Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Wednesday, July 22, 2009

Private Health Insurance

RAND COMPARE is an excellent resource for non-partisan analysis of health care reform proposals. Here are some selected findings. (All quotes are taken from the website.)

1. Private health insurance is much less efficient than public health insurance systems.

Estimates indicate that overhead/administrative costs (premiums minus claims payments) make up 14% of total private insurance expenditures, compared with 3–5% of spending in public sector programs such as Medicaid and Medicare. Other sector specific data suggest that the multi-payer system in the United States carries with it significant administrative costs, some of which can be attributed to redundant processes (Davis et al., 2007; Catlin et al., 2007).

2. The US spends much more on health care administration than other countries do for their health care systems. The US spends 7.3% on administration costs, compared to 3.3% for the UK, 2.6% for Canada, and 1.9% for France. Various studies estimate anywhere from $90 - $270 billion dollars in cost savings could be achieved by transitioning to a single-payer system.
Many health sector experts characterize the U.S. health care system as administratively wasteful. Economist Henry Aaron described the system as “ administrative monstrosity, a truly bizarre mélange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird” (Aaron, 2003).

3. Americans spend more time dealing with health finances than health care. Those in public programs get better information and service.
[H]ealth care consumers today spend more time interacting with medical office and health plan staff than they do interacting with physicians... Medicare beneficiaries are more likely to report that they always or usually get the information they need or the customer service they expect.

4. American households spend more money on expenses not covered by insurance than they do for the insurance itself.
In 2003, households spent almost $513 billion on health care. Of that, $230.5 billion (45%) went toward out-of-pocket payments, including co-payments, deductibles, and services not covered by insurance (Cowan, Hartman, 2005). $174 billion went toward premium payments, both for individual insurance, employee shares of employer-sponsored health insurance, and Medicare (Cowan, Hartman, 2005).

5. The poor and the elderly devote a much larger share of their income to medical expenses than others.
Low-income households spend nearly 16% of their income on health care; higher-income households spend 3 to 5 percent. Households headed by individuals age 65 and older spend more than 11% of their income on health care. Households headed by younger persons spend just under 3 percent.

6. The US spends an enormous amount on health care as a society.
The Centers for Medicare & Medicaid Services estimate was that health care spending in the United States reached $2.1 trillion in 2006 and projected to reach $2.25 trillion by 2007... Health spending as a share of GDP is expected to grow from its 2007 level of 16.3% to an estimated 19.5% of GDP in 2017 (about $4.3 trillion)... [H]ealth care spending growth is expected to outpace GDP growth by an average of 1.9% points annually.

7. Despite these expenses, the US population is less healthy by several measures than other developed nations.
Comparisons with other Western developed countries provide perspective on U.S. health. In general, members of the U.S. population have shorter life expectancy, shorter healthy life expectancy, and higher infant mortality than the population in other major countries. [figure references omitted]

In my view, these findings frame a big picture. The problem is not just that some people cannot afford insurance. The deeper problem is that the entire private health insurance system is wasteful, fraudulent, and broken.


Raised By Republicans said...

Great post Dr. S!!

I look forward to one of us doing a follow up on it that debunks a series of myths and propaganda lines put forward by Republicans and other opponents to health care reform.

The big one in my mind is "government run health care will insert a bureaucrat between you and your doctor." Of course, there already is a bureaucrat between me and my doctor. It's just that he or she is not accountable to anyone but the company who has a financial incentive to sign me up for premiums but not to pay out.

Dr. Strangelove said...

The figures above show that for every $1.00 you pay in premiums to a private insurance company, you only get back an average of $0.86 in benefits.

We can compare this to other insurance industries. It's actually a rather good rate for the insurance business, believe it or not. In California, the Insurance Commissioner has some obscure reports that contain some information on the subject. There is also some historical data to look at, with some charts and graphs.

CA 2008 Private Passenger Auto Insurance Liability + Physical Damage: $19.7 billion collected in premiums vs. $11.5 billion paid out in claims for losses incurred. Yes, that means the auto insurance companies in California pocketed $0.41 cents of every dollar they were paid... and these figures do not include the extra interest income they earned from investments.

