Tag Archives: single payer

You hate your health insurance company for the same reason you hate your cable company

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It’s not all their fault.

According to a recent Harris Poll, health and life insurance companies are among the least-trusted companies in the US. Just 7% of the surveyed 2,250 adults told Harris they trusted their health insurance company, while 10% said the same of life insurance companies…

…The health and life insurance sectors narrowly beat out telemarketing and social media companies, with a 6% approval rating; oil companies with 4%; and tobacco companies with an abysmal 3%.

Insurance Business America, June 16, 2015

Ouch.

I spent four years working at Anthem Blue Cross and Blue Shield, most of which was spent answering calls from members. As the face of the company, I felt that mistrust directed right at me. I was often the bearer of bad news, and people tend to shoot the messenger. And, in a way, that’s also what health insurance companies are: the messengers of bad news about our healthcare system.

(Side note: Please be kind to the people answering the phone. They are at the bottom of the totem pole, and they’re not the ones making the decisions. They have highly stressful jobs, and they’re really trying to help you as much as they possibly can.)

Is that mistrust of the health insurance industry justified? Yes and no.

Running a health insurance company is an endless series of tradeoffs and competing priorities. There’s no way to please all of the people all of the time, and that holds especially true in this industry.

So, here are a few things to consider that you might not have thought about.

1) Health insurance plans and premiums are tightly regulated. Each state has a department of insurance that must approve all health plan premiums based on their actuarial value and claims experience. Setting these amounts is really just a question of math, and that’s why actuaries are so valuable. Not only that, but insurers are required by law to keep a large amount of cash reserves on hand to pay claims. Different insurance companies offer different sets of plans, but the fundamental rules remain the same. And, with the Patient Protection and Affordable Care Act, insurers must pay out at least 80 percent of their premiums out in claims or send their customers a refund for the difference. So, that leaves the other 20 percent for shareholder profits, buildings, technology, marketing, employees, and everything else. Note that these ratios are based on the premiums and claims for an entire group and not just you as an individual.

2) You’re probably not the primary customer. If you have an employer-sponsored health plan, your employer chooses your plan. They have many health plans competing for their business, and one of the primary concerns (if not the primary concern) is price. Health insurers offer a variety of plans that are more and less comprehensive, but employers will understandably gravitate toward plans that cost less. The plans that cost less are going to be less generous with benefits because of what I mentioned before about actuarial value. So, if you are dissatisfied with your benefits, it’s not because the health plan didn’t offer a more generous plan; it’s that your employer didn’t want to pay for it. Even if you buy your own health insurance, you undoubtedly face these same cost pressures and need to strike the right balance between paying premiums and paying potential medical bills that the insurance doesn’t.

3) Your health insurance company is kind of like a TV provider. You have probably seen TV networks or local stations getting dropped from cable (or satellite or streaming) subscriptions or warning you that they are about to be dropped. Ultimately, the TV network is having a contract dispute with the cable provider. In order to keep carrying the channels you want to watch, your cable provider has to pay up to the networks. When contracts are up for renewal, there are often disputes about how much the provider has to pay. And it’s exactly the same thing with health insurance companies getting into contract disputes with physicians and hospitals over reimbursement rates. If the health insurance company has to pay higher reimbursement rates to physicians and hospitals in order to keep them in the network, they have to pass that increased cost along to its customers in terms of premiums. I had to answer a lot of questions about these network disputes with people worrying that their doctor or hospital was about to go out of network, and the only thing I could explain was that they’re having a dispute about money. As long as there are multiple sources of revenue, physicians and hospitals can play them off each other as they seek higher reimbursement rates.

At the top of this post, I said the mistrust wasn’t all their fault. With perhaps a few exceptions, they are following the law, and they have lawyers and compliance officers to make sure of it.

Yet some of the mistrust by consumers is well-deserved, and that mistrust should be directed at their political activities. Private health insurance companies simply can’t fix the medical arms race and skyrocketing reimbursements on their own, and that’s because there are multiple insurers. Health insurance companies spend large amounts of money on lobbying and advertising to resist regulations unfavorable to them or being legislated out of existence altogether.

