Monday, November 02, 2009

Why US health care costs so much

Ezra sits down with Kaiser Permanente CEO George Halvorson, who hands him a pack of charts that tell the story.
The packet's 36 pages are mostly graphs showing the average prices paid in different countries for different procedures, diagnostics and drugs. There is a thudding consistency to the pages: a series of crude bars, with the block representing the prices paid by American health-insurance plans looming over the others like a New York skyscraper that got lost in downtown Des Moines. [...]

There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care. As Halvorson explained, and academics and consultancies have repeatedly confirmed, if you leave everything else the same -- the volume of procedures, the days we spend in the hospital, the number of surgeries we need -- but plug in the prices Canadians pay, our health-care spending falls by about 50 percent.
The graphs are rather stunning. Of course, they don't explain exactly why there should be such a huge discrepancy, although Ezra notes that in other countries the government regulates the allowable rates. So the obvious conclusion is our private insurers here are willing to bleed Americans to the max to maintain profit levels for both themselves and the providers.

Hard to see how the difference is justified but on the other hand, I fear any cuts will fall on the backs of the doctors rather than their corporate managers and facilities. Knowing several doctors intimately, the one thing I can say, is they deserve the money they make. It's got to be the most stressful occupation in the world. It's not easy to have a job where every decision literally is life or death. And you have to live with the fact that sometimes, people die.

[More posts daily at The Detroit News]


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Blogger (O)CT(O)PUS said...


Last weekend I was doing a little Google research on the subject and came up with this:

Profit is actually a FALSE and MISLEADING concept in the health insurance industry. What really drives the industry is the medical-benefit ratio, defined as the amount paid out in claims versus what the company keeps to cover sales, marketing, underwriting, administrative expenses (including CEO compensation), and profit.

Twenty years ago, companies paid 95% of revenues on claims. Today, they pay only 80%. Bottom line: medical benefit ratios have changed dramatically; but companies can always cook the books and make the claim that the industry is operating on razor thin margins. Where did the extra money go?

Stock Buybacks: From 2003 to 2008, the 7 largest carriers spent $52.4 billion buying back their own shares. Buybacks raise shareholder stakes but do nothing to improve operations, create efficiencies, or reduce subscriber premiums. Representative Buybacks: Aetna ($9.4 billion), CIGNA ($6.6 billion), UnitedHealth ($19,2 billion).

Mergers and acquisitions: Shrinking competition is another major cause of spiraling costs. Since 1996, there have been 400 corporate mergers among health insurers, resulting in a small number of companies dominating local markets. Mergers undermine market efficiency and raise premium costs. Insurance companies have bought clinical and diagnostic labs, then charge physicians $50 per patient per referral for failing to use them (this is called “restraint of trade” - an illegal practice resulting in a $400 million fine against UnitedHealth).

Some other statistics to keep in mind:

Point #1:
Average premium growth (1999 – 2007) = 120%
Average wage growth (1999 – 2007) = 29%
Health insurance costs have risen four times faster than wages.

Point #2:
Private insurance overhead and profits = 20%
Medicare overhead (no profit) = 3%
Government-run programs yield more cost-savings than private-run programs, contrary to industry propaganda.

People on Medicare can choose between public and private options that contract with Medicare. An overwhelming 80 percent choose Medicare's public plan over the privately contracted plans. Furthermore, between 1997 and 2006, spending per enrollee grew at an annual rate of 7.3% for private insurers versus 4.6% for Medicare.

I don't know if these stats answer any questions, but lets just say: The healthcare insurance industry does not pay attention to its core business but seems to operate as if engaged in Wall Street style investment banking ... with all the excess and greed that goes with the territory.

8:21:00 PM  
Blogger Libby Spencer said...

That's so true Octopus. Investments are a big part of the industry overhead. Just in posting about whatever story crosses the transom, I've seen many cases where the ins. co. invested in either Wall St or weird RE deals like hotels and of course lost big money so they pass the costs onto the consumer.

7:00:00 AM  

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