Medical malpractice insurance in California is even more amazing: $610 million in premiums vs. $100 million in payouts. The insurance companies keep 83 cents on the dollar. (I will partly spare you the joke about who is really "making a killing" here.) But think about that one when the insurance companies cry out for caps on payments.

Homeowners insurance: $6.36 billion in premiums vs. $3.45 billion in payouts. Their raw profit: $0.46 cents on the dollar.

Fire insurance: $1.23 billion in premiums vs. $0.79 billion in payouts. Their raw profit: $0.36 cents on the dollar.

The insurance companies divide up the market into niches and zip codes, then use a phalanx of lawyers to avoid paying out claims. They play on individual mandates and fear. If I had my way, we would offer a public option for all these types of insurance--and watch as the rates come way down for everyone.

Pombat said...

Bashing the Republican myths & propaganda is pretty easy really - use real world examples of other countries.

UK: when you are born, you are registered with your local GP, usually the one your parents are already registered with. If you move house, you register with your new local GP. To register, you just take along some id to show you live in the area. Then, when you need to go to the doctor, you go to that doctor and get treated. You then walk out of the surgery.

If you need a prescription, they're all charged at a set rate, it was around GBP7 when I was there last. That's regardless of the drug. Various classes of people don't have to pay that - students/kids, low income, etc. Contraceptive pills are free, as are smear tests & STD swabs (for both genders). So prescriptions are your only charge.

Emergency rooms: all free. You get injured in an accident, an ambulance collects you, you get treated. If you choose to, you can have private health insurance, whereby you pay a premium each month and it entitles you to various treatments at little or no extra cost, usually in nicer facilities, with more staff per patient etc. Most dental is now private, for adults. Kid's dental care is still free, I was paying GBP12/month for my dental care, under that plan I had a full root canal on one tooth, including truckloads of drugs, a full set of x-rays and a gold framed porcelain capped 'natural looking' crown, the total additional cost to me was GBP60, for the lab fees for making the crown.

Eye tests tend to cost, around GBP25, but a lot of employers refund the cost of a test every two years, if you use a computer at work. You can often claim expenses back for glasses, if you need them specifically for computer use.

All this is paid for via a tax collected at the same time as income tax - notably, employers pay a percentage too (called National Insurance).

Australia: most people have private health in addition to the standard system - once you get over a certain age (and income I think), your standard healthcare tax (Medicare levy, deducted by payroll, alongside your income tax) percentage increases if you don't have private.

No registering with a local GP like the UK, it's much more of a walk-in type system, where you choose the doctor you want, regardless of where they are (and then regularly visit them if you wish). There are plenty of 'bulk bill' clinics available, where you don't actually pay anything, you just sign to say you've received services, and they then bulk bill the government for all their patients - there are standard Medicare refunds for doctor's visits, can't remember exactly how much, but say $35 for a standard visit, so bulk bill clinics only charge that much. Most optometrists are bulk bill, as they make their money on glasses.

If you choose a doctor who costs more than the standard Medicare rebate, that's fine - you just pay on the day, then submit the rebate to get your cash back - easiest way is to go into one of the many Medicare offices, hand over your Medicare card and doctor's invoice, and smile sweetly as they hand back the cash on the spot. You can also now get your Medicare card linked, so that doctors with the facility swipe your Medicare and credit cards, and only charge you the post-rebate amount; or Medicare automatically refund you afterwards.

For private claims, you just attach an invoice to a single page form, post it all off, and the claim is paid within about a fortnight - so far I've only used this to get $25 off my sports massage, under the 'preventative care' bit.

I have no knowledge of healthcare in the rest of Europe, but I understand that some of it's pretty damned impressive - granted, they have higher taxes, but still.

(ps I'm not trying to brag about our healthcare - I count myself very lucky, and hope Obama can fix yours for you)

Raised By Republicans said...


One of the things that Republicans LOVE to talk about is that with single payer plans you get government restrictions on some health services for some patients. They like to use the word "rationed" health care. One guy from Texas even said that in Canada "One in five patients have to die!" Obvious nonsense and Jon Stewart already said, "Uh, I'm afraid the other four are going to die too."

They also like to say that there are enormous lines of people waiting for health care. That people have to wait so long that they often die waiting for needed care.


A) Is this true in