Overhead, so what? Medicare needs competition

Last Thursday, the New England Journal of Medicine published an article stating that administrative costs of health care in the United States are higher than those in Canada: $1,059 (U.S.) in the United States versus $307 (U.S.) in Canada. The lead author, professor Steffi Woolhandler of Harvard Medical School, has written similar articles over the years, all with the conclusion that the United States should embrace government-monopoly health insurance like we have in Canada.

As the authors note, American patients, doctors, and hospitals have to deal with multiple insurers, each of which has different policies and paperwork.

In Canada, patients only have to deal with one government-run insurer per province. The authors believe that competing private insurers cause high administrative costs, and that a single payer would be able to capture this waste and spend it on patient care.

In 2002, the average Canadian patient waited almost four months from the time his general practitioner decided that surgery was necessary until a specialist provided the care. That span of time has been growing since 1993, when it was only nine weeks.

Further, Canadians have little access, relative to other developed countries, to doctors and high-tech imaging machines. In a comparison of access to doctors, Canada ranked 17th of 20 countries. Canada also ranked of 17th of 22 countries in a comparison of access to CT scanners, 18th of 23 countries for access to MRI machines, and 13th of 14 countries for access to lithotriptors (used to pulverize kidney stones).

Remarkably, this lack of access comes at a high price. After accounting for the fact that Canada has a relatively young population, it spends more on health care than all multipayer OECD countries outside the U.S. -- countries such as Germany, Switzerland, and Japan.

Despite these facts, Prof. Woolhandler and colleagues assume that arbitrarily low administrative costs are the primary indicator of a well-functioning health-care system, and ignore other costs imposed by government monopoly. With some of the longest waiting times in the world, and age-adjusted health expenditures higher than all other OECD nations with universal health-care systems, the Canadian model is clearly not the rousing success it is purported to be.

Low administrative costs, caused simply by government monopoly, do not necessarily cause a better health-care system or low overall costs.

Consider the automobile industry: Wouldn't it be cheaper if we got rid of all the salesmen, advertising, marketing, and models that differ in trivial matters such as colour? If we all got our cars from the government-run factory, wouldn't we have a fairer and cheaper automobile "system"? They tried it in the Soviet Union and East Germany. The results were Ladas and Trabants.

The article also ignores the fact that both the federal and state governments create a lot of the administrative costs in U.S. health care.

About half of U.S. health care is privately financed, and that share is subject to an increasing burden of regulation that reduces competition and adds to costs. Private insurers in the U.S. are basically selling government-mandated policies.

Without competition, providers have little incentive to act in the interests of consumers. Hospitals do not feel the need to provide more surgeries to reduce waiting lists or provide higher quality care, because they are secure in the knowledge that patients cannot go anywhere else. Provincial insurers are not concerned with long queues for health services or a lack of access to doctors or technology, because those who pay insurance fees will never stop paying, nor will they go elsewhere.

It would be a serious mistake for Americans to fall into this trap and opt for a Canadian-style, single-payer system -- considering only the money saved on administration, and not the needless suffering and money lost unaccountably through lack of competition. For Canadians to take the fact that we spend less than our neighbours do on administration as a reason to be smug would also be a mistake.

Increased competition in health care results in better outcomes and higher quality of care for patients. A small increase in administration costs in Canada, through the introduction of competition, would be a good thing.

John R. Graham and Nadeem Esmail are policy analysts at the Fraser Institute in Vancouver.

For your reading pleasure, here is the abstract of the article from the New England Journal of Medicine (NEJM.org). I have several lengthy comments I could make but don't have time except to say: the authors should try getting their care through the VA and see how they like it. I do agree that their is too much administrative overhead in this country's health care delivery system. However, I also believe that market reforms could be instituted that would reduce this

Costs of Health Care Administration in the United States and Canada

Background A decade ago, the administrative costs of health care in the United States greatly exceeded those in Canada. We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to health care have decreased administrative costs.