There is one solution that really can help, and that’s a single-payer system. If the government were the sole source of revenue for healthcare providers, then that would be a monopsony. And monopsony power can drive down costs. They would have to accept what the government reimbursed or stop practicing altogether. (Yes, shortages are a real danger of monopsonies that we would have to consider.)

It’s already rare to hear about providers no longer accepting Medicare, even though the reimbursement is lower than from private insurance, because so many patients are on Medicare. If every patient of every age were on Medicare, then that would decrease physicians’ and hospitals’ leverage even more.

Only a single-payer system can truly address the exorbitant prices for medical services in the USA. Insurers have been unable to contain these costs for the reasons I described earlier, and the result is that even insured patients are paying higher and higher medical bills while their employers pay higher and higher premiums.

Although private insurers aren’t the primary cause of the cost problem, they need to get out of the way of a solution that could really contain costs.

Wait times are still a problem in Canada

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Critics of the Canadian health system (particularly from the USA) tend to bring up rationing.

“I’m 59. In either Canada or Great Britain, if I broke my hip, I couldn’t get it replaced.”

Rep. Roy Blunt (R-MO), 8/12/2009

Blunt was pants-on-fire wrong about the Canadian government explicitly denying hip replacements to 59-year-olds.

“At least 63 percent of hip replacements performed in Canada last year and two-thirds of those done in England were on patients age 65 or older. More than 1,200 in Canada were done on people older than 85.”

St. Louis Post-Dispatch, 8/16/2009

But the real problem is how long he would have to wait to get it. An editorial by The Toronto Sun spells out the problem.

One of the reports, by the Canadian Institute for Health Information, found that among other medical procedures, 30% of patients across Canada in 2018 requiring hip or knee replacement, or cataract surgery, did not have their procedures done within recommended wait times.

But that’s only half the story because the recommended wait times for hip and knee replacement are themselves excessive — 182 days or six months — and 112 days or almost four months for cataract surgery.

…In reality, Canada’s health care system could not function without excessive wait times for medically necessary care, as a way of rationing health care to Canadians.

The Toronto Sun, 3/30/2019

According to a Kaiser Family Foundation analysis of OECD data, Canadians spend less than half of what Americans spend per capita in total healthcare costs. And, yes, some of those savings come from reducing the overhead from multiple payers, but some of it is also from rationing.

The Canadian government places limits on the number of medical facilities built in a given area (sort of like certificate-of-need laws in some states), and their ratio of primary care physicians to specialists is much higher than it is in the USA. The Canadian government isn’t so much “pulling the plug on Grandma” (as Senator Chuck Grassley might say) or convening “death panels” (as former Alaska Governor Sarah Palin might say), but they are engaging in implicit rationing.

We Americans ration healthcare too, but we do it based on each individual’s ability to pay the out-of-pocket expenses for a given medical procedure. People with rich health insurance benefits and/or deep pockets get much better access to healthcare than people with fewer resources. So, Rep. Blunt with his excellent benefits could get a much faster hip replacement in the USA than in Canada, but an uninsured or underinsured person might never get it…or go bankrupt.

And affluent people get more medical facilities and physicians closer to them. Just as a real-world example, Exit 210 of Interstate 69 in Fishers, Indiana hosts two competing hospitals within sight of one another…0.9 miles apart. A little to the west in Carmel, those same two hospital chains built hospitals 2.6 miles apart along U.S. 31. Indiana has no certificate-of-need laws, so these two chains are building hospitals so close together — just like a CVS and a Walgreens — because Hamilton County is the richest county in Indiana, and they’re competing for those large private health insurance dollars. There are currently 10 hospitals in Hamilton County, and possibly two more on the way.

Meanwhile, Fayette Regional Health System in rural Connersville, Indiana found itself in bankruptcy in 2018 and nearly closed before being bought out by Reid Hospital, a larger system based in the next county over. It is the only hospital in Fayette County, Indiana. It simply wasn’t bringing in enough revenue from the area’s heavy Medicare and Medicaid populations to stay afloat on its own…something single-payer advocates need to consider.

