Posted on December 15, 2008

Single-payer insurance puts more money into health care


By Robert W. Putsch
Helena Independent Record
Your Turn

Great work by Mike Dennison writing on health care reform: “Baucus health plan preserves much of the status quo” and “Why is single payer health reform not viable?” And thanks to the IR for publishing these two articles.

But is Dennison right? Is there enough money in the system to provide health care for all?

There’s been a long-standing dispute over how much a single-payer system can contribute to lowering health care costs.

In August 2003, Drs. Woolhandler, Campbell and Himmelstein published a study of health-care administrative costs in the U.S. and Canada. They stated that administrative expenditures in the U.S. stood at 31 percent of overall health-care costs. A year later they wrote “only single-payer national health insurance could… allow universal coverage without any increase in total health spending.”

Montanans spent $4.9 billion on health care in 2003. If these authors are right, then Montanans paid over $1,600 in administrative costs for every man, woman and child in the state, including the uninsured. That means that only 69 cents of every dollar spent went to health care needs. Remember, administrative costs are passed on to patients, bill by bill, paycheck deduction by paycheck deduction, and even at the pharmacy!

We argued about these numbers while discussing health reform here in Helena a few years back. A physician at the meeting (employed by an insurance company) blew off the 31 percent figure. His argument went something like this: “There’s a lot of controversy about Woolhandler and Himmelstein’s work … you know, basic questions about that number and about their methodology.”

Mike Dennison quoted figures of 15 to 25 percent for administrative costs in private health insurance premiums. Uwe Reinhardt, a Princeton economist who testified this November to the Baucus committee quoted a figure of 25 percent. Are administrative costs really this high? And if so, how high?

In 2005, James Kahn and coworkers undertook to see if the 31 percent overhead figure was correct. They said, “these estimates, the most comprehensive for the United States, have been taken to task for a variety of reasons.” So they studied hospitals, doctors’ offices and insurance companies in California.

Their report in Health Affairs showed that billing and insurance-related functions added up to 21 percent of spending. They added in 13 percent for the rest of the overhead and administrative costs and came to a total of 34 percent! That’s in the ballpark, but even higher than the 2003 New England Journal of Medicine report by Woolhandler!

The Senate Finance Committee has heard about the problem of overhead. On Nov. 19, Professor Uwe Reinhardt, who is also on the board of trustees of the 900-bed Duke University Hospital, used Duke to illustrate the problem: “We have 900 billing clerks at Duke. I’m not sure we have a nurse per (each) bed, but we have a billing clerk per bed…it’s obscene.” Two days later, the New York Times published his article: “Why does U.S. Health Care Cost So Much? (Part II): Indefensible Administrative Costs.”

Hopefully, Senator Baucus’ Finance Committee will examine the only known means to cut these excessive expenditures — a single-payer health plan. As Mike Dennison pointed out, there is an excellent single-payer proposal before Congress; it’s HR 676, sponsored by Rep. John Conyers of Michigan.

Senator Max Baucus has called for reform of the system in 2009, and he is to be congratulated for his efforts. The plan has led to an incredible response.

However, the Baucus proposal has ruled out a government program because, it says, “such a system may not be viable in a country that values individuality, choice and a preference for market-based solutions.” In a June 17 radio interview on Philadelphia’s WHYY, Reinhardt agreed, but only after first pointing out that single-payer is the way to go. “It’s political,” he said, “it’s as difficult to do that (pass single payer) as it would be to grow oranges at the North Pole.” So who needs economics? It’s political.

Thinking about these issues, I e-mailed Professor Kahn at the University of California this week to see if the 34 percent figure was correct. It was, he said, but he added a proviso: A new study of these costs shows that the percentage of administrative overhead is even higher. “We’re in the process of writing this up,” he said, “It looks like only 62 cents out of every dollar spent goes to actual care!”

The e-mail exchange left me shaking my head. Even if the number is closer to Woolhandler’s 31 percent, cut that in half via single-payer and you have well more than enough to cover every resident in the state of Montana!

So thanks again for Mike Dennison’s articles on the single-payer and the Baucus plans. For those of you who missed them, they can still be accessed on the IR Internet Web site. Hopefully we’ll take the advice of the writer of another letter to the IR. On Dec. 7, Bill Balhiser said: “Write or call Max Baucus. Tell him to include a Medicare-for-all plan in his deliberations.” It’s a great idea!

Robert W. Putsch III is a medical doctor who lives in Canyon Creek.