Beyond Administration

Much is touted about the administrative costs associated with health insurance. It is true that these costs are too high. There is clearly room for greater coordination among claim systems, simplification of processes and more. The insurance industry needs to fix this. It is also true that Medicare has lower administration costs than many private carriers but the Medicare numbers do not include expenses that are included in the private sector (advertising, some salaries, etc.) yet which are clearly an expense of running the program. In addition, one of the cost problems for Medicare is that administrative costs are too low. Medicare is plagued by billions of dollars in fraud and a Congressional Budget Office report notes that Medicare merely processes claims it does not review or manage them as an insurer would. I suppose that some people would see that as a good thing, but not if you want to manage costs it isn’t.

So much of today’s current argument for a public plan is based on the administrative cost and profit argument we have lost our perspective. High executive salaries and horror stories about denied claims are turned into fact sheets for the high cost of health care.  In reality the net profit for health insurers averages about 4% of total revenue.  The return on assets are generally lower than Wal-Mart or Dell.  Should we march around the parking lot at Wal-Mart demanding lower prices or seek a public alternative, perhaps the military can open the PX to all Americans.  But wait, there is a difference health care is supposed to be “free” or at least “affordable.”

If we could lower administrative costs to zero that would mean our initial cost base would be lower but that does nothing to the rate of growth in future costs. This argument is no different than the employer that implements a high deductible health plan and then claims all the success it had in controlling it’s costs. In fact, as is the case with Medicare reducing it’s payments to providers, costs are merely moved from here to there.  The issue is not who pays the claims, it is how many claims, for what services and at what unit price.

Over the years I served on the boards of directors of four non-profit federally subsidized HMOs and on three task forces for three different governors to evaluate the employee benefit programs for state workers. I can say without hesitation that the non profit mentality does not bode well for efficiency or cost management and government is not the habitat of efficient administrative or any other processes related to health benefits.  Bureaucrats are at the mercy of politicians (or they just don’t care), politicians are beholding to unions and other interest groups and when faced with hard choices check the calendar for the date of the next election first. 

A recent article in the WSJ about the costly French health care system quotes the President of France as asking government run hospitals “to hire more business managers and behave more like private companies, for instance by balancing their budgets.”

In France the doctors cannot charge more than $32.00 for a consultation. If America wants to control costs all we have to do is have a national mandated fee schedule applicable to all private insurers. That schedule rises at no more than general wages and the insurance companies, doctors and hospitals can compete based on their own efficiency and quality. We won’t need networks of providers or a federal bureaucracy to administer it all.   All that is left to be done is to keep people out of the health care system through healthy life style.  Oh yes, one more thing, we still need to monitor utilization and assure that only medically necessary and appropriate care is provided, but that is what the insurance companies, disease management firms and others already do, (but Medicare doesn’t).   And I guess we also need a way to assure that medical advancements and new technology are not stifled.

Since the AMA supports universal coverage and less administration for doctors they will love this (the set fee part at least).

Boy, this stuff really is complicated, but never fear there is no problem that cannot be solved in six months.

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