(Fayette Regional Health System has since been renamed Reid Health Connersville.)

There is no perfect health system. There are always tradeoffs to make. At least in Canada, the misery is spread equally.

Results on the Obamacare experiment are mixed

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We’ve seen a spate of bad news about the Patient Protection and Affordable Care Act (otherwise known as Obamacare) recently.

Insurers are leaving the exchanges. For those insurers who remain on the exchanges, premiums are on the rise. In Arizona, monthly premiums for a 40-year-old non-smoker on a “silver” plan will increase from $207 to $507 (that’s a 145% increase) in 2017.

Ouch.

Not surprisingly, Republicans have seized on this.

So is the sky falling? Is Obamacare “hurting the families it was supposed to help” as John McCain charged?

Talking about unsubsidized premiums on the exchanges is misleading

Let’s take the extreme case in Arizona of a 145% increase. What opponents of Obamacare don’t account for are the tax credits that most people on the exchange receive to help them cover the cost of care. After all, that’s why people buy individual health insurance on the exchanges in the first place…because it’s the only way to qualify for these tax credits based on income.

So, after tax credits, that same customer (assuming he earns $30,000 per year) will pay $207 in 2017: exactly the same as in 2016.

Table 1: Monthly Silver Premiums

for a 40 Year Old Non-Smoker Making $30,000 / Year

2nd Lowest Cost Silver Before Tax Credit

2nd Lowest Cost Silver After Tax Credit
State
Major City
2016
2017
% Change
from 2016
2016
2017
% Change
from 2016
Arizona Phoenix $207 $507 145% $207 $207 0%
NOTES: In areas in which the two lowest-cost silver plans have the same premium, the next lowest-cost silver plan is used as the “second-lowest” silver plan. In some cases, a portion of the second lowest-cost silver plan is for non-essential health benefits so these values may differ from the benchmark used to determine subsidies.

SOURCE: Kaiser Family Foundation analysis of premium data from Healthcare.gov and insurer rate filings to state regulators. For more information see “Early Look at 2017 Premium Changes and Insurer Participation in the Affordable Care Act’s Health Insurance Marketplaces” Jul 2016.

So, sure, if you don’t qualify for tax credits, you would not want to buy this plan on the exchange. But, if you don’t qualify for tax credits,  there’s not much point in going on the exchanges to begin with.

How did this happen?

First of all, if you want to understand why the Patient Protection and Affordable Care Act was destined to raise unsubsidized health insurance premiums for healthy people, you can read my explanation here. In short, Obamacare asks healthy people to subsidize sick people so that they can access health care.

But the exchanges have been up and running since 2014. Why the big jump between 2016 and 2017?

Table 2: Total Number of Insurers by State, 2014 – 2017

Total Number of Issuers in the Marketplace
State
2014
2015
2016
2017
Arizona 8 11 8 2
SOURCE: Kaiser Family Foundation analysis of premium data from Healthcare.gov and insurer rate filings to state regulators. For more information see “Early Look at 2017 Premium Changes and Insurer Participation in the Affordable Care Act’s Health Insurance Marketplaces” Jul 2016.

NOTES: Insurers are grouped by parent company or group affiliation, which we obtained from HHS Medical Loss Ratio public use files and supplemented with additional research.

So, six of the eight insurers on the exchange for Arizona dropped out for 2017. In most industries, less competition means higher prices. So, on the surface, that would seem to explain it.

But health insurance is not most industries. The more insurers (payers) there are, the more leverage hospitals, physicians, and other health providers have to demand higher and higher reimbursement because, if one of their insurance contracts is terminated, they can fall back on their other contracts. Also, health insurance premiums are heavily regulated and must be approved by state departments of insurance in advance. In addition to the historic regulations in each state, Obamacare added a new rule that insurers must maintain medical loss ratios of at least 80 percent…meaning they must spend 80 percent of their premium income or more on paying claims.

