health system, or a “single-payer plan,” not because he supports it but because doing so alienated a large, vocal constituency and left Mr. Obama’s proposal of a public health plan to compete with private insurers as the most liberal position.

Yglesias and Atrios discuss the compromised bargaining implications of this “mistake,” while Ezra Klein pushes back on the notion that Democrats are just bad negotiators. I don’t think it matters.

There are other important reasons why Congress should be examining single payer, and I’m not referring to the obvious points that single payer should have been on the table because (a) it works and (b) has a proven track record of covering everyone at lower cost in other places.

Even if somehow we all agreed that enacting single payer was simply a bridge too far to transition from a system in which about 60 percent of us get health insurance through work, there’s still a reason why single payer should be examined. It relates to the predictable problems affecting revenues and incentives now surfacing in the Senate’s discussions. This NYT article introduces the problem:

Senators struggled Wednesday with the possibility that in offering subsidized health insurance to millions of individuals and families, they could inadvertently speed the erosion of employer-provided coverage, which they want to preserve. . . .

Democrats in both houses of Congress want to require people to carry insurance. They would offer subsidies to low- and moderate-income people who buy coverage through a new regulated market known as a health insurance exchange. Employers who do not provide coverage might have to pay penalties or contribute to a government fund. . . .

Mr. Baucus, the chairman of the Finance Committee, said senators were investigating “the ramifications and implications” of requiring employers to provide or pay for coverage, the so-called play-or-pay requirement. Mr. Baucus said he and other senators wanted to minimize the chance that employees “may be enticed to leave their firms in order to get health insurance in the exchange.”

The budget office said: “The availability of subsidized coverage in the new insurance exchange would be an attractive option for many lower-income workers. As a result, some employers would decide not to offer their employees health insurance coverage, opting instead to provide other forms of compensation.”

Frankly, I think any reform that creates workable competition will, through choice, “speed the erosion of employer-provided coverage,” and it’s a mistake to prevent that. Nevertheless, Ezra Klein touched on a related set of incentive problems here, and other observers like UC Berkeley’s Jacob Hacker (see video) who understood the problem have proposals to solve it.

But as far as I know, there don’t appear to be successful examples of the “uniquely American” hybrid model that somehow combines employment-based insurance, competition between public vs private insurance plans in an exchange, plus government-sponsored Medicare/Medicaid — and makes it all work in a sensible fashion.

Or to put it another way, there’s a reason why this model would be “uniquely American.” It’s because no one else has made such a combination work.

To hold this hybrid system together, experts will need to design payment incentives and disincentives that both allow choice but don’t lead to unintended cost shifting between employer-based plans and individual-based plans acquired in the exchange.

My guess is this will eventually lead to a unified system in which all plans must meet minimum standards, perhaps all plans that meet the mandate are acquired through the exchange, and all plans must be subject to the same funding mechanisms and subsidies. That’s not where we are, yet.

The current proposals assume that we will retain the employer-sponsored insurance system, and also create a separate market for plans offered in an exchange, but still allow choice between these two systems. It’s the ability to switch that fulfills the promise of competition "keeping them honest."

But as Congress works through whether and how employers must contribute to the costs when they either stop covering or don’t cover some employees, and those folks wind up in the exchange, I think they’ll realize that everyone, no matter where they started, will have to be under a unified system. You might still be “covered at work” under your current plan, but your plan is now an exchange plan and meets the standard exchange rules for coverage, non-exclusion of prior conditions, community ratings, etc. Much of the distinction between employer-based plans and exchange-based plans could simply disappear.

This also means that additional revenue sources that are independent from the employer-based system, as Obama is proposing, create fewer problems than broadly selectively taxing health benefits tied to employers. That explains Obama’s disagreement with Baucus’ Committee.

That’s why examining the single-payer model would be useful. One of its virtues is the elegance and relative simplicity of the accounting/payment/revenue structure. People need care; they get it from providers. The providers have to be paid, so there have to be sources of revenues and an administrative function to allocate those revenues fairly to the providers based on the care they provide. It works because these revenues and accounting rules are uniform, so it doesn’t matter whether the patient is employed or not employed.

That comparatively simple, fair financial and accounting structure is the model for what a proposed hybrid system has to achieve. And by not having that model in mind, it’s harder for even expert market designers, let alone Congress, to sort through the effects of revenue collection and payment/incentives that will be needed to make the hybrid system work.