What makes the US health care system so expensive – Responses to comments, ctd.

These are continued responses to my series on what makes the US health care system so expensive.  Introduction and links to all posts here.  Responses to comments 1-8 here.

9.  I have received a number of complaints, some from people I respect, that I have grossly underestimated the amount of money that we are wasting on all administration and overhead.  Part of this stems from the fact that the McKinsey paper figure includes the cost of insurance overhead and program administration, but does not separate out the costs incurred by hospitals, doctors offices, nursing homes, employers, etc. for administration.  This is a fair point.  Some have pointed me to the paper by Himmelstein and Woolhandler in NEJM that concludes total such costs reach 31% of all health care spending.

I’d note that these administration and overhead costs are lumped into inpatient and outpatient care.  They are, well, part of the cost of providing care.  Just as malpractice costs are spread in there, as are disease prevalence costs.  I had to bunch things one way or another.  This is the way I chose to do it.

I should note that no one is disputing the fact that we spend more on administration than we should.  I should also note that some people, whom I also respect, have argued that the 31% number is bit high, although even they don’t dispute it’s still going to be a large number, even if it’s really in the mid or high 20’s.

Here’s my problem with believing we can fix all our cost problems though reduction in overhead spending.  How much lower can we go?  We’re not getting down to zero.  The NEJM paper cites Canada at 17%.  But they have a very low overhead system.  Can we get that low?  I don’t know.  Moreover, I already said we’re too high by 4-5% for insurance administration and overhead.  Could we say there is an additional 4-5% of overhead in the inpatient and outpatient care slices?  Sure.  Tackling those costs alone, without affecting care in other ways, though, outside of radical reform would be very difficult.  Which leads us to…

10.  A number of single payer supporters have been upset by my apparent dismissal of a single payer system’s ability to fix things.  I admit, this series wasn’t on how much more are we spending than we could expect to under a single payer system.  It’s how much more are we spending than we could expect to based upon our wealth.

But that skepticism of mine is real, and it has to do with the belief that a single payer system in America could easily bend the cost curve.  I’m not skeptical because I don’t think single payer fails in this potential, but because I don’t believe the American people are being led to understand how much a difference they will see in the health care system if we do bend the curve.  I think many countries, single payer or not, do a better job than we do in terms of the cost curve.  I don’t know if we have the stomach to do enough, no matter what system we adopt.  It’s not a failure of single payer, per se.  It’s a failure of our system, and our national discussion.  It’s possible to have a very, very expensive single payer system, and this series was about costs.

11.  A wise economist has pointed out to me that by indexing against GDP I’m really discussing health care spending compared to economic output and not wealth.  I’m sure he’s correct, but fixing every post would be too much to bear.  I humbly ask you to read it all as some measure of how rich we are.

UPDATE: Some people won’t stop.  I’m not saying that other single payer systems don’t cost less than ours does.  Pretty much all systems outside the US cost less, regardless of format.  I’m also not saying that a single payer system in the US would not cost less, would not achieve better outcomes, and would not include everyone.  I actually think all those things are likely true.  The goal isn’t to spend a little less, though.  The goal is long-term cost-containment.  This series is not about solutions or about single-payer specifically.  This series is specifically about what makes the US health care system so expensive.

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