Americans Can't Do The Basic Health Care Arithmetic

A minimum of $300 billion dollars saved.  That is what I thought could be achieved by eliminating insurance companies from the American health care system.  It turns out the savings are a lot bigger than that.  Just looking at countries where the per capita health care costs are at least $2500 and comparing the USA to Switzerland - the country with the next highest per capita health care costs we get the following equation:

$2640 (the difference) x 320 million (current population the the US) = $844.8 billion

That is what converting the US health care system to single payer would involve.  No more managed care companies (MCOs)  pretending to be efficient.  No more pharmaceutical benefit managers (PBMs) rationing medications in order to make profits.  No more outrageous Obamacare premiums that seem to be rising with no end in sight.  No more MCOs, and PBMs making your doctor's life miserable and burning him or her out.  The writing should be on the wall by now for all Americans.  The US Congress and their healthcare lobbyists fully intend to continue the unsustainable health care bureaucracy to every American until the last possible moment.  That is as true for Republicans as it was for Democrats.

What do I mean by unsustainable?  According to KFF.org in 2016 employer purchased health insurance policies averaged $18,142 per year ($12,865 paid by the employer and $5,277 paid by the employee).  For retirees the situation is even more stark.  I used the AARP calculator to look at estimated health care costs only in retirement for a theoretical couple retiring at 66.  The result was an estimated $225,463.  Of that total only $121,529 was covered by Medicare and that left a shortage of $103,934 in out of pocket costs.  To me that means the average Social Security dependent senior citizen in this country cannot cover their health care costs even with Medicare.  Some of them are telling me their supplemental policies are as high as $20,000 to $25,000/year.  For any couple trying to stay in their own home in retirement - health insurance premiums and property taxes will easily absorb most if not all Social Security income.  The gross estimate by this calculator varies from state to state but some sources have given the gross average amount for a retired couple to be about $260,000.

And where does all of that money go?  That is easy.  It goes to bad management.  In a country that has fewer doctors and fewer hospital beds than most countries in the above graph - it should be obvious that rationing medical care to make profits for Wall Street does not work.  Two recent experiences will illustrate the problem.  I heard a presentation given by a speaker from one of the major physician run medical clinics in the  US.  For some reason she started talking about the ratio of administrators to physicians in their organization.  The number given was 50 administrators to every physician.  That is an absolutely stunning number.  With that number of people in hospitals and clinics - it should raise the question "What are they doing there?" and "Why does it take this many people to administer the most accountable professionals in the US?" Not only that but what has all of this administrative oversight accomplished?  The answer is in the graph at the top of this page - the most expensive and most inefficient health care system in the world.  It is basically an expensive jobs program for managers and bureaucrats, and bad technology.

The second scenario was a physician talking with me about his speciality clinic of 5 physicians.  He recently learned that they were being administered by 15 mid level administrators reporting to a single higher level administrator.  When he questioned this practice, he was asked why he was concerned about the number of administrative staff.  I guess according to the previous estimate he was doing quite well with a ratio of 16 administrators for 5 medical staff.

The real impetus for this post occurred as I was doing some exercises at home before work this morning.  The Today show was playing in the background.  Matt Lauer and Katie Couric were interviewing Trump advisor Kellyanne Conway about a number of issues.  I heard the question: "Have they (Republicans) come up with something to replace Obamacare?"  Ms. Conway responded with the typical free market solutions - buying insurance across state lines, health savings accounts, etc, etc.  None of these are solutions to bad management and what is basically corporate welfare for the army of healthcare administrators in this country.  The only correct response to that question is:

Single-payer health insurance.

Get rid of the unnecessary managers and save a trillion dollars in mismanagement.



George Dawson, MD, DFAPA


Attribution:

The figure on per capita health care spending is from the Kaiser Family Foundation accessed on January 1, 2017 and this is their citation:

OECD (2016), Health spending (indicator). doi: 10.1787/8643de7e-en (Accessed on 01 January 2017).

 I have no affiliation with the Kaiser Family Foundation or the OECD and their graphic is used here per their terms of use for non-commercial, non-profit sites.


Supplementary 1:

I would be remiss in not pointing out the mountain of fake news that goes into getting Americans to believe that some kind of government led "reform" that concentrates market power into a few for-profit proxies is a good idea.  There is the associated fake news from both parties that just happens to leave the pricing power to private industries,  In that context the fake news by Ms. Conway this morning is all part of an unmistakable 30 years of nonsense stretching back to the Clinton administration and their idea about "managed competition".  We have had nothing but mismanaged competition ever since.  The dynamic in health care is an obvious parallel to the financial services industry and their guaranteed profits from the work of Congress.  In both cases, all Americans foot the bill.


Supplementary 2:

Let me remind the free market advocates that there is not now and there will never be a free market in health care or anything else in the USA.  It is (largely) a Republican fantasy.  The major markets in the US all depend on government intervention and the sector with the best lobbyists gets the most favorable deals.  It is the only way to explain a trillion in waste, just based on "free market management" not including other boondoggles like a highly regarded electronic health record that is less functional than 1990s database software and paying $300 for 29 cents worth of epinephrine.

SCOTUS decision irrelevant for health care reform

The decision by the Supreme Court on June 28 regarding the Patient Protection and Affordable Care Act has generated a lot of speculation about the implications for health care reform, the politics of the Supreme Court, the health of Supreme Court justices, and the impact on two party politics. Very few people seem really focused on the issue of health care reform. Even the most positive spin on this decision misses the mark. This article by Brooks that seems to center on the ideology of the Court and how the decision is healing is illustrative with the following quote:

"People in both camps seem to agree: We’ve had a big argument about health care over the past several years, yet we haven’t tackled the big issues. We haven’t tackled the end-of-life issues. We haven’t fixed the medical malpractice system. We are only beginning to correct the antiquated administrative systems."

And:

"... we haven’t addressed the structural perversities that are driving the health care system to bankruptcy. ... American health care is still distorted by the fee-for-service system that rewards quantity over quality and creates a gigantic incentive for inefficiency and waste."

The observations like essentially all observations about the ACA ignore the basic fact that this IS managed care and in fact - managed care on steroids. Managed care has proven time and time again to not contain costs and introduce administrative inefficiency in over two decades of experience. Whether or not the Supreme Court allows it to go forward or it is politically defeated in the future is peripheral to the fact that managed care has not worked as a device to contain health care inflation and it certainly does not provide either quality care or innovation. It can make money for stockholders and CEOs. In fact, in an up or down economy I can't think of a better recipe for making money than being able to deny health care benefits to a group of health care plan subscribers or deny or reduce reimbursement to physicians.

The structural perversity in the system is that in the overwhelming number of cases, personal health care decisions are no longer made between a patient and a physician. Contrary to managed care hype, their decisions are not necessarily based on any legitimate evidence. They are based on what is good for business and in this case we don't have a business that needs to build a better product. We have a business that has to ration access to a service.

Until that is recognized - health care reform is basically continuously rearranging ways to shift money from the people providing the care and the people paying for care to business entities that are "managing" the care.

The outcome is as predictable as where the managed care systems have gotten us to at this point.

George Dawson, MD, DFAPA