Over at American Prospect, Ezra Klein offers a sharp, well-reasoned critique of our for-profit insurance system.
First, he points out that when insurers offer us many choices – catastrophic plans, high-deductible plans, consumer-driven plans with high co-pays –what they are really doing is “turning their attention to making deals with the most profitable among us, and avoiding deals, or finding ways to break contracts, with the least profitable. They are very innovative in their attempts to do this. But there’s nothing good about those attempts. Competition among drug dealers does not aid the neighborhood, and currently, competition among insurers does not aid the ill.”
In fact, Ezra stresses: “It is actually counterproductive for insurers to compete on giving us the best care. It’s not simply that they’re not doing it, but given the structure of the marketplace, they shouldn’t do it. Imagine insurer X creates the best damn diabetes protocols in the country. And they begin advertising this fact. What happens on Day Two? Well, they’re flooded with individuals suffering from diabetes, or individuals who fear they will one day be suffering from diabetes. These people, in the current system, are a bad deal. Not only is it near impossible to insure them at a profit, but pooling their costs (which is what insurers do, after all) raises premiums for all the insurer’s other customers . . .”
This explains why insurers so rarely compete on quality. Most often, they compete on price. And watch out when they do that. This is a market where you get what you pay for, and a less expensive policy is likely to be filled with holes that will open, like trap doors, when you become sick.
Is there any way that we could force private sector insurers to add value to our health care system?
Klein offers Tyler Cowen’s prescription for how, “in a more perfect world,” insurers might compete to offer better service, not just cheaper coverage. But they would have to be tightly regulated.
Check out Klein’s full post here. It will also link you to Cowen’s argument.
If there was ever a time to take a critical look at business operations of the health plans, where our premium $$$ are being spent, and the value proposition of the managed care business model – it is now.
After a decade of relative stability, health insurance premium increases are outpacing inflation again, capturing the public and political consciousness. Paradoxically, while the actual amount of money spent on health care services has been declining, the costs associated with obtaining health insurance have continued to climb.
In the 1990s, after a period of rapid growth in health care costs, the private (employers) and public (federal & state government) sectors turned to managed care organizations (MCOs) to hold down costs. Managed care was credited with early success in stalling health care inflation, primarily through one-time savings achieved by slashing reimbursement rates, rationing care by limiting benefits/coverage options, and shifting more costs to individuals.
No one should be surprised at the cyclical nature of health insurance underwriting – insurers under-price premiums to capture market share then increase premiums to regain profitability. However, the consolidation of the health insurance market has dramatically changed the health care landscape, limiting competition and access to affordable insurance options. At the same time, consolidation of the health insurance market has significantly increased the profitability of the managed care plans with little to no benefit for patients.
Susanne Madden, a former executive with United Healthcare and now president and CEO of The Verden Group, explained it this way, “rather than controlling costs, and making healthcare affordable for all, managed care companies are setting the price and increasing it every year.”
At a time when our country suffers with an unconscionable number of uninsured, managed care organizations are seeing record profits. How? Managed care organizations are able to fatten their bottom line by not only increasing premiums, but by lowering their medical loss ratio – the percentage of premium collected compared to the money actually spent on health care services.
It is time to shine a light on everyone in the health care system. Doctors and hospitals have no problem competing over how to provide the right care at the right place and time; let’s also have truth in premiums – how are health insurance premiums priced and where are those premiums spent. Let us all compete over the value and quality of health care we provide instead of perpetuating this unsustainable race to the bottom.
Technical note, the link to Klein’s article doesn’t work.
Klein’s criticisms of the current insurance market relate almost entirely to the individual underwritten segment which accounts for less than 10% of the commercial market by membership and less than that by revenue. That said, I agree with his main points regarding how a well functioning market would be structured including universal coverage, community rating, transparency, and risk adjustments.