The insurers who dropped out cited concerns about the health risks of the populations insured on the exchanges. In short, the beneficiaries were sicker as a group than the insurers had predicted, which is a phenomenon known as adverse selection. Too many young, healthy people are opting to go without insurance and simply pay the penalty, effectively turning the exchanges into a heavily subsidized high-risk pool…something even John McCain advocated when he campaigned for President in 2008.

Is private health insurance a good way to finance health care?

Despite all of the Republican protests, PPACA was designed to be a compromise between Democrats and Republicans to reform the health insurance system without eliminating private insurance. It was modeled after the health reform law that Mitt Romney signed when he was governor of Massachusetts (commonly known as RomneyCare). It’s debatable how well RomneyCare worked in Massachusetts and how good a model it was for federal policy.

I believe the only way to truly correct what is broken in U.S. health care is by burning down (metaphorically) the private health insurance system and moving to a single-payer system financed directly by the Treasury (that is, by taxes). Here’s why:

  • Only single payer can solve the adverse selection problem. Although there is a penalty for not carrying health insurance under the Affordable Care Act, many people — especially young and healthy people — have opted to remain uninsured and pay the penalty because it’s cheaper than buying even subsidized insurance on the exchanges. But, with a single-payer system, every American would be automatically enrolled, and risk would be spread broadly among them. It would not be possible for anyone to be uninsured.
  • Single payer reduces the cost of health care itself. Health insurance premiums are a function of the cost of health care. A system with multiple payers adds layers of administrative complexity for health providers just trying to get reimbursed for the care they provide. Whether it’s managing multiple insurance contracts, hiring collection agencies to chase down payments from patients, or writing off uncompensated care, these costs get passed on in the form of demands for ever higher reimbursement from private insurers with the threat that they will go out of network if their demands are not met. In my hometown of Indianapolis, our largest insurer (and my former employer) Anthem Blue Cross and Blue Shield initially offered health plans on the exchange with “narrow networks,” to reduce costs but later backed off when subscribers were unhappy. With a single-payer system, no provider would dare go out of network because there would be no other source of income to fall back on. That’s the power of a monopsony to reduce costs. It would also eliminate the uncompensated care problem because everyone would be covered.
  • Single payer covers everyone, without exception. The goal of universal health coverage in the United States has been frustratingly elusive. The Affordable Care Act has reduced the uninsured rate from 16 percent to 8.6 percent, which is a tremendous achievement. But 8.6 percent still adds up to 27.3 million people, and that’s 27.3 million too many. Plus, many of the insurance plans offered today, including on the exchanges, have high deductibles and out-of-pocket limits, putting beneficiaries at great financial risk even though they are technically “insured.”

What else can be done?

With that said, a single-payer system doesn’t seem politically feasible, and repealing the Affordable Care Act like the GOP wants to do would put us right back where we started before 2010…including all of the serious problems that went with it. So, what can realistically be done to address the very real problems on the Obamacare exchanges?

  • Substantially increase the penalty for going without insurance. It wouldn’t be popular, but changing the financial calculus could bring more healthy people into the risk pool, which would in turn reduce insurance premiums by spreading risk more broadly. If the penalty were higher than the cost of insurance (or at least not dramatically lower), there would be little to no incentive for remaining uninsured. The higher the penalty, the lower the premiums.
  • Crack down on special enrollments. The exchanges offer special enrollment periods — intended to enable people who have had life changes like a job loss or a change in marital status — to enroll outside of the annual open enrollment period. Insurers have suggested that people have been abusing these special enrollment periods…waiting until they get sick to buy health insurance off cycle instead of enrolling during the open enrollment period.
  • Sweeten the deal for young people. To get more young people (who tend to be healthy) into the pool, they need to be enticed. Perhaps an extra tax credit for people under 30 could change the equation, at least for some. Alternatively, changing the 3:1 age banding requirement (meaning that the oldest person in the pool can only be charged three times as much as the youngest person in the pool) to something more like 5:1 could encourage more young people to enroll since their premiums would be lower.
  • Reduce the cost of care. Despite the spike in premiums on the exchanges in some states, the Affordable Care Act is working to slow the growth of total health care spending…actually exceeding expectations. If we can mitigate the adverse selection problem by getting more young, healthy adults into the risk pool, premiums will follow suit.obamacare-total-spending

 

 

Health insurance can literally be a life-or-death issue

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Health insurance is not health care (and just because health insurance premiums rise does not necessarily mean health care is more expensive), but health insurance is a crucial mechanism that we use to finance and access health care.

