By Jim Kahn, M.D., M.P.H.
KevinMD blog, Feb. 2, 2015
We all know that the U.S. system of paying for health care is tremendously complex and inefficient: a multitude of insurers, thousands of insurance plans, innumerable medical bills, countless incorrect and denied claims.
But just how much do we waste on this administrative morass?
I led a research team that recently reviewed all the available evidence and published our findings. The resulting numbers are staggering.
Compared with countries that have a single health insurer (i.e., the government), we waste more than $375 billion per year in excess paperwork to pay medical bills.
That’s $1 billion per day. That’s more than $1 trillion every three years. That’s 15 percent of all health spending — 1 in every 7 dollars spent on health care — on excess paperwork.
Let me put these big numbers into perspective. This waste equals $1,200 per year for each and every person in the United States. It represents 89 percent of total state and federal spending for Medicaid, our health insurance for the poor. It amounts to 2.3 percent of the U.S. economy.
And this striking toll doesn’t even count the effort expended by employers for their employees’ health insurance or time spent by patients and families dealing with insurance and bills.
What does this third of a trillion dollars each year pay for? It funds the endless detailed steps required in the “multi-payer” insurance system: designing health plans, contracting between insurers and providers, marketing health insurance, signing up subscribers, checking insurance status at each medical visit, collecting copayments, creating bills, sending out bills, processing incoming payments, disputing insurance claims, collecting unpaid bills.
We call this “billing and insurance-related” administrative waste, or BIR. In the dead of our current winter, I pronounce it “brrr” because it reflects a frightfully chilling reality.
Imagine what we could do, as a nation, with more than $375 billion.
We could pay for everyone to have high-quality health care. The massive savings from lower paperwork would be enough to cover all Americans with minimal or no deductibles or copays.
Are we speculating? No, we’re summarizing solid empirical evidence, something sorely missing from most health care reform discussions.
What’s the evidence? The U.S. is part of the OECD — Organization for Economic Cooperation and Development — the wealthy democracies. All of those countries have either a single-payer, or a single absolutely standard comprehensive health plan, with coverage of 98 percent of individuals or higher (compared to 87 percent in the U.S.).
All of them avoid BIR administrative waste. They also use the single payer to get lower prices on medications and durable medical goods like CT scanners, wheelchairs, and hearing aids.
So the $1 trillion over three years isn’t an abstract number. It’s a real savings we can achieve if we finally make the same decision that all of our counterpart countries have.
That should be our New Year’s resolution.
Jim Kahn is a professor of health policy, epidemiology, and global health, University of California, San Francisco.