However, here’s the thing. To bring this about, especially if we were to shift eventually to full taxpayer financing (most likely via a payroll tax), the underlying fact of life for young people (especially college educated folks who land a career track job) will look something like this:
You just completed your childhood and now your college education. Your parents spent a lot of time, money and effort raising you and getting you to this point. Taxpayers heavily subsidized the cost of your primary, secondary, and, probably, college education, especially if you went to a public university. Now, while you have your whole life and lots of opportunity ahead of you, there are some significant responsibilities that you will also be expected to take on. To wit:
1. You will contribute 15.3% of your gross income (including your employer’s matching contribution) to help finance Social Security and Medicare. You will not derive any personal benefit from these programs for at least 40 years or longer, in all likelihood.
2. You will contribute an additional 13%-15% of your income (again, including the amount nominally paid by your employer) to pay for health insurance even though as a young, healthy individual, you will probably not actually need much healthcare for at least the next 20 or 30 years unless you are in a serious accident.
3. You will start your job at an entry level salary which is probably between one-third and one-half of what your more senior, experienced colleagues are paid for the same work.
This is the way the world works. Over the course of your lifetime, it all works out and you are treated fairly in the end, but we understand that you may feel somewhat put upon financially in your young adult years. At the same time, you’re young and healthy and unencumbered (probably) by family responsibilities, so now is the time to have a lot of fun. Enjoy!
A little straight talk from politicians on this subject would be a good thing, but that’s a bit too much to hope for, I’m afraid.
Barry,
Thanks very much for your
comment.
You wrote: “This is the way the world works. Over the course of your lifetime, it all works out and you are treated fairly in the end, but we understand that you may feel somewhat put upon financially in your young adult years. At the same time, you’re young and healthy and unencumbered (probably) by family responsibilities, so now is the time to have a lot of fun. Enjoy!”
I think that’s exactly right. And politicians should be straight about it–though, admittedly, it’s a hard sell.
Unfortunately, I am afraid that today some upper-middle class parents raise their children to feel that they should begin living an upper-middle class lifestyle at age 21.
But if you have a condo when you’re 25, eat out twice a week, go on vacation in the Caribbean, etc. –what do you have to look forward to when you’re 40? By then I would think you would feel: “been there, done that. What a bore.”
When I was in my 20s, my husband and I were grad students. At that point, we could afford to have meat for dinner once a week. (This was back at a time when I loved meat–and I would look forward to that meal!)
So when we were in our early 30s and could afford to go to a very nice restaurant for dinner maybe two or three times a year (anniversary, etc),
that was a big deal.
Eventually, we were able to afford to go to the Carribbean for a week . . then two weeks. Again, a huge treat.
A few years ago, I was able to take a 6 week vacation and go to India with my husband. We spent several weeks in Kerala where we had some wonderful food and stayed in a couple of beautiful places (one was a former tea plantation located on a river) This was something I couldn’t have done 10 years earlier.
Now my children are in their 20s, living a frugal lifestyle and having fun
doing the things you do when you are young:
learning to use snow-shoes (for now skiing is too expersive), swimming in waterfalls; going to ethnic restaurants where you can get dinner for $15 (even in N.Y.); tracking down an affordable apt. that has some space and light, and figuring out how to make the most of it; tracking down a really good used car that is selling for $5,000 (which means learning something about cars); learning how to cook (my son, who needs to eat enormous amount of food–far more food than he could afford to buy, even at fast-food restaurants–just to stay alive . . . .)
When you are young this sort of thing really is fun. As you get older, being able to afford some luxuries makes up for–well, getting older.
Sorry to ramble on about “my philosphy of life” . . .
Robert–
Thanks very much for
letting me know that the
link to Ezra’s column isn’t working.
I’ll try to get it fixed, but it may be hard on the week-end.
In the meantime, you can find Ezra Klein’s column by going to http://www.prospect.org/csnc/blogs/ezraklein and then scrolling down (right now, you need to scroll down roughly 2/3 of the page to find a post titled “Why Insurers Suck, And . . ”
If that doesn’t work, go to “archives” (on the right hand side of his home page, click on “February”, scroll down (about 1/4 of the way down the page) and you’ll find it.