And, in some cases, not having health insurance can be the difference between life and death. Just take a look at the results of two studies  published in the August issue of the journal Cancer comparing survival rates for men with two forms of cancer based on insurance status.

From the first study, regarding glioblastoma multiforme, an aggressive type of brain cancer:

Among the 13,665 adult patients in the study cohort, 558 (4.1%) were uninsured, 1516 (11.1%) had Medicaid coverage, and 11,591 (84.8%) had non-Medicaid insurance. Compared with patients who were uninsured, insured patients were more likely to be older, female, white, married, and with a smaller tumor size at diagnosis. Accelerated failure time analysis demonstrated that older age (hazard ratio [HR], 1.04; P<.001), male sex (HR, 1.08; P<.001), large tumor size at the time of diagnosis (HR, 1.26; P<.001), uninsured status (HR, 1.14; P =.018), and Medicaid insurance (HR, 1.10; P =.006) were independent risk factors for shorter survival among patients with GBM, whereas radiotherapy (HR, 0.40; P<.001) and married status (HR, 0.86; P<.001) indicated a better outcome. The authors discovered an overall yearly progressive improvement in survival in patients with non-Medicaid insurance who were diagnosed from 2007 through 2011 (P =.015), but not in uninsured or Medicaid-insured patients.

Rong, X., Yang, W., Garzon-Muvdi, T., Caplan, J. M., Hui, X., Lim, M. and Huang, J. (2016), Influence of insurance status on survival of adults with glioblastoma multiforme: A population-based study. Cancer. doi:10.1002/cncr.30160

Translation: patients with private insurance lived the longest with this form of brain cancer. In terms of surviving glioblastoma multiforme, Medicaid did not seem to make a difference compared to being uninsured.

And the second study, regarding germ cell testicular cancer:

Uninsured patients had an increased risk of metastatic disease at diagnosis (relative risk [RR], 1.26; 95% confidence interval [CI], 1.15-1.38) in comparison with insured patients, as did Medicaid patients (RR, 1.62; 95% CI, 1.51-1.74). Among men with metastatic disease, uninsured and Medicaid patients were more likely to be diagnosed with intermediate/poor-risk disease (RR for uninsured patients, 1.22; 95% CI, 1.04-1.44; RR for Medicaid patients, 1.39; 95% CI, 1.23-1.57) and were less likely to undergo lymph node dissection (RR for uninsured patients, 0.74; 95% CI, 0.57-0.94; RR for Medicaid patients, 0.76; 95% CI, 0.63-0.92) in comparison with insured patients. Men without insurance were more likely to die of their disease (hazard ratio [HR], 1.88; 95% CI, 1.29-2.75) in comparison with insured men, as were those with Medicaid (HR, 1.58; 95% CI, 1.16-2.15).

Markt, S. C., Lago-Hernandez, C. A., Miller, R. E., Mahal, B. A., Bernard, B., Albiges, L., Frazier, L. A., Beard, C. J., Wright, A. A. and Sweeney, C. J. (2016), Insurance status and disparities in disease presentation, treatment, and outcomes for men with germ cell tumors. Cancer. doi:10.1002/cncr.30159

Translation: men who had private insurance were 88 percent more likely to survive germ cell testicular cancer than those who were uninsured, and the men who had Medicaid were 58 percent more likely to survive than those who were uninsured.

