US Health Care Myths and Facts: Equal

U.S Health Care: Myths and Facts

Members of the Equal listserv suggested covering these issues in presentations on health reform, in exchanges in September, 2009. The Center for Policy Analysis summarized their responses.

1. Who’s More Efficient, Government or the Private Insurance Market?

2. Are We Spending Too Much on Health Care?

3. Do We Pay Too Much for Drugs?

4. Could Importing Drugs Reduce Prices?

5. Can Prevention Programs Reduce Health Care Costs?

6. Is Health Information Technology a Silver Bullet for Reducing Costs?

7. Are there really 46 Million Americans Who Can’t Get Health Care?

8. Can Universal Coverage Be Achieved by Mandating Everyone to Buy Insurance?

9. Do We Need More Government Programs to Cover Low-Income People?

10. Bonus: Summary of William Hsiao: Abnormal Economics in the Health Sector

U.S. Health Care Myths and Facts

Here are samples of what list readers had to say.  To read the full document, please click on the link above.

1. Who’s more efficient, government or the private insurance market?

Efficiency means doing the best job at the lowest cost. Government programs do more of the job – covering the oldest and sickest people, for the most benefits – and at a lower cost than private insurance companies. Private companies spend about 20% of every dollar on administrative costs or profit. (Administrative waste on the provider end consumes another 11%.)[i]  Medicare spends about 3% on administration, and nothing on profits. Community health centers (supported by federal and local government) have been documented to achieve better health outcomes with lower expenditures, fewer ER visits and fewer hospitalizations than private providers

While some people claim that Medicare costs are rising too quickly, it is private insurance premiums that are truly out of control.  From 1970 to 2007, Medicare spending per beneficiary rose 8.5% a year while private insurance premiums increased 9.7% a year.  Had private insurance premiums increased at the same rate as Medicare spending, since 1970 those private insurance premiums would be 33% lower than they are today.  The difference between Medicare’s ability to control costs and private insurance premiums is even more striking in the most recently compiled statistics.  Over the period from 1997 to 2007, Medicare’s cost per beneficiary rose on average 4.4% per year while private insurance premiums increased by 7.4% per year—a 30% difference over the full 10 years.[ii]

Two important factors contribute to efficient health care: First, budgets set responsible guidelines for how fast health care expenditures can grow. Medicare has a budget, unlike private systems; but the U.S. health care system overall does not have any set limits. Secondly, payment methods can provide incentives for inefficiency, especially in systems without budget caps. Traditional fee-for-service plans may encourage doctors to order income-generating medical tests and procedures with only secondary regard for the patient’s benefit, compared with services that are not reimbursed such as discussion to explore a patient’s condition. Salaries and capitation are the other major reimbursement methods. These can lead to under-service, unless there are other organizational and financial incentives that reinforce attentive care.

Both the highly respected, private sector Mayo Clinic and the public Veterans Affairs hospitals are fine examples of efficiency. Doctors are paid a salary; they don’t earn more by ordering more tests. They coordinate health care records and have multi-disciplinary medical teams sharing information about a patient and manage to keep their costs lower.  We can use the ingenuity of these successful American models to improve efficiency.

2. Are We Spending Too Much on Health Care?

In a word, Yes! There’s ample research showing that other countries cover all their residents and spend less. Canada spent 9.7% of GDP on health care in 2008, Germany 10.7% and the U.S. 15.9%. U.S. employers have reported for years that the cost of health care is a major drain on their profitability. The annual spending rate for health care coverage grows faster than most other segments of the economy.

What’s the primary difference? Higher prices.

Providers – hospitals, doctors, supply and technology companies -  charge much higher rates than their counterparts abroad.  Provider prices are marked up by 130% to 150% by insurance companies. And Canadians negotiate for the best drug prices on the world market. insurance companies have made the business decision to inflate prices to pay administrative salaries, legal and clerical staff for declining or rescinding coverage (not paying claims) and advertising, to generate profits for stockholders, and distribute additional stock options and bonuses for the management..

American private health care spends a lot for corporate profits and salaries that do not go to care. Non-profit insurers (or HMOs) pay salaries almost as high as for-profit companies. The former CEO of Mass Blue Cross recently took a $19 million golden parachute when he left; the current CEO gets $3 million in annual compensation. If this happens at Ford, you can always choose to buy another model car. But you can’t disenroll from your employer’s health plan.

Despite spending almost twice as much, the U.S. is rated 37th in the world for health. Men’s life expectancy is 75.6 years and women’s 80.8 years. Canadian men’s life expectancy is 78.3 years and women’s 82.9 years. In Germany, it’s 76.5 for men and 82.1 for women.

We can spend the same amount as we do now, and have the best health care in the world.

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