Sorry.
Tom–
You’re right health care premiums have skyrocketed–up 75 percent from 2000 to 2005.
But that’s largely because the cost of healthcare also has spiraled over that period of time. Spending on everything from doctors to drugs, devices and hospitals has been going up due to higher prices as well as increased volume.
See my posts on “Health CAre Spending: The Basics”
here http://www.healthbeatblog.org/2007/12/health-care-spe.html
here
http://www.healthbeatblog.org/2008/01/health-care-spe.html
and here
http://www.healthbeatblog.org/2008/01/health-care-s-1.html.
Since 2000 health care inflation has ranged from roughly 6% to 8% a year– year after year. It has been growing much faster than the average worker’s earnings and also much faster than growth in the GDP. That’s why it now accounts for over 16 percent of GDP.
From the mid to late 1990s, insuers were actually trying to control costs, as you suggests they should–and to a large degree they succeeded. Our national health care bill plateaued.
But there was an enormous backlash by patients, doctors and employers who felt that insurers were refusing to pay for needed care. In truth sometimes the insurers were right in saying “no” ; sometimes they were wrong.
The problem is that for-profit insurers really don’t have the moral or political standing to make decisions about what procedures we, as a society, are willing to pay for. (Whenever insuers agree to pay for something, we all pay, in the form of higher premiums.)
Decisions about what should be covered and what shouldn’t be covered need to be made by panels of medical professionals who have no financial stake in the answer: doctors, medical ethicists etc.
Anyway by the end of the 1990s, the backlash against insurers trying to manage costs had become so extreme that they backed off and said, essentially, “okay we’ll pay for almsot everything a doctor recommends–but that means we’ll have to raise premiums.”.
Today, if you have a full, comprehensive insurance policy with no “holes” in it (which means an expensive policy) you’ll find that if your doctor recommends something it will probably be covered. Sometimes the doctor will have to spend time on the phone explaining his decision to the insurer, but they are covering a much larger percentage of things than
they did in the past.
This is why health care spending has has been rising by 6% to 8% a year in recent years.
And insurers are passing those higher costs on in the form of premiums.
Meanwhile, the share of our nation’s healthcare bill that goes to insurers to pay for their administrative costs. marketing, advertising, executive salaries, the cost of underwriting, and profits for their investors has remained relatively stable at 4.5%
of the total.
An insurance company’s profits can vary widely depending on well they are doing with their investments. After you pay your premiums, insurers invest the money until they need to pay part of it out in reimubrsements.
Typically, they invest in bonds and other fixed-income investments, and how those markets are doing has a lot to do with insurance industry earnings.
Meanwhile the share of premiums that insurers pay out in reimbursements has Not fallen. I’m not sure where you got your numbers but a 2007 study Center for Health Care Strategies (CHCS)shows the average plan had a medical loss ratio of 86.5%.
Administrative costs ran about 10 to 11 cents, with the remainder left over as a profit after interest and taxes.
Normally, the benchmark for the industry is 85%, so in 2007, insurers were paying out slightly more than average in reimbursements. Industry profits were boosted that year in part because Congress has decided to pay insurers a huge premium for taking on Medicare patients–much more than Medicare itself would spend if taking care of those same patients. And each year, more Medicare patients have signed up for these “Medicare Advantage” programs.
Maggie:
Apparently we are still talking about apples and oranges. You keep citing a 4.5% expense figure for insurance firms, but their own statements seem at variance with this. Here’s United Health Care’s fourth quarter press release headlines:
UNITEDHEALTH GROUP REPORTS RECORD
FOURTH QUARTER AND FULL YEAR 2007 RESULTS
Revenues Surpass $75 Billion in 2007
• Full Year Adjusted Earnings Per Share of $3.501, Up 18%
• Fourth Quarter Earnings Per Share of $0.92; up 10%
• Full Year Adjusted Operating Margin of 10.6%1
• Fourth Quarter Operating Margin of 10.9%
• Full Year Cash Flows of $5.9 Billion
• Fourth Quarter Cash Flows of $1.1 Billion
• Full Year Return on Equity of 22%
• Fourth Quarter Return on Equity of 24%
They seem pretty ecstatic over the results, a company netting 4.5% would be in the dog house. Whatever the basis of that number the popularity of investors for this sector would seem to indicate that they find it comparable to other investment opportunities.
