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Friday, January 16, 2004 (SF Chronicle)
What premiums pay for
David Lazarus

The United States squanders more money every year on health care bureaucracy than it would cost to provide medical coverage for the 43 million Americans now lacking insurance.

That’s the finding of two respected Harvard Medical School researchers, David Himmelstein and Steffie Woolhandler, in a study appearing this week in the International Journal of Health Services.

They determined that of $1.6 trillion in total health care spending last year, at least $399 billion was eaten up by administrative costs such as clerical work in hospitals and processing a vast array of insurance forms.

But if a national health care plan like Canada’s were implemented in this country, the researchers found, administrative overhead would be slashed by about $286 billion.

This amount, in turn, would be sufficient to not only provide health coverage for every uninsured American nationwide but also allow millions of underinsured people to improve their quality of care.

Himmelstein, who is also a physician, said in an interview that 10 percent of revenue at his Cambridge practice now goes to an outside billing firm that handles much of his insurance work.

“That amount could be used instead to care for more patients,” he observed. “It could be used to hire additional people and fund a huge expansion of care.”

Similarly, Himmelstein estimated that at least 15 percent of his time every day is spent dealing with paperwork.

“That’s 15 percent of my time that I’d much rather spend on patients or learning more about medicine,” he said.

Private health insurers, who would be decimated by taxpayer-funded universal coverage, oppose creation of a Canadian-style system in the United States. Instead, they prefer adjusting the existing system to expand the number of people covered.

But Himmelstein and Woolhandler argue that the existing system is grossly inefficient and needs to be completely overhauled. The findings of their research may be speculative, but they say it points the way toward legitimate cost reductions.

In California, they found, nearly $163 billion was spent last year on health care. Of that total, $45 billion, or about 28 percent, went to administrative costs.

With Canadian-style universal coverage, the researchers concluded, Californians would save almost $34 billion annually on administrative overhead. This would provide more than $5,000 for each of the state’s nearly 7 million uninsured.

“As it stands,” Himmelstein said, “you could insure all uninsured people for about $1,500 per person. The administrative savings would thus leave plenty of money to upgrade coverage for others.”

The Canadian single-payer system is frequently cited as a model for how the United States might go about offering health coverage to all citizens. The Canadian system, begun nationally in 1971, guarantees all citizens access to essential medical services regardless of employment, income or health.

The system is administered regionally but overseen the federal level. It’s not perfect. A 2001 study found that patients requiring elective surgery wait an average of 16 weeks before reaching the operating table.

Investment is slow in new technologies and equipment. On the other hand, Canadian hospitals and physicians spend substantially less time on administrative chores because the single-payer system is relatively streamlined. Hospitals receive lump-sum payments each year from local authorities but have wide discretion as to how their resources are used. Paperwork is minimal.

Would Canada’s system work in the United States? Probably not without some tweaking. Experts say a U.S. universal health care system probably would require strong regulatory oversight to ensure cost controls and quality (and such oversight likely would cut into at least some of the projected savings).

Government authorities might also need more say over distribution of medical resources. Just as few communities would want or need two fire stations within a block of each other, regulators would help decide where hospitals are built to avoid wasteful duplication of expensive technologies.

“Health care shares many of the same characteristics of fire departments and police departments,” Himmelstein said. “Hospitals should be treated the same way.”

Karen Ignagni, president of AAHP-HIAA, the leading trade group for health insurers, challenged the methodology of Himmelstein and Woolhandler’s study, and said administrative costs in the report “are wildly inflated.”

Many of the expenses included in the study, she said, “actually involve activities that improve the quality of health care. It’s not just paper pushing.”

U.S. health insurers support extending coverage to all Americans, Ignagni stressed, but are “against a one-size-fits-all approach.” For its part, the drug industry’s leading trade group, Pharmaceutical Research and Manufacturers of America, also opposes creation of a single-payer health care system.

Jeff Trewhitt, a spokesman for the association, said private insurance plans offer consumers more choice and “allow pharmaceutical and biotechnology research companies to avoid innovation-stifling, government-mandated price controls.”

Harvard researcher Woolhandler responded in an interview that the insurance and drug industries have resisted change for years. “They’re extremely happy with how things are now,” she said. “For them, it’s a life-or- death struggle.”

Yet in the face of such politically powerful opposition, most experts agree it’s unlikely nationwide universal coverage will be adopted in the United States anytime soon. Then again, Canada began its system more than half a century ago on a province-by-province basis.

