Health Care Math

christopher stack | 07/09/2007 - 11:26

Here is some everyday math to contemplate: America's current national health care expenditure is about $2 trillion per year, about 16% of GDP (growing about 2-3x faster than the economy). That is about $7 thousand per person, about twice what any other industrialized country spends. In that $2 trillion is approximately $300 billion in administrative expense for all segments of the system, the overwhelming proportion generated by private sector demands. Let's say we have 45 million uninsured (a reasonable consensus figure). Multiply $7 thousand times 45 million and you get $315 billion, enough to cover all our uninsured even at the current exorbitant levels. Interesting, eh?

Of course all administrative costs cannot be eliminated, but most of them can. The Take Home Message: don't let your conservative friends who defend private health insurance tell you we cannot afford expansion of publicly financed programs, e.g. Medicare, to cover more people.The money is already in the system, just wasted on activities that add no value to individual or public health.

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Arthur Farnsley | 07/11/2007 - 16:39 | A Really Good Answer

OK, that's a very good answer. Thank you. I don't know a thing about the health policy research and am not surprised to find that you know a lot about it.

I would still be concerned that lobbying (say, by medical practitioners) would switch from defending private medicine to finding ways to steer public money their way. However, I grant that the difference between 3-5% overhead for Medicare and 20% overhead for private insurance is a LOT and I fully take your point that this is even with Medicare having to cover everyone and private insurance doing its best to eliminate the high-risk, low-reward cases.

Having lived in Britain for 2 1/2 years, I will also say that having government, as a single-payer, make decisions about health care uptake is a bit worrisome. Still, I'm moved by the difference you describe between 3-5% and 20%.

Thanks.

christopher stack | 07/11/2007 - 14:07 | Government Program Efficiency--Medicare

The health policy research has extensively documented the overhead costs associated with the Medicare program versus those of the private sector. Most researchers put the Medicare figure at 3-5% as opposed to upwards of 20% for private insurers. The easiest way to understand this is to consider that of all the direct tax supported funding of Medicare 95-97% of the dollars go to medical care. In the private insurance industry, the " medical loss" ratio (remember that term) is around 80%, i.e. 80% of the premium dollar goes to care, 20% goes to overhead and profit.
Medicare and WellPoint insure approximately the same number of people ( 35-40 million). Medicare takes care the oldest and sickest segment of the population while WellPoint and others do what they can eliminate the elderly and sick.
Of course, there is no way to assure that money saved in one place will be employed more productively elsewhere ( money saved from health care administration could be used to build tanks) but no serious researcher disputes that the Medicare program runs more efficiently and cost-effectively than an eqivalent private program. Ask yourself why the government finds it necessary to pay a 10-12% premium to the private Medicare " Advantage" programs over what they pay for traditional Medicare reimbursement.

Arthur Farnsley | 07/11/2007 - 09:18 | Government Administration Cheaper?

While I agree that we spend an incredible amount per capita on health care and that a huge amount of that goes into administration, I'm VERY LEERY of the claim that we could seriously reduce those administrative costs by letting government take care of it. Government administration is not famously lean, efficient or cheap. I understand that having a single payer removes layers of private bureaucracy, but it tends to add layers of special interests, feather-bedding, set-asides, and earmarks.

Put another way, I have no problem taking that $300 billion out of the pockets of insurance execs, but I find it hard to swallow that it will therefore make its way into health care delivery rather than into the government black hole.

But let's put this to the test: show me some examples where government administration of large programs have put MORE money into service delivery by reducing administrative costs and I'll concede the point.

gfarrell | 07/11/2007 - 06:31 | Health Care Math

Thanks for this information. It certainly explains why the insurance lobby is dead set against health care reform.

Sheila Suess Kennedy | 07/09/2007 - 14:40 | Health policy

As Chris points out, Americans spend
more for health care--way more--than
citizens in other countries. We get
much less for our money, too.

I for one would rather have my money
go for health care that into the
wallets of insurance executives.

Sheila Kennedy

Health Care Math

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