Methods For the United States and Canada, we calculated the administrative costs of health insurers, employers' health benefit programs, hospitals, practitioners' offices, nursing homes, and home care agencies in 1999. We analyzed published data, surveys of physicians, employment data, and detailed cost reports filed by hospitals, nursing homes, and home care agencies. In calculating the administrative share of health care spending, we excluded retail pharmacy sales and a few other categories for which data on administrative costs were unavailable. We used census surveys to explore trends over time in administrative employment in health care settings. Costs are reported in U.S. dollars.

Results In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada's national health insurance program had overhead of 1.3 percent; the overhead among Canada's private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers' administrative costs were far lower in Canada.

Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations' figures exclude insurance-industry personnel.)

Conclusions The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system.

Thanks for the ping, LtG.

Our administrative costs are increased by the greed of the CEO's of the insurance company and the government imposed bureaucracy. I don't know which cost me more in the terms of dollars, but in terms of hassle and time, it's the Government interference that hurts.

I can cancel contracts with insurance companies if I don't like their policies. I can't refuse to work with the Government unless I want to turn away the Patients who have no choice at all under Medicare, Medicaid, and workman's comp laws.

And those laws are enforced with the guns of the agents of the FBI and Office of the Inspector General.

Mr. Graham and Esmail have a good point about "one size fits all" cars. How about, since Americans are increasingly overweight, we have the government take over the food industry. We could eat Goverment issued meals in government run and regulated kitchens. The waste from home kitchens and the bad choices that Americans make if they are allowed to eat what they want when they want it must be inefficient and we know it's unhealthy.

In general, I agree with the premise of the article that administrative costs for health-care delivery in this country are high. However, the main problem with administrators is not their salary costs, it is their goals and behavior. Insurance administrators spend their time figuring out how to target their coverage to exclude people who are sick. Hospital administrators have different goals which may be helping the financial bottom line of the hospital but that certainly may not be helpful to the surrounding community.

Despite my frustrations with the inherent limitations of our system, I certainly would not want to go to a Canadian style health-care delivery plan. The only way to hold down costs (both administrative and clinical care costs) and do it efficiently is to make patients at least partially responsible for the costs they incur. Insurance should be individually based just like life insurance plans and if you smoke, you pay more etc. This would mean abandoning employee sponsored health care, and making insurance payable from after-tax income. Although this could be offset with some type of tax credit.

Unfortunately, I think with health care, we are progressing toward incremental socialism and we will and up with a Canadian-style system or European-style system. Professionally, I am not to worried about the financial impact on me since I will bail out if it becomes too egregious. However, I am worried about when I am 80 years old and need coronary artery bypass surgery. The health minister will tell me that I need to wait a year because the administrator hopes that I will die prior to needing those expensive services.

I bailed out in April, before we got hit with the "Privacy Act" since my geriatric computer systems were going to have to be replaced if I stayed in business. I'm lucky that we could afford it.
Medical Savings Accounts would help. Medicaid should be tied to some sort of repay plan or community service.
Covering everyone from first dollar, regardless of ability to pay and refusing to allow ownership - which more often than not engenders stewardship - of healthcare is much more responsible for runaway health costs than multimillion dollar salaries for CEO's or even jackpot jury awards for malpractice(although it's obcene what some of the CEOs and lawyers make through the largesse of Medicare and the courts).

Here comes the radical stuff:

I'm a big proponent of prenatal care, and am glad that Texas has traditionally counted the unborn child in determining eligibility for Medicaid. But, I see married couples and single women who have many more children than I could have afforded because the pregnancy and infant care are free, even for those who work. It is very rare that people are not able to do some sort of work that would benefit the local community. Some of us work(ed) 80 to 120 hours a week for what we wanted, and many industrious men and women work two jobs. Those who receive benefits from the State should be given the right and obligation to repay.

Any thing else is theft.

As the authors note, American patients, doctors, and hospitals have to deal with multiple insurers, each of which has different policies and paperwork.

This is a major headache. And insurance companies use it to their advantage by arbitrarily denying claims and making people rework the system until the claim is out of timely filing to avoid paying claims.

But rather than nationalize healthcare, the government can just develop standardized billing and require everyone to be part of an electronic network. That would alleviate the games.

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