In the comments to Steve Verdon’s recent post on TennCare, some strong claims about the administrative costs of various national healthcare systems were made (without support) so I thought I’d weigh in here with some back-of-the-envelope calculations (and a handy place to stick links for future reference).
The adminstrative costs of the U. S. health care system are estimated at a whopping 31% (and rising fast).
The administrative costs of the British National Health Service are estimated to be roughly 12%.
The administrative costs of the Canadian system are estimated at roughly 17% (that’s the way Paul Krugman interpreted it, too).
I frequently run into the number of 2% administrative costs for the French system. An estimate from the 1980’s by Hans-Margin Sass and Robert U. Massey reported this:
The Organization for Economic Development has shown that NHS is cheap to run: its administrative costs were 2.6% of total health expenditures in the 1970’s compared to 10.8% in France, 10.6 in Belgium, 6.5 in the Netherlands, and 5.0 in Germany.
Has France improved its efficiency so much over the last 20 years? Why the differences not only between then now and country to country but within the same country at the same time? I think the answer is that different studies are measuring administrative costs differently. While it’s tempting to look longingly at the very, very low estimates of 2% (or even lower) for some single-payer or fully socialized systems I think it would be prudent to consider the higher 12-17% estimates as more likely.
Still, a difference of 14% (between 17% and 31%) is nothing to sniff at, particularly when it’s a percentage of total expenditures of more than $2 trillion. That’s something upwards of $250 billion.
That’s a lot of money but it doesn’t account for the enormous differences between the per capita health expenditures in the U. S. and Britain, France, and Germany. I’m open to suggestions on explanations but one place to start might be that physicians in the U. S. make three times as much as do the physicians in Britain, France, and Germany.
That’s why I keep harping on the issue of health care supply. Without a dramatic increase in the supply of health care (and, presumably, a concommitant reduction in costs per patient), I really don’t believe we can afford anything that resembles our current system even with a move to single-payer.
Update
I was asked to support my claim on the disparity between physician salaries among OECD countries. Here are some good references:
It’s the Prices, Stupid
Ezra Klein on doctor’s salaries (which quotes the same source, I believe)
but one place to start might be that physicians in the U. S. make three times as much as do the physicians in Britain, France, and Germany.
Where does that figure come from? And does it take into account the ungodly hours American physicians work, compared to their brethren in Europe?
There are reportedly around 900k physicians in the US. If they’re making, say an average of 250k a year (a very rough guesstimate base on this: http://www.allied-physicians.com/salary_surveys/physician-salaries.htm), that’s approximately $225 billion a year for salary costs alone. With a population of 300 million, that means the per-capita cost for physician salaries is about $750 per person per year.
I was looking for French numbers when I came across this: http://ezraklein.typepad.com/blog/2006/04/on_doctors_sala.html
which shows that per capita expenditures for the US on doctor salaries in 1999 was $988 while the OECD median was $342.
According to this (http://economistsview.typepad.com/economistsview/2007/08/frances-model-h.html), per capita cost for healthcare in France is $3500 and in the US it’s $6100.
So based on my not-very-scientific googling, it appears as though doctor salaries are a significant contributor.
I’ll be happy to support the income claim, Maxwell. I’ll do it when I get a moment—the figures aren’t hard to find. See Andy’s quick check above.
Your observation on long hours supports my essential claim: we need a lot more health care providers than we currently have, whether that means more physicians (France has 330 physicians per 100,000 the U. S. 278—again, easy figures to come by), more PA’s, better use of technology or what have you.
Here’s a very good source that compares a variety of different costs among the OECD countries.
Dave and Andy,
Thanks for the references. As it turns out, my other assumption about the matter was inaccurate. If the citations here and here are to be believed, US physicians may actually work shorter hours than their peers in France – at least, after their residencies are completed.
You may be on to something here. In any case, interesting stuff.
As an interesting aside, I listened on NPR yesterday a story about nursing home costs. This is another area that will be bigger than it already is in coming years. Again, a principal problem is a shortage of staff and high-turnover (an average of 106% a YEAR!). It doesn’t help that CNA’s don’t make much money for the amount and scope of work they do.
You’re welcome, Maxwell. Medical residencies are another, fascinating topic. Medicare currently pays $80,000 on average for each and every medical resident. Compare that to what residents are paid and it’s clear that the Medicare payments are quite a cash cow for hospitals.
Then there’s the cost of medical school and the crushing debt that so many who attend it are stuck with. The programs that offer to help out if you agree to do service in a rural area or some other place of need don’t cut it. Why? How old is the typical med school graduate who’s finished their residency versus the person who might serve in the Peace Corps or Americorp when they finish their bachelor’s degree? And if they are a specialist there’s an even longer residency. If they’re already involved and looking to start a family relocation is not going to be their first choice of things to do when their residency is finished.
In addition there is the torture chamber that is residency. How many who would make good doctors decide they aren’t going to put themselves through that wringer?
None of these factors help with a shortage of doctors.
Quite true, Jim, and that’s one of the reasons I’ve devoted quite a bit of time to investigating medical education. The obvious reason that medical education is expensive is simple supply and demand: if you cap the number of med school billets and the demand for them stays high, their cost will rise.
I suggest administrative costs are a red herring divergence from the real opportunity for patients and the public — Dr. Wennberg’s Variations analysis that demonstrates potential savings that far exceed admin ocst– with better patient results.
Further, I believe these savings (up to 30% Jack estimates) can only realsistically be obtai3end w/o government having to do a thing, e.g., the new VEBAS that are outside state insurance regulation and do not need insurers or HMOs as a result — and can focus on paying for better health care for their people nationwide.
More details are in my book chapter “Science Teams By Disease When Ill” in Unique Value (2004). FYI I believe in it so I formed a company to make it happen.