In both studies, patients with private insurance tended to be diagnosed earlier on the disease progression than uninsured and Medicaid patients, and this was shown to be important to a patient’s survival.

Arguments for the left and right

There is fodder here for both sides of the political aisle. On the one hand, liberals can point to the 58 percent increase in survival rates among Medicaid patients compared to those who were uninsured. And they can also point to the researchers’ acknowledgement that many of the Medicaid patients were likely to have been uninsured until just after being diagnosed with cancer. Clearly having Medicaid was better for these patients than having no insurance at all.

And yet, on the other side of the aisle, conservatives can point to the results of the first study that, despite all the tax dollars spent on Medicaid, it did not seem to make a difference in survival rates compared to having no insurance at all. Even with the second study, the right can point to the far superior outcomes of patients with private insurance compared to those with Medicaid, even while acknowledging that Medicaid was better for those patients than being uninsured.

Underlying issues

So, what’s an objective observer concerned about health policy supposed to make of these results? I have a few suggestions.

  • Private insurance probably improves access to care because reimbursement rates for physicians and hospitals are much higher than Medicaid. Many physicians will not accept Medicaid patients due to the very low reimbursement rates. Medicaid can also have issues with the timeliness of reimbursement, depending how much funding is left in a given state’s Medicaid budget. Even the physicians who do accept Medicaid might be less inclined to proceed with aggressive cancer treatments for their Medicaid patients than they would be for their patients with private insurance. The germ cell study found that Medicaid and uninsured patients did have a different treatment path from patients with private insurance, but this might be because they were also diagnosed later.
  • Medicaid isn’t as good as private insurance, but it’s better than nothing. Particularly for the germ cell cancers, Medicaid patients had much better outcomes than uninsured patients even though they did not fare as well as the patients with private insurance. Medicaid certainly has its administrative and funding/reimbursement challenges as a government bureaucracy reliant in part on state government sources, but does anyone seriously believe this is causing the cancer patients in their population to die in such large numbers? I’m all for innovations to make Medicaid as efficient as possible so that it can serve these populations as effectively and cost effectively as possible, but the idea that is it a hindrance to care for people who can’t afford private insurance is simply not borne out by the evidence. One learning point from these studies for Medicaid plans is to do more to encourage their populations to get cancer screenings so that these cancers can be caught earlier, but that doesn’t fully explain the insurance disparities.
  • These comparisons don’t represent realistic policy choices. I don’t know of anyone on either side of the aisle who has proposed putting the Medicaid population on private health insurance plans like the ones employers offer to their employees. Republicans would balk at the high cost to taxpayers, and Democrats would balk at the high levels of cost sharing for poor people who can’t afford it as well as the involvement of private insurance companies in general. Sure, some private health insurers have contracts with state governments to administer managed Medicaid plans, but those plans still don’t reimburse physicians and hospitals the way private plans do. They’re not equivalent. Even the private health insurance plans that are available on the exchanges for people a little higher up the economic ladder than Medicaid patients tend to have lower physician and hospital reimbursement rates than most employer-sponsored or individual plans outside of the exchanges. Considering how many Medicaid patients are covered by managed Medicaid plans operated by private insurance companies, one would think these private insurers would be able to close the gap between their regular insured and their Medicaid patients. Given the very real policy implications being debated in state legislatures today, it would be interesting to learn if there are real disparities between managed Medicaid and traditional Medicaid patients, but so far that research is lacking.
  • Medicaid is not Medicare, and it’s especially not single payer. Some on the left, like Senator and former presidential candidate Bernie Sanders, have been calling for a single-payer system that would essentially be “Medicare for all.” Medicare’s reimbursement rates are lower than private insurance but higher than Medicaid, and Medicare have the same payment timeliness issues that Medicaid does because it’s funded entirely by the federal government without involvement of state governments. Unlike Medicaid, physician participation in Medicare is already nearly universal (although I don’t know of too many pediatricians who take Medicare patients today because most Medicare beneficiaries are over 65). Eliminating private health insurance and moving to a “Medicare for all” system regardless of age would bring those pediatricians and the few outliers from other specialties into the Medicare fold because there would literally be no other source of income for them if they intended to continue practicing medicine at all.
  • Achieving equally bad outcomes would be a pyrrhic victory. I’ve seen bumper stickers from conservatives that read, “Liberals want misery spread equally.” It’s a concern worth addressing. If we address these disparities by merely reducing the survival rates of people who currently have private insurance, things will be equal, but no one will be better off. For germ cell testicular cancer, the research tells us that taxpayer dollars spent on Medicaid are quite literally saving lives for people who would otherwise be uninsured. But it’s very important that we understand the complex reasons why the Medicaid population is experiencing these disparities compared to the population with private insurance and address them. My health economics professor from graduate school would say that we need to build a better model.