Published on Sunday, January 11, 2004 by the Boulder Daily Camera
Single-Payer: We’d Get More for Less
Patchwork Health-care Reform not What Most Want, or Need
by Brian Smith

Politics aside, we could all have better health care for less cost. Our current health-care system pays for universal health care but does so in an ineffective, costly manner while providing overall poor care. Unfortunately, a majority of physicians are opposed to single-payer health care, despite a majority of citizens who support it. Major health-care reform will happen only if citizens demand change.

Currently, no one can be denied health care for lack of insurance, but private providers can demand payment at time of service, while emergency providers cannot. This tends to shift uninsured patients toward expensive ER care. Since the emphasis in ER medicine is single-contact care, all eventualities must be covered, and that leads to significantly more expensive care.

A visit for a cold in a clinic setting may cost $50, while that same visit in an ER could easily exceed $500. In addition, patients without insurance tend to put off visits until they are sicker, when care is more expensive and outcomes poorer. Improving access to care, promoting preventative care, and adequately treating disease can significantly decrease cost while improving outcomes. It should be noted that unrecoverable costs of care for the underinsured are shifted to paying patients.

In 2002, health-care costs in this country exceeded $1.6 trillion. This represents approximately 15.5 percent of the U.S. GDP, in contrast to most developed countries, where costs are typically less than 10 percent GDP. A significant portion of this cost is administrative, which approaches 30 percent to 35 percent in America as opposed to 15 percent to 17 percent in the Canadian system. Private insurance overhead runs almost 12 percent vs. 3.5 percent for Medicare.

Pharmaceutical costs have spiraled out of control, with really no attempts to limit them. Currently medications account for about 15 percent of overall health costs and rising. There is no market control of these costs, and costs are set based only on what the pharmaceutical company wants to earn during the life of the drug patent. Competitive drugs are usually priced in the same ballpark. Generics are only marginally cheaper. When drugs from this country can be exported to Canada, re-prescribed and re-imported at cost savings of 20-50 percent, it is clear there is a problem.

It is important to understand the lack of market control in all aspects of medicine. The ultimate consumer, the patient, rarely has any concept of cost vs. benefit of medications, studies, care etc. Physicians write prescriptions but don’t have direct knowledge of actual costs. This lack of market control is inherent to the system of medicine and understanding that is essential to understanding the need for external controls on the system.

A quick look at the numbers involved in implementing universal health care shows it is feasible. By switching to a single-payer system, administrative costs could easily be reduced by 50 percent. Reasonable tort reform could cut malpractice costs by 50 percent, and cost controls of medications could easily realize savings of 25 percent. Overall, these measures could reduce U.S. health-care costs to about $1.35 trillion. Improved access, prevention and disease management should further reduce cost to about $1 trillion to $1.2 trillion (10 percent of the GDP).

Universal care could be funded by modestly increasing the “Medicare” tax, appropriately taxing tobacco and alcohol, incorporating a 10-percent co-payment, and combining all current health-provider systems while utilizing the current infrastructure. The current Medicare/Medicaid budget is about $420 billion. Some $200 billion in taxes on cigarettes and alcohol would help to offset the health costs associated with their use.

Another $40 billion to cover the health-care costs associated with motor vehicle accidents could be raised either through vehicle licensing fees, fuel tax, or could be collected by auto-insurance companies. Adding current VA funding of $25 billion, worker’s comp ($80 billion) and a 10-percent co-payment for those who can afford it ($100 billion); only an additional $300 billion to $350 billion would need to be raised through a combination of payroll and income taxes to provide universal care. Keep in mind that overall this represents a cost savings while guaranteeing coverage for all and improving health care.

Universal single-payer health care is both economically feasible and desirable. With decreased societal cost and improved health, it is a win-win situation. Why physicians and politicians resist such change really has more to do with their financial interests in the current system, or fear of government-run programs, rather than interest in providing good health care for all citizens. The current system is broken, and health-care costs will continue to spiral out of control if
the government continues its patchwork approach to reform. A recent poll shows 62 percent of Americans want universal single payer health care.

It is up to you to let them know you care. Brian Smith is a Boulder physician.

Copyright 2004, The Daily Camera and the E.W. Scripps Company

Health care is broken
by David Lazarus of San Francisco Chronicle
Wednesday, January 14, 2004

Businesses large and small are drowning in health-care costs, and their solution by and large is to pass the buck to cash-strapped employees.

