At the New York Times Robert Frank attempts to explain why health care prices are lower under single-payer systems:
Total costs are lower under single-payer systems for several reasons. One is that administrative costs average only about 2 percent of total expenses under a single-payer program like Medicare, less than one-sixth the corresponding percentage for many private insurers. Single-payer systems also spend virtually nothing on competitive advertising, which can account for more than 15 percent of total expenses for private insurers.
That’s true. But Canada’s Medicare system has costs of administration of around 15% while ours are around 25%—down from a high water mark of about 30%. Said another way, don’t expect a single-payer system in the United States to have administrative costs of 2%. A cost something in between 15% and 25% is probably more realistic. Said yet another way: don’t expect converting to a single-payer system to cut costs dramatically.
The most important source of cost savings under single-payer is that large government entities are able to negotiate much more favorable terms with service providers. In 2012, for example, the average cost of coronary bypass surgery was more than $73,000 in the United States but less than $23,000 in France.
That “negotiate” is a tricky word. Can anyone cite an example of any other country negotiating lower prices from providers other than pharmaceutical companies? I can’t. Drugs account for about 8% of U. S. health care spending. You could cut those to the bone and it wouldn’t result in tremendous savings overall. There’s a lot of squawking about high drug prices because they account for a lot of the out-of-pocket spending by the elderly but you’re not going to realize big savings from that direction.
I can think of examples of other countries dictating prices to providers but not negotiating them down. High health care prices in the U. S. are a direct consequence of an unwillingness by American politicians or public health care administrators to negotiate substantially lower prices. Claiming that they will is an extremely strong assertion that deserves some proof. I wish Mr. Frank would provide it.
You’d also need to believe that providers will accept pay cuts. Cutting prices for individual line items on the tab isn’t enough; you’ve got to keep the line items the same or trim them back, too. I see no reason to expect any of those things to happen and they need some substantiation, too.
As long as providers think they should be earning high salaries, patients insist on getting all of the health care that they want, and neither politicians nor public health care administrators will chaffer prices down, I don’t think it makes much difference whether we have a single-payer system in the U. S. or not. Prices will remain higher and continue to rise, more than we can afford.
The sad truth is that health care prices are high in the U. S. because we won’t cut them.
Walmart and Costco make a great profit, employ millions and have millions of happy customers. You can be sure that they negotiate with suppliers the world over.
Entrusting Amerikan healthcare to someone like them would be sure to lower prices for drugs and services, as it does for their myriad products, without any need for gummint price controls or mandates.
A further benefit is that health insurance would go the way of food insurance and disappear entirely.
I don’t think you are accounting for the provider side, unless you have a source that lays it out. From Health Affairs (several years old so numbers will be higher now)……
“Physician practices, especially the small practices with just one or two physicians that are common in the United States, incur substantial costs in time and labor interacting with multiple insurance plans about claims, coverage, and billing for patient care and prescription drugs. We surveyed physicians and administrators in the province of Ontario, Canada, about time spent interacting with payers and compared the results with a national companion survey in the United States. We estimated physician practices in Ontario spent $22,205 per physician per year interacting with Canada’s single-payer agency—just 27 percent of the $82,975 per physician per year spent in the United States. US nursing staff, including medical assistants, spent 20.6 hours per physician per week interacting with health plans—nearly ten times that of their Ontario counterparts. If US physicians had administrative costs similar to those of Ontario physicians, the total savings would be approximately $27.6 billion per year. The results support the opinion shared by many US health care leaders interviewed for this study that interactions between physician practices and health plans could be performed much more efficiently.”
On the Hospital side, admin costs here are twice those of Canada. This 2011 piece from Commonwealth estimated $158 billion in savings per year if our hospital admin costs were the same as in Canada.
http://www.commonwealthfund.org/publications/in-the-literature/2014/sep/hospital-administrative-costs
Steve
That’s a 5% savings in total health care costs. At the present rate of increase in health care prices that would be absorbed in a single year.