The “giant sucking sound” of waste in the health system

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I kind of miss H. Ross Perot. Whether you thought he would have made a good President or not, the man sure knew how to explain complicated issues to the public.

It’s also a bit strange for me to look back on this debate from 1992. I was only 12 years old at the time, but I followed politics even then along with my parents. Now, nearly 24 years later, we’re still debating many of the same issues we were debating back then.

Back in 1992, Perot described health care (he really meant employer-sponsored private health insurance) as “the most expensive single element” in making a car in the United States. And if he thought it was expensive then, just imagine what he would think now.

Health expenditures as percentage of US GDP

Health expenditures in the USA have grown considerably over the years as a percentage of Gross Domestic Product (GDP). In 1992, health expenditures accounted for just over 13 percent of GDP. In 2014, health expenditures accounted for 17.4 percent of GDP. Note: Percentage of GDP does not need to be adjusted for inflation or population growth…it’s a constant statistic.

It’s obvious that we’re spending a considerably larger share of our economy than ever on health care. That in and of itself is concerning, but what is even more troubling is how much of it we are wasting. A 2012 report by the Institute of Medicine estimated $750 billion in waste in the U.S. health care system in 2009 alone…nearly 1/3 of total health spending that year.

That’s right — out of every $3 we spend on health care, we’re throwing $1 right in the trash. Actually, it’s worse than that because many of those wasted dollars on unnecessary treatments have actually cost people their lives.

The responsibility for building a continuously learning health care system rests on many shoulders because the stakes are high. As the IOM committee reports, every missed opportunity for improving health care results in unnecessary suffering. By one estimate, almost 75,000 needless deaths could have been averted in 2005 if every state had delivered care on par with the best performing state. Current waste diverts resources; the committee estimates $750 billion in unnecessary health spending in 2009 alone…

…The entrenched challenges of the U.S. health care system demand a transformed approach. Left unchanged, health care will continue to underperform; cause unnecessary harm; and strain national, state, and family budgets. The actions required to reverse this trend will be notable, substantial, sometimes disruptive—and absolutely necessary.

Institute of Medicine, 2012. Best Care at Lower Cost: The Path to Continuously Learning Health Care in America

When we talk about health policy the one area that draws my attention is administrative costs. And, quite frankly, the USA has out-of-control administrative costs largely because our patchwork reimbursement scheme makes things needlessly complex.

In the U.S., there are almost as many different types of health coverage as there are patients. Even within the same insurance company, there are numerous variations from policy to policy. When I worked for a major health insurer, I answered calls from our insurance members but also from physician office and hospital staff who were contacting us just to verify a patient’s benefits, from whether the patient still had insurance to deductibles to coverage exclusions. They had learned that insurance cards weren’t always current or specific enough, so they had to call us one patient at a time because everyone was different…just to make sure they got paid.

Does that sound like an efficient system to you?

It’s a problem they don’t have to deal with in countries with single-payer  health systems…like Canada.

Reducing US per capita spending for hospital administration to Scottish or Canadian levels would have saved more than $150 billion in 2011. This study suggests that the reduction of US administrative costs would best be accomplished through the use of a simpler and less market-oriented payment scheme.

Himmelstein, et al. A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs Exceed All Others By Far. Health Aff September 2014 33:91586–1594;