Something just doesn’t jibe. Their P/E is about 13.5 which is typical right now.
I also don’t understand how a medical loss ratio of 85% translates to 4.5%. What happened to the other 10%?
Robert:
No one said insurers are netting 4.5%.
You really need to read the post on insurers here:
http://www.healthbeatblog.org/2007/12/health-care-spe.html
There, and again on this thread, I pointed out that of the roughly $2.2 trillion that we as a nation spend on healthcare, only 4.5% goes to pay insurers’ administrative costs, marketing advertising, exed
salaries profits for shareholders, etc.
In other words, you and I and employers paid them X in premiums last year. They paid out 86% of X in reimbursements to docs, hospitals, patients, etc. They kept 14% of X to cover all of the expenses and profits listed above.
14% of X turned out to equal just 4.5% of the $2.2 trillion that we, as a nation spent on health care last year.
That’s what we are focused on–how our health care dollars are being spent, where the waste is, and how much of our health care dollars goes to insurers. If it remains a stable percentage of our health care bill, that’s good–from our point of view.
How efficient insurers are in maximizing their profit for shareholders–whether they do well investing their premiums until they have to pay out reimbursements, etc. isn’t our problem.They could make money. They could not make money. I don’t care. I care how much they are increasing the cost of our health care–whether they are making =it unaffordable.
The fact that only 4.5% of our health care bill goes to insurers administrative costs and profits means that if
the insurers disappeared tomorrow, we would save 4.5%. But since our total health care bill is going up by an average of 6% to 8% a year, that savings would be wiped out in one’s year’s inflation.
That’s why it’s not worth getting too excited about how much the health insurers are making. Granted insurers are not adding much value to the system, so the 4.5% of the $2.2 trillion we are giving them is largely wasted money, but saving that 4.5% wouldn’t suddenly make healthcare affordable (it’s a drop in the bucket.)
If we didn’t have any private insurers and govt was administering all healthcare, their administrative costs would be about half as much–or 2.2.% of the $2.2 trillion.
So we’d wind up saving 2.2% of the total bill–which would be wiped out by about 5 months of heathcare inflaiton in the rising cost of drugs, devices hospitals, doctors providing more services, etc.
Finally, the way insurers are hurting are healthcare system is not by making it expensive (they are mainly passing on rising cost of drugs, devices, doctors’ services, etc.) but by
blocking access.
In many states, insurers don’t have to cover people who have pre-existing conditions–or if they have to cover them, they can charge them more. This is the problem.
Under national health reform, we need to require
insurers to cover everyone at the same price–and to compete with something like Medicare for all. (If they were competing with Medicare they couldnt’ jack their premiums too much or they wouldn’t get any business.)
Maggie:
Finally, I get your point! Even if I grant you that the 14% of the premiums that goes to the insurance sector only amounts to 4% of the overall health costs, there is still something not right.
What we would need to see if there are hidden policy implications that are adding to the overall costs that only exist because of the for-profit middlemen. You implied that the lack of coverage for everyone is one such example. The uninsured may cost more to treat later because of lack of coverage now.
It would be interesting to see if there were any other studies which ferreted out other hidden factors. There have been occasional stories about corruption in billing aided by middlemen who determine benefits or who are in charge of negotiating bulk purchases for hospitals and the like.
Perhaps a comparison with other countries might be instructive. How do they control purchasing costs and the like?
