Guest commentary: Follow the money to health care’s undue administrative costs

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Last year, the United States spent around $3.5 trillion on health care. As there are about 325 million of us, that comes to a bit over $10,000 per person.

Not only is that twice the per-person average that other industrialized countries spend, at around 18 percent it is also about twice the percentage of gross domestic product that those countries spend on health care. And they cover everyone.

According to data provided by the Organization for Economic Co-Operation and Development, a group of 36 countries working on economic and social issues, we are not getting our money’s worth.

We pay the world’s highest prescription drug prices. Our medical outcomes, such as maternal and infant mortality and our overall life expectancy, are worse than those of most other modern nations. Millions of Americans have no health care insurance, and millions more who have insurance either defer needed care or go bankrupt due to unaffordable deductibles and copayments. Where is all the money going, if not to good care?

Some experts point to our high prices as the culprit. They believe that price transparency and more competitive markets can solve our problems. Our prices are high, but there’s an even larger elephant in the room, gobbling up a ton of money. In fact, it consumes close to one-third of all health care spending. That unproductive and ravenous elephant is administrative overhead.

How did we come to spend around $1 trillion a year on health care administration? There are many reasons, but the main ones are for-profit private insurance companies and a bureaucratic industry called managed care.

The overheads of private insurance companies average around 20 percent. Until reigned in by provisions in the Affordable Care Act (aka Obamacare), many companies spent even more than that, on advertising, executive compensation, sales commissions, shareholder dividends, and routine claims processing, including denials and appeals. The overhead of Traditional Medicare is 2 percent to 3 percent, because all it does is process claims.

In the 1970s, as health care costs were rising everywhere, we in the United States tried to bring them under control through better management. We experimented with health maintenance organizations and hired physicians, nurses and case managers, to reduce hospital lengths of stay, deny treatments and otherwise micromanage health care. The result has been a slight improvement in some medical costs, but this has been accompanied by an enormous new managed care bureaucracy, spread among hospitals, physicians’ offices and insurance companies. The cost of all this bloated administration accounts for that trillion dollars.

About the same time that we went in that direction, Canada implemented its single-payer national health care system, with private doctors and hospitals. By eliminating around half of the administrative overhead of a complex, multi-payer, for-profit insurance system, their percentage of GDP spent on health care remained fairly flat, while ours has continued to escalate. Their health outcome results are better than ours, and everyone is covered.

Multiple academic studies agree that we could cut our health care administrative overhead by around half by moving to a single-payer system, saving as much as $500 billion each year. We could save $100 billion more by negotiating prescription drug prices. That total amount is many billions more than it would cost to provide full health care insurance to everyone, with no deductibles or copayments. That amount is more than enough to pay negotiated prices for prescription drugs, as well as dental, vision and hearing care. Billions now spent each year on paperwork could be redirected to actual care.

How do we move the money around? There will be taxes, as you have no doubt heard. What you may not have heard is that for 95 percent of households, those taxes will be less than what they currently pay in insurance premiums, deductibles, copayments, prescription drugs and other components of health care. The only ones expected to pay more are those with annual incomes around $400,000 and higher. For the 99 percent, you would pay less and get more.

The simplest route to this goal is to expand and improve Medicare, a proven and efficient single-payer system. There may be some tradeoffs, but the greatest result would be improvement in our nation’s health and the relief of much unnecessary physical and financial suffering.

Dr. George Bohmfalk practiced neurosurgery in Texas before retiring to spend half of each year in the Roaring Fork Valley. He is active in Physicians for a National Health Program (PNHP.org), a physician-driven group advocating for a single-payer health care system. His series will appear in The Aspen Times on Fridays.