Interest in Medicare for All during the primary campaigns last spring was typically met with the wrong question: “How can we afford it?” The better, more urgent question is “How can we afford our current system?”
In 2019, the U.S. spent over $3.7 trillion on health care. That’s 18% of the gross domestic product of the world’s largest economy, over $12,000 for every man, woman and child — and rising. Much of that is spent on the very sick and the elderly, but even the average healthy family of four today spends $28,653 annually on health insurance.
It was not an efficient use of $3.7 trillion. Thirty percent went to overhead and administration, more than double the percentage of any other country in the world. That’s over a trillion health care dollars that did not go to a hospital, doctor, pharmacy or any other health care provider but instead to a huge and largely private bureaucracy that comprises 22% of our health care work force.
In my first decade of practice, the number of physicians in the U.S. grew by 50%, while the number of health care administrators grew by 2,000%.
Here’s what that looked like on the ground: 30 years ago my solo medical practice ran smoothly and efficiently with two employees, a nurse and a secretary. As the insurance system grew in complexity, my expenses rose so I joined a group to share those expenses.
Subsequently, we hired more employees, not to heal the sick, but to review complicated insurance contracts, handle copays, denials, prior authorizations and to track differing compliance rules and ever-changing medication formularies from each insurance plan.
By my retirement last year, each physician in the group had seven employees and was hiring more — for paperwork. Similarly, many hospitals openly acknowledge they employ more billing staff than nurses.
Prior to the Affordable Care Act, private health insurance companies had 30% overhead, so only roughly 70 cents of every dollar collected paid a medical bill. The ACA is supposed to cap their overhead at a still generous 20% with the surplus being refunded (though it’s unclear to whom).
The public/private partnership of Part C Medicare Advantage plans has done nothing to reduce waste. Quite the contrary. These private Advantage plans cost U.S. taxpayers approximately 10% more per beneficiary than traditional government-run Medicare. Yet traditional recipients are generally sicker.
Currently, these plans can only be administered by a private insurance company and are extremely profitable, as the dollars they put into marketing and advertising illustrate. Thus they pay shareholders and reward CEOs with salaries in the tens of millions annually. Traditional Medicare does not pay shareholders and has an overhead of just 4%. For that remarkable achievement the Medicare director earns just $250,000 annually.
Another reason for high costs is simply high prices. U.S. prices are higher than necessary for a normal profit, and are driven by the market power of providers and by the difficulty we have assessing prices and quality.
Hospital care consumes the largest portion (33%). Mergers and consolidation have helped the hospital bottom lines, but no savings are passed along to patients. And again, administrative costs in U.S. hospitals are double those of other countries.
Drug prices — famously higher in the U.S. — account for about $400 billion annually. Tests and procedure costs are higher too: The average price of an angioplasty in the U.S. is $28,400 compared with $7,500 in Israel. Our angioplasties are no more effective than theirs, and their facilities are state-of-the-art. A patient seriously injured while in Israel told me he’d gladly return there for all his future care.
As for physician fees, U.S. doctors are well paid. However, most specialties are equally well paid in Canada. Today more doctors move to Canada to practice than leave Canada.
Another cause of our high costs is our inadequate investment in public health — never more apparent than the past year. As the saying goes, an ounce of prevention is worth a pound of cure, so other countries achieve value by spending 6% of their health care budgets on public health. U.S. public health spending has fallen over the past 20 years to below 3%. We task our frontline doctors with addressing smoking and obesity whereas public health campaigns would be more effective and less expensive.
Responsible governance means taking a hard look at wasteful spending and making the changes necessary for our economic well-being. We don’t have to accept an overpriced system that does not meet our needs. How can we pay for a better system? We already do.