Add in another one or two percent for physicians, another 5% for savings on the payer side and you are up to 12% or so, a savings which is not just a one time savings. No magic bullet but quite a bit. Then, TR Reid (sp?) in his book put the admin costs for the Taiwan system at about 3% IIRC. Long time since I read it.
Steve
It’s not a one-time savings but it’s not a compounding savings. You don’t get 15% savings on top of the previous 15% every year. You get the same 15%.
My point is that cutting the cost of administration while helpful is not a magic bullet as so many people seem to assume. We can’t get health care spending under control without controlling the increase in prices.
Cutting or eliminating the rate of increase is compounding.
You’d also have to factor in transition costs, plus the economic effects of trying to resource and staff a single-payer agency. As I’ve noted many times, the federal government is not a nimble employer. There’s no guarantee those jobs will get filled. There are, after all, still tens-of-thousands of open jobs at the VA that they are unable to fill. All this while managing the loss of up to 500k jobs in the health insurance industry plus the disruption as it changes to something else. In short, the transition costs are likely to be steep and take a significant amount of time.
As I’ve mentioned before I do a lot of work involving a state-run insurance program. This is program required by federal mandate, so each state administers the program differently. Illinois is a high administrative cost state; it employs a larger number of workers to scrutinize means and methods, as well as unit prices. Neighboring states are less involved and I am told that reimbursement rates are higher, though providers complain not so much as to justify all of the extra time and paperwork.
I don’t have hard numbers, but what it feels like is that Illinois is charging 2 to 3 times the administrative costs, which are keeping costs lower, but nobody knows whether the trade-off is worth it.
The continuing issue is price discovery. As this economic area became dominated by a single payer, the price is what is reimbursed and the government has less and less ability to know whether its reimbursements are properly calibrated because the market is setting the price at what is reimbursed. Medicare is piggybacking on private market rates for discovery, though certainly distorting those.
In short though I want to emphasize that administrative costs vary considerably from state-to-state, so I don’t how any body could speak with certainty about a program that doesn’t exist in any of them today.
I think that you need to compare costs on a per patient basis, and Medicare, Medicaid, the VA, private insurance, etc. need to be calculated individually.
It is quite possible that there are fewer physicians and medical staff providing care in Canada, and this could result in a lower cost.
TB- The costs for hospitals and physicians was calculated on a per physician or per doctor basis.
Andy- There would be transition costs. OTOH, ad ministrations breed costs. I suspect there would be additional savings beyond salaries.
Steve
You’re right, Steve. We should only have one auto insurance company, one homeowners insurance, one car company, one home builder, one university…………..I mean, look how well public rail or cable company monopolies work out.
That’s what Theodore Vail, the chairman of AT&T in the early part of the 20th century, thought.
Nice straw man Drew. Not what I said. I don’t think there is anything magical about single payer. That still doesn’t change the fact that in the US we pay roughly $300 billion per year in administrative costs we probably wouldn’t be paying if we had systems like they do in Canada or most anywhere else.
Steve
That’s called the “post hoc propter hoc fallacy”, steve. I agree that we pay more in administrative costs. I also agree that our system is different than Canada’s or France’s. But I also believe that the causality just does not go in the direction you’re suggesting.
Consider the following. We pay more per mile of public highway built than Japan, Germany, or France. We pay more per bridge built than any other OECD country. We spend much more per student taught than any OECD country. How to explain that despite the government monopolies or near-monopolies on infrastructure construction and education?
I’ve presented my explanation for that multiple times. Lack of social cohesion. Looking out for #1 isn’t limited to the boardrooms of Fortune 500 companies or big investment banks. It pertains to government, too. The reason that we don’t trust our government as much as the people of the UK, Germany, or France do theirs is because our government isn’t as worthy of trust.
From all of that I conclude that health care is more expensive in the U. S. because health care is more expensive in the U. S. rather than because of how payment is administered or just about anything else one would target for reform. At the present rate of growth in costs we’ll eventually reach a point at which we’ll need to do something much more radical. But we won’t do it until there is no other choice and we haven’t reached that point quite yet.