I want to recommend Uwe Reinhardt’s excellent primer on healthcare insurers’ balance sheets using Wellpoint as an example. Here’s the bottom line:
Profits were not that big a deal as a fraction of premium revenue. S.G.&A. expenses typically are a far bigger enchilada worthy of attention. It is here that the health insurance industry is being challenged to search for economies.
As a percentage of total assets of $48,403.2 million deployed by the company (measured at the reported book value on the firm’s balance sheet), WellPoint’s profits in 2008 amounted to 5.14 percent in 2008 and 6.42 percent in 2007.
You can argue over whether Wellpoint’s marketing, administrative, and managerial costs were too high. However, the maximum amount you can consider as “profits” is the medical loss ratio, in Wellpoint’s case for 2008 15.6%, less some reasonable amount for actual costs of administration. IMO a figure somewhere between 5% and 10% is probably reasonable and that’s comparable to the administrative costs of healthcare insurance in other OECD countries.
Even with the most optimistic view of healthcare administrative costs it’s simply inconceivable that we can approach the per capita expenses being seen in other OECD countries simply through insurance reform. Single payer alone won’t do it and it’s absurd to suggest that the plans before Congress will achieve that, either, far as they are from reducing administrative costs. We’ve got to look in other directions for savings, too.
This is true, but administrative costs are only part of the reasons why single-payer advocates think it will save money. The other reason is that with either a large- or single-payer, they can do things like drive compensation rates down (or hold them steady) due to immense market power. Without something like that, I’m not so sure it’s possible – the HMOs tried to seriously squeeze down on suppliers AND consumers in the late 1990s, succeeded for a couple of years, then gave up due to customer unhappiness.
Yes, yes, we all know that the single payer advocates think there is a pony in there somewhere. That by using the coercive power of government they’ll reduce costs by fiat and yet maintain quality and quantity.
Works in Europe. Of course no one is really proposing single payer, so easy to tilt against that one. The not for profits in the other European countries seem to work pretty well.
Steve
I think you’re confusing cause with effect, steve. European countries were able to introduce and maintain their healthcare systems because their costs were low not the other way around.
You sure about that, Dave? One of the reasons why French doctor pay is considerably lower than in the US is because of the rates the French government sets for compensation and treatment (although they make up for it part way by heavily subsidizing doctor education).
As mentioned, it works overseas. Even Canada ain’t bad – studies suggest that there are relatively few significant differences in treatment outcomes between the Canadian system and the US system.
Yes, I’m quite sure of it, Brett. Real per capita costs of healthcare have risen everywhere, including in France. Other countries have been able to keep their costs low not make them low once they’d risen.
In what world will we able to lower our healthcare costs to European levels by fiat? The best we can hope for is to start where we are and control the increase. Unfortunately, our healthcare costs are already high enough that that’s not good enough.
” European countries were able to introduce and maintain their healthcare systems because their costs were low not the other way around.”
First time I have heard that assertion. How would you prove that? Our costs were much lower years ago also. I dont know enough about the history of implementation of the single payer plans to dispute this, so can you reference anything? The fastest and easiest way to cut costs is probably a single payer, it just isnt politically feasible and has longer term issues that are negatives.
Steve
Yes, our costs were lower then, too. Relative costs 50 years ago are irrelevant in determining the feasibility of our adopting a plan now. However, I believe they were relevant to the plans that were adopted 50 years ago.
…That by using the coercive power of government they’ll reduce costs by fiat and yet maintain quality and quantity…As mentioned, it works overseas.
No, it doesn’t. They constrain costs by restricting BOTH quantity and quality, though some of that is perhaps more culturally acceptable in those nations. Particular example: European nation’s spending on health care for the elderly declines drastically after age 75, whereas end-of-life care for over-75 seniors is one of our largest cost drivers. (EX: Those seriously obese or over 75 needn’t bother holding their breath waiting for knee or hip replacements in the UK. )
Another example: Other nations restrict access to the newest (and most expensive) technologies and procedures through serious overt “queue rationing.” Go check out the waiting times for some procedures in Canada and the UK.
studies suggest that there are relatively few significant differences in treatment outcomes between the Canadian system and the US system.
Every study I’ve seen that suggested that had serious methodological flaws (such as using complex-causation proxy measures as simple proxies) or suffered from “apples v. oranges” comparisons, notably a failure to account for the pronounced ethnic diversity of the US as compared to Canada.
As I’ve mentioned here before, the excess cost growth problem (cost growth in excess of GDP growth) is found in all developed nations with anything remotely resembling democratic government. It is a fundamental structural problem that cannot be stopped by anything BUT strict rationing, which isn’t going to happen in any democratic nation.
“However, I believe they were relevant to the plans that were adopted 50 years ago.”
LOL, ok you dont know either. I will try to make it a project for a slow night on call.
Steve
It doesn’t make any difference. They were able to limit the rate at which costs rose not lower them. The problem we face now is that costs have risen to the point that a 5% a year increase is too large to be affordable.
Can you name any proof of that? The study I cited specifically examined a range of studies comparing treatments and outcomes in the United States, and then categorized them according to their quality.
As for “pronounced ethnic diversity compared to Canada”, 26% of Canada’s population is of “mixed background” (meaning that they aren’t pure whites of northern european extraction). Just as importantly, many of the urban areas of Canada (particularly Toronto) have massive diversity in ethnic backgrounds.
It depends on what you’re waiting for. The Canadians tend to have longer wait times for elective surgery, but
1. The attempts to ban queuing based on income help soften this. This is something you hear a lot from Canadians, basically – if it’s not serious, you might have to wait longer, but if it is, you’ll get rushed to the front of any line for treatment.
2. This is subject to strong variation between rural and urban areas (like in the US).
I’d like to see some actual proof of that. The simple fact that you said “European nation’s” makes me highly skeptical – whenever some conservative trots that one out, it usually means that
A. They have no real idea of how any of the health care systems work in Europe, and
B. They’re taking a distorted view of the British NHS and projecting it to represent all of Europe.