1. Who’s more
efficient, government or the private insurance market?
Efficiency means doing the best job at the lowest cost. Government
programs do more of the job – covering the oldest and sickest people, for the most benefits – and at a lower cost
than private insurance companies. Private companies spend about 20% of every dollar on administrative costs or profit. (Administrative
waste on the provider end consumes another 11%.)[i] Medicare spends about 3% on administration, and nothing on profits. Community health centers (supported
by federal and local government) have been documented to achieve better health outcomes with lower expenditures, fewer
ER visits and fewer hospitalizations than private providers
While some people claim that Medicare costs are rising too quickly,
it is private insurance premiums that are truly out of control. From 1970 to
2007, Medicare spending per beneficiary rose 8.5% a year while private insurance premiums increased 9.7% a year. Had private insurance premiums increased at the same rate as Medicare spending, since 1970 those private
insurance premiums would be 33% lower than they are today. The difference between
Medicare’s ability to control costs and private insurance premiums is even more striking in the most recently compiled
statistics. Over the period from 1997 to 2007, Medicare’s cost per beneficiary
rose on average 4.4% per year while private insurance premiums increased by 7.4% per year—a 30% difference over the
full 10 years.[ii]
Two important factors contribute to efficient health care: First,
budgets set responsible guidelines for how fast health care expenditures can grow. Medicare has a budget, unlike private systems;
but the U.S.
health care system overall does not have any set limits. Secondly, payment methods can provide incentives for inefficiency,
especially in systems without budget caps. Traditional fee-for-service plans may encourage doctors to order income-generating
medical tests and procedures with only secondary regard for the patient’s benefit, compared with services that are not
reimbursed such as discussion to explore a patient’s condition. Salaries and capitation are the other major reimbursement
methods. These can lead to under-service, unless there are other organizational and financial incentives that reinforce attentive
care.
Both the highly respected, private sector Mayo Clinic and the
public Veterans Affairs hospitals are fine examples of efficiency. Doctors are paid a salary; they don’t earn more by
ordering more tests. They coordinate health care records and have multi-disciplinary medical teams sharing information about
a patient and manage to keep their costs lower. We can use the ingenuity of these successful American models to improve
efficiency.
2. Are We Spending Too Much on Health Care?
In a word, Yes! There’s ample research showing that other
countries cover all their residents and spend less. Canada spent 9.7% of GDP on health
care in 2008, Germany 10.7% and the U.S. 15.9%. U.S.
employers have reported for years that the cost of health care is a major drain on their profitability. The annual spending
rate for health care coverage grows faster than most other segments of the economy.
What’s the primary difference? Higher prices.
Providers – hospitals, doctors, supply and technology companies - charge much higher rates than their counterparts abroad. Provider prices are marked up by 130% to 150% by insurance companies. And Canadians negotiate for the best
drug prices on the world market. insurance companies have made the business decision to inflate prices to pay administrative
salaries, legal and clerical staff for declining or rescinding coverage (not paying claims) and advertising, to generate
profits for stockholders, and distribute additional stock options and bonuses for the management..
American private health care spends a lot for corporate profits and salaries that do not go to care. Non-profit insurers
(or HMOs) pay salaries almost as high as for-profit companies. The former CEO of Mass Blue Cross recently took a $19 million
golden parachute when he left; the current CEO gets $3 million in annual compensation. If this happens at Ford, you can always choose to buy another model car. But you can’t disenroll from your
employer’s health plan.
Despite spending almost twice as much, the U.S.
is rated 37th in the world for health. Men’s life expectancy is 75.6 years and women’s 80.8 years.
Canadian men’s life expectancy is 78.3 years and women’s 82.9 years. In Germany,
it’s 76.5 for men and 82.1 for women.
We can spend the same
amount as we do now, and have the best health care in the world.
