So said economist Henry Aaron while describing the US health care system and he added further that it is "a bizarre melange of of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird". So what does this administrative monstrosity cost us? That has been the subject of dueling opinions published recently in the NY Times. Excerpts from the first published opinion (find it here):
The New York Times
November 12, 2011
Billions Wasted on Billing
By Ezekiel J. Emanuel
The range of expert opinions on how much of (administrative costs) could be saved goes as high as $180 billion, or half of current expenditures. But a more conservative and reasonable estimate comes from David Cutler, an economist at Harvard, who calculates that for the whole system - for insurers as well as doctors and hospitals - electronic billing and credentialing could save $32 billion a year. And United Health comes to a similar estimate, with 20 percent of savings going to the government, 50 percent to physicians and hospitals and 30 percent to insurers.
The second published opinion (find it here):
The New York Times
November 20, 2011
Cutting Health Costs by Reducing the Bureaucracy
To the Editor:
Ezekiel J. Emanuel lowballs estimates of the current costs and potential savings on medical bureaucracy, and raises vain hope that health reforms short of a single-payer system will realize substantial savings ("Billions Wasted on Billing," Sunday Review, Nov. 13).
Peer-reviewed studies in The New England Journal of Medicine by two colleagues and me document that administrative costs account for 31 percent of health spending in the United States versus 17 percent in Canada. The 14 percentage-point difference translates to $380 billion in potential savings in 2011. Other researchers have reached similar conclusions.
A single-payer reform could realize these savings by eliminating insurance middlemen and radically simplifying payments to doctors and hospitals. The lesser measures that Dr. Emanuel champions - computerized and standardized billing - won’t do the job.
Hospital billing has been computerized for decades, and bureaucratic costs have skyrocketed since the adoption of the standard hospital billing form in 1982.
Combat over who pays and who profits underlies health administration’s overgrowth. A nonprofit single-payer system makes those issues moot.
New York, Nov. 14, 2011
The writer, an internist, is a professor of public health at the City University of New York.
A link to the peer-reviewed study cited from 2003.
Dr. McCanne's comment:
The landmark 1991 and 2003 New England Journal of Medicine articles comparing health care administrative costs in the fragmented, multi-payer financing system in the United States with the single payer system in Canada were meticulous, peer-reviewed studies that confirmed that a massive amount of administrative spending in the United States is potentially recoverable - an estimated $380 billion for 2011 alone.
Politicians and academics who believe that we need to support politically feasible models of reform, such as the Affordable Care Act, have attempted to ignore or discredit these numbers. Even the most noted attack on these numbers, by Brookings economist Henry Aaron, was based on a back-of-an-envelope calculation arbitrarily assuming health care wages to be one-tenth of what they actually are in the United States. There is some irony in this attack by the highly-respected and otherwise highly-credible Aaron when in the same article he states, "I look at the U.S. health care system and see an administrative monstrosity, a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird."
During the reform process, administrative inefficiencies were frequently brought up as a problem that needed to be addressed, but the perception of the extent of the problem always fell far short, at least by those who controlled the process. This led to grossly deficient suggestions such as merely streamlining insurance billing functions through computer systems (which already exist) and through a simplified universal billing form (which is already in use). This myopic thinking has led to grossly deficient estimates of potential savings, such as that of Ezekiel Emmanuel who suggests a savings less than one-tenth of the true potential.
It is true that not much of the current administrative waste can be recovered as long as politically influential individuals, such as Ezekiel Emmanuel, insist the the private insurers must remain as an intermediary in our health care financing. Their business product is administration.
As you watch the development of new innovations by the insurance industry, you will see that they all involve even more administrative products. As long as they are in charge, they will always try to capture a larger portion of our national health expenditures. However, since administrative costs will now be limited to 15 to 20 percent of their premiums, you will see these new administrative services being introduced as "health care." Only the label has changed.
We Americans could get a rebate from our health care bureaucracy of over $1000 per person if we were to simply admit that the private health insurance business model is a net loss to our health. Much of those savings would accrue to public revenues. In an era when we are struggling to balance state and federal budgets, why is this so politically difficult? Answer: Health insurers are hefty political donors and both parties want those donations.
Dr. Joe Jarvis