Employee Benefits

Administrative expenses are not the cause of high premiums, but the response to high health care costs. Single payer will make it worse 

It is commonly accepted that the cause of high health care costs and resulting high premiums is private insurance and the related administrative burden it creates. Advocates for a single payer system point to the great administrative savings possible. They are wrong and they have it backwards.

I began working in health benefits and processing health insurance claims for a major employer in 1961. Back then nobody much cared about the cost of health care. In fact, in 1962 we expanded benefits and a few years later expanded them again adding prescription drug coverage. Back then doctors were paid based on a fee schedule, the same amount was paid regardless of the doctor accepting the payment in full or not.

Then some things changed, the major one was converting from a fee schedule to reasonable and customary fee payment and prices began to climb increasing each year as physicians raised their fees. In the late 1960s and early 1970s costs began to escalate and we started looking at hospital length of stay (remember when having a baby was a five-day hospital stay and same day surgery was unheard of). We looked at the justification for pre-admission testing and we began to question the need for surgery and health plans paid for second opinions because we were told that up 25% of surgery was not justified.

No co-pay so I thought, what the heck?

In another response to growing costs we came upon HMOs with federal money pouring in to stimulate growth. Managed care and keeping people healthy was to be our salvation…it wasn’t; patients rebelled while doctors thought it was going to be business as usual. Gradually insurers promised cost control through pre-certification, discounted physician networks, case management and array of other techniques, including wellness programs.

Rising health care costs in America have many causes, many of them the result of Americans themselves plus changes in medicine and new technology. The worried well visit the doctor at will, we overuse specialists and the tests and procedures they order, we are addicted to quick solutions via a new prescription, we equate quality with high cost, we expect and demand instant and convenient access to all forms of care and we have generally poor lifestyles especially compared with the other nations the US is frequently benchmarked against.

The point is that what we have now in terms of the complexity paying for health care is not the cause of rising health costs, but in response to it. No matter how you slice it, the administrative burden in health care is a small slice of total costs and much of that burden is caused not by insurance companies, but by government regulation. Think of all those forms you must fill out and sign in the doctor’s office, most are caused by regulation such a HIPAA and patient rights, etc. and that’s only the tip of the iceberg when it comes to what hospitals and doctors must cope with.

A single-payer system may be in our future if for no other reason than to provide universal coverage, but to claim or expect that such a system will save billions of administrative dollars is ludicrous. Private sector administration will be replaced with greater government administration and the efforts to truly manage costs will continue with various and new forms of health care management, covert rationing, care cost/benefit analysis, budgeting and allocation of health care resources … just as every other similar system in the world must do.


1 reply »

  1. As a patient, I can’t tell when a test is done to avoid a lawsuit or because big Phar invented the test. My doctor talks often about percentages for people in my condition or age group. Have a birthday, you need to go get this test done. With what I feel like are extra tests, and since my treatment has only changed once with a test it makes you wonder if it was necessary. Of course the day find cancer early, I’ll be singing a different tune so I’ll keep taking expensive tests in the hope it will save healthcare money and my life at a future date. But I really do not know if I am wasting money or not. I do not go to the doctor and ask to you have a pill for this or that? If it were up to me, I would never go to a doctor again.

    As for the admin cost, you can tell just how much over regulation that there is when you get an explanation of benefits form. 7 pages, of which the first page is a bunch of codes that even BS/BS can’t explain to you over the phone why they didn’t pay the claim. Followed by 5 pages of how to appeal in several different languages with statements of non-discrimation and privacy laws stuff. It makes you wonder what cause all that crap to be required on that statement. With a single payer system, I just see more of that “crap” as higher admin cost than service.


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