By Austin Frakt
The New York Times, July 16, 2018
It takes only a glance at a hospital bill or at the myriad choices you may have for health care coverage to get a sense of the bewildering complexity of health care financing in the United States. That complexity doesn’t just exact a cognitive cost. It also comes with administrative costs that are largely hidden from view but that we all pay.
Because they’re not directly related to patient care, we rarely think about administrative costs. They’re high.
A widely cited study published in The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of American health care expenditures were the result of administration, about twice what it is in Canada. If the figures hold today, they mean that out of the average of about $19,000 that U.S. workers and their employers pay for family coverage each year, $5,700 goes toward administrative costs.
That New England Journal of Medicine study is still the only one on administrative costs that encompasses the entire health system. Many other more recent studies examine important portions of it, however. The story remains the same: Like the overall cost of the U.S. health system, its administrative cost alone is No. 1 in the world.
One obvious source of complexity of the American health system is its multiplicity of payers. A typical hospital has to contend not just with several public health programs, like Medicare and Medicaid, but also with many private insurers, each with its own set of procedures and forms (whether electronic or paper) for billing and collecting payment. By one estimate, 80 percent of the billing-related costs in the United States are because of contending with this added complexity.
“The extraordinary costs we see are not because of administrative slack or because health care leaders don’t try to economize,” said Kevin Schulman, a professor of medicine at Duke. “The high administrative costs are functions of the system’s complexity.”
“One can have choice without costly complexity,” said Barak Richman, a professor of law at Duke. “Switzerland and Germany, for example, have lower administrative costs than the U.S. but exhibit a robust choice of health insurers.”
By Don McCanne, M.D.
European private plans such as those in Switzerland and the Netherlands have very little similarity to private plans in the United States since they are very tightly regulated. Changing our fragmented system of public and private plans into a system of highly regulated private plans would be about as disruptive as improving Medicare and providing it to everyone. But the efficiencies of an improved Medicare for all would be much greater (lower administrative costs), and the financing would be more equitable, not to mention that there would be a multitude of other advantages through an improved Medicare for all.
It’s clear that we can’t continue with the same dysfunctional system. If we are going to change it, we might as well do it right.
By Don McCanne, M.D.
It is refreshing to see The New York Times publish an article accurately describing the profound administrative waste that uniquely characterizes the health care financing system in the United States. The public needs to understand how huge this waste is in order to better understand how we would be able to pay for a health care system that was expanded to include everyone without requiring deductibles and copayments.
Austin Frakt’s well researched article includes links to several classic articles on administrative excesses, some of which were authored by the PNHP leadership, especially cofounders Steffie Woolhandler and David Himmelstein. The article is well worth retaining to keep as a reference on administrative waste.
A well designed single payer system – an improved Medicare for all – not only recovers most of the administrative waste (while continuing to finance essential administrative services), it also attacks the problem of out-of-control health care pricing. Other single payer policies such as improving allocation of our health care resources also would make our health care system more affordable and equitable so that all of us can be assured that we could receive the essential health care services that we need.
That starts with getting rid of silly ideas such as the concept that patient-consumers can make health care affordable by shopping wisely, or that health care professionals need to be more accountable for costs when they are already swamped just trying to take care of their patients. Rather we need to begin by recovering the half a trillion dollars that we are wasting on administration and exorbitant pricing and redirecting that to patient care instead.
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