In Southern California, about 70,000 supermarket workers have been striking for several months as their employers seek to shoulder them with a greater share of medical expenses. Similar disputes are under way in a variety of other industries.

Nearly 100,000 workers at telecom giant SBC say they’re prepared to walk off the job when their contract expires in April if the company attempts to have them pay a greater share of insurance premiums.

The nation’s largest pension fund, the California Public Employees’ Retirement System, increased health-care premiums for its 1.2 million members this year by an average 16 percent, in line with double-digit increases for nearly all insurance providers.

The U.S. health care system is clearly broken. Companies are being strangled by runaway medical expenses — SBC alone pays more than $2 billion annually in health-care costs — while employees and other members of the public are increasingly struggling to obtain adequate care at reasonable prices.

More than 43 million Americans now lack health insurance and account for as much as $130 billion in annual economic losses resulting from poor health or early death, according to the influential Institute of Medicine in Washington.

The United States needs a universal health care system, and it needs it now.

“There’s a crisis right this minute,” said Steffie Woolhandler, a physician and Harvard Medical School researcher who advocates a national health care system.

“It’s conservatively estimated that 18,000 adults die every year because they don’t have insurance,” she observed. “That means at least 1,500 people will die this month and about 50 people are dying today, as we speak.”

The situation is so grave that the Institute of Medicine, which works closely with the federal government on health issues, is expected to issue an unprecedented call today for creation of a universal insurance system by 2010.

At the same time, though, the question of universal insurance is so complex that the institute, a component of the National Academy of Sciences, is unlikely to advocate a specific plan or approach. Sources familiar with the matter say the institute is expected to instead merely encourage policy-makers to take a fresh look at expanding health coverage.

The last time universal coverage received in-depth scrutiny, under the Clinton administration, the issue became mired in complex questions of implementation and funding. It was also aggressively attacked by entrenched special interests, particularly the $300 billion insurance industry and $160 billion pharmaceutical industry.

Now, however, things are different. Calls are gradually emerging from the private sector for a radical overhaul of the existing health-care system. The U.S. auto industry, for example, estimates that it spends as much as $1,200 on employee and retiree medical benefits for every vehicle it builds.

General Motors is the largest purchaser of private health-care coverage in the country. It spent $4.5 billion in 2002 to insure 1.2 million active and retired workers. Those costs in turn are passed on to buyers of GM cars and trucks.

Bill Ford, chief executive of Ford Motor Co., has called rising health- care costs “our biggest issue.” He’s asked his company’s vice chairman, Allan Gilmour, to study proposals for a national insurance system and to share his findings with other business leaders.

“Big businesses are finally standing up and saying that they can’t compete internationally with the current system the way it is,” said Ida Hellander, executive director of Physicians for a National Health Program, a Chicago advocacy group with more than 10,000 members nationwide.

Her organization argues that a so-called single-payer system, similar to Canada’s state-backed insurance network, is the best solution for the United States. Under this system, tax dollars would fund universal coverage that would allow any American to receive treatment from any doctor at any hospital.

It’s not such a far-fetched idea. Federal and state taxes, along with tax subsidies for businesses, already account for more than 60 percent of the $1.6 trillion spent annually on health care in the United States, primarily through Medicare and Medicaid.

Physicians for a National Health Program, or PNHP, argues that existing public financing for Medicare and Medicaid should be retained. Meanwhile, a payroll tax of about 7 percent would replace all other employer expenses for medical costs, and an income tax of about 2 percent would replace employees’ current insurance premiums, co-pays, deductibles and other out-of-pocket expenses.

The organization notes that such a change would represent a savings for the vast majority of working Americans. It would be costlier for firms that do not presently offer workers medical benefits, but would extend health coverage to millions of workers now left to fend for themselves (often at the expense of other taxpayers).

Smaller companies that do provide health coverage would benefit enormously from lower rates resulting from economies of scale. Universal insurance would also be significantly less expensive for most larger companies and would put a halt to double-digit increases in premiums seen annually for the past four years.

No less important, PNHP says, universal coverage would eliminate the thorny question of medical benefits in all future negotiations between employers and employees.

“We’re already spending enough money each year to pay for a national health plan,” Hellander said. “The problem is that we’re throwing a lot of that cash down the drain.”