Another thing that needs to be considered is your assumption that health cost inflation will continue at the historical rate. This would need to be examined as well. With a different delivery system the cost pressures might be less. Prices can’t go up forever, at some point they become unaffordable and the market adjusts.
A point that I frequently make, that isn’t considered, is the benefits that advanced medicine brings to society in general. The example I like to use is the development of heart bypass surgery. Both Bill Clinton and Dave Letterman are now earning millions per year since they have returned to active careers. Before bypass was developed they would have been invalids for the rest of their (shortened) lives. Where does the economic activity they are generating get fed into the models? No place.
We see the rise in expenses, but no one takes into account the economic value of increasing the health of the population.
Maggie, Robert,
I must once again protest the use of and origin of that number, I realize this discussion has come up many times. You can not talk about the efficiency of the health insurance industry by giving them the benefit of working thier numbers into the total health care bill (much of which is paid by the people/govt). I dont want to (and I dont think most want to) know what percentage of our health care bill goes to ins profits, I want to know what percentage of my “Insurance bill” goes to profits!!!! Really, if you want to know how well anything that has multiple parts works you test the parts individually, you do not give each part the benefit of the work of the other parts, it is a bad way to look at it. This method does not work anywhere else! We do not talk about the efficiency of a medication, machine or system by averaging it’s numbers in with numbers from all other medicines, machines or systems!!!
Maggie
Thanks for your thoughtful/insightful response. It seems to have generated a few more comments.
I can not disagree with your underlying arguement that medical inflation has been growing much faster than GDP and the health plans have simply been passing on costs through higher premiums. Also I totally agree with you that we need a national debate on rationing or (more politically correct) providing appropriate care, at the right time in the right setting. We waste a LOT of money on futile end of life care.
However, I do respectfully disagree with you that the health plans spend, on average 85% of their premiums on medical claims. I know they like to claim that, but according to their SEC filings medical-loss ratios (what a perverse term) have been dropping.
I experienced this firsthand when my company was recently quoted a 24% annual increase for our health insurance. I asked for our medical-loss ratio and was shocked (that is sarcasm) to learn that only 74% of our premiums were spent on health care services (medical and pharmacy benefit), while 26% went elsewhere. Our health plan could not or would not tell us how those “health care services” were spent – physician services, hospital, pharmecuticals, disease management, PBM administration/profit, case management, etc…. I think this is kind of important information to have when making a decision on purchasing insurance.
The real frustrating part from an employer standpoint is the health plans are not competing for my business. They are setting the price and expecting us to accept it as the cost of doing business. I blame this on several factors including the consolidation of the health insurance market.
The lack of transparency in the insurance market simply lets me determine value based on premium price, not how those dollars are spent.
Your original post was “Can Insurers Add Value” – I still believe that remains to be seen.
From Wikipedia (there are links to the underlying studies on the site:
“The health care system in the U.S. has a vast number of players — there are hundreds, if not thousands, of insurance companies in the U.S.[48][19] This system has considerable administrative overhead, far greater than in nationalized, single-payer systems, such as Canada’s. An oft-cited study by Harvard Medical School and the Canadian Institute for Health Information determined that some 31% of U.S. health care dollars, or more than $1,000 per person per year, went to health care administrative costs, nearly double the administrative overhead in Canada, on a percentage basis.”
The 31% figure is similar to the number I see frequently mentioned. I don’t see links that explain the 4.5% figure.
It would seem that paying for health care can only be through three mechanisms, government (Medicare, etc), for-profit insurance or self paid.
The government overhead is taken to be 2-3%. Paying oneself must have fairly low overhead, except for the billing costs by the providers. The private insurers take 30% or so, so where is the payment stream that would make the average of all these 4.5%?
This is getting awfully circular. Try this:
The “31%” is WITHIN the MCO’s own silo. Maggie is right, MLR is probably in the 15% range, not 31%. That number is being taken out of context somehow when Wikipedia references the term ‘adminstrative costs’ the way they do.
The “4.5%” is within the silo of the entire cost of US health expenditures.
Thanks for your comments.
Dr. Matt–
Good to hear from you. Could you reply to my e-mail?
Let’s agree to disagree about what is more important: how much of your individual insurance premium goes to the insurers’ profits and where we can find ways to make the nation’s total healthcare bill more affordable.
Cutting an item that equals 4.5% of the bill to 2.5% (by having the government administer healthcare just isn’t going to do much. (Though as I’ve said, there are other reasons to favor single-payer, but saving money is not the big factor.)
Drugs and devices, on the other hand now equal 16% to 17% of our total bill (that includes not just drugs you buy retail, but drugs that are administred in a hospital or in your doctor’s office, which you pay for in your hospital or doctor bill.)
On average, we pay twice as much as other developed countries for those drugs and devices–and get exactly the same items.
If we cut that 16%-17% in half– and put a halt to the 6% to 8% annual inflation in the price of drugs and devices that we have been seeing–that could generate real savings.
Drug makers and device maker’s profits are much, much higher than insurers’, btw. Pharmaceuticals has been the most profitable industry in the S&P 500 for most of the past 10 or 15 years.
And they are not using the money for reserach; they are using it for marketing.
Tom– Looking at SEC filings only tells you medical loss ratios at individual insurance companies.. I’m looking at industry totals. That’s what I quoted in my last comment from CHCS (an excellent consumer group dedicated to lower costs and higher quality.)
Here is another source:
“A recent national PricewaterhouseCoopers study[9] found that over a ten year period (1993-2003), the average insurers’ medical loss ratios remained at about 86 percent. The annual growth rate of premiums during this period (7.3 percent) tracked the annual growth rate of medical claims paid (7.2 percent).”
And let me emphasize that insurers have no reason to lie and pretend that they are spending more on reimubrsements than they really are. Their shareholders would like to hear that they are spending only 70% of premiums on health care–so profits would be higher.
So Price-Waterhouse, like CHCS has no reason to distort the numbers.
Also, Tom, I’m wondering if your company is a large corporation or a medium-sized company? I’m guessing that if you are a medium to smaller company the insurers you are dealing with will have higher medical-loss ratios and higher premiums because they are insuring a less affluent, thus less
healthy population. (On average, people who work for very large Fortune 500 companies are better paid, wealthier and so healthier than people who work at medium-sized companies.
Also, in a medium sized copmany a few extremely sick people can raise the cost of insurance while in a very large coporation 20 very sick people are balanced by 20 very healthy young people who virtually never take medicines, undergo procedures, etc.
Many owners of medium-sized and smaller companies would like to get together with large coporations, pooling their resources to buy insurance together. They would have more leverage, and because the overall popoulation woudl be healthier, with less risk of a few very sick people making the pool more expensive, they could get much better deals.
But large corporations are unwilling to do this. They
can do better by self-insuring–use their own capital to pay out reimbursments while having the insurer administer the policies.
If we had national health reform, large corporations and medium sized companies might all be required to pay into one large insurance fund–which would wind up being a better deal for medium-sized companies.
Robert–
I’m glad the numbers finally make sense.
You are right that insurers do indirectly add to our total health care bill by leaving some very sick people uninusred. They only get sicker, and so when they finally do get care it is more expensive.
On the other hand, the poor, -pwho tend to be the uninsured, also die at a younger age, so they receive fewer years of Medicare. It’s hard to calculate how much that saves. . .
As for the economic benefits of by-passes:
a) we know now that a large number of the by-passes we have been doing are unnecessary, so there is huge waste there
b) most men who have by-pass surgery are older, and do not go back to making millions. In many cases, they are retired. Also, long-lasting depression is a major problem following by-pass surgery, which makes some men much less productive.
In other countries, where they do many fewer by-passes, mortalities from heart disease are lower. When possible, a change of diet and excercise is a much more efficient solution.
Finally, you can go back 45 years and watch health care inflation continue, nearly unabated.
In the 80s, for a few years when Medicare was cracking down, inflation slowed–but then Medicare spending picked up again
In the 1990s “managed care” companies really managed to almost halt inflation–but just for a few years. AS I’ve mentioned, the backlash was so huge they had to back off.
Americans don’t like being told “no.”
But you are right, trees can’t grow to the sky. Healthcare spending cannot grow to become 100% of GDP.
However, healthcare economists agree that there are only two ways that the inflation will come under control. Someone (either the govt’ or private insurers) will begin “managing care”–by deciding what we can can’t cover.
Ideally, those decisions would be based on what is and isn’t effective, and to some degree cost-effective.
(If the benefit is very small, is it worth paying twice the price?)
Many people argue that if these decisions are made by independent panels of doctors, reserachers and medical ethicists working for the National Institute of Health who have no financial stake in the outcomes, we can manage care “rationally”–based on quality–and wind up with high quality care for everyone at a sustainable price. This is what other countries do. And many (like Germany, Switzerland, Sweden etc.)
have been quite successful–better outcomes than we have, much lower prices, and higher patient satisfaction.)
The alternative is to let prices continue to rise and to let the private insurance industry decide what it will and won’t cover. Here, the decisions will be made based on price. If you can afford to pay, say, $20,000 or $30,000 or $50,000 a year for health insurance, your policy may well cover nearly everything that comes down the pike.
But if you can afford to pay only $12,000, you can’t expect the insurer to cover the most expensive treatments.
Ultimately, we will wind up with a two-tier health care system with perhaps 10% of the population in the top tier, the rest in the bottom one or two tiers.
Maybe 20% of the doctors will be treating patients in the top tier. The rest will be paid wages equivalent ot Medicaid fees to take care of the other 90%.
This is the way our economoy as a whole is heading with a smaller and smaller percentage of the population owning most of the wealth and receiving most of the raises in income while the middle-class, and lower-class watch their real incomes fall. . .
In that regard, we are becoming more and more like a Latin American country.
Robert–
The oft-cited 30% figure includes all of the administrative costs in our system.
Not just the money insurance companies spend on underwriting, paying bills,marketing etc., but
the money doctors’ offices adn hopsitals spend on paperwork as they bill
multiple insuers, collect from patients, send patients paper records back and forth to other doctors, hospitals, etc.
The administrative expenses at the providers’ end are so high because a) we have such a fragmented system. We have far, far more solo practioners, small hopsitals, cardiac clinics, two or three doctor practices than in most other countires.
If all of the doctors in the country worked for the govt (as they do in one or two developed countires) there would be just one huge back office doing all of that paperwork and enormous economies of scale.
If most of the docotors worked for the govt and or regional associations (as in other countries) again you would see huge economies of scale.
If we said that everyone in this country had to choose from two or three insurance policies offered by two or three companies, we would again have huge savings because health care providers wouldn’t have to deal with so many different forms.
But Americans like choices. And many Americans like the idea of going to a solo practioner, or small office with only two or three docs, or a small hospital in the suburbs 10 minutes from home.
The result is
a system where administrative expenses are very high.
Finally, because we have chosen to turn healthcare into a cottage industry, many of our doctors and hosptials cannot afford electronic medical records.
Most other countires are far ahead of us when it comes to heathcare IT and that greatly reduces lost records, redundant tests, medical errors, time wasted spent looking for paper records, etc.
We won’t be able to have widepsread electronic medical records until we see much more consolidations of health care providers into large multi-specialty groups that are linked to hospitals.
Maggie,
I dont think we actually disagree. I see the value in the way you calculate this when we talk about the “overall” effect of the Insurance Comapnies, but this piece had to do with the value (or lack of) that they particularly add, so I see a place for both numbers. But, if you are talking about the efficiency of any one thing, then you must use that “things” input and output numbers only, to calculate it’s indivisual (or particular if you wish) efficiency, there is no other way. This is the way systems are fine tuned, and our system needs a lot of fine tunning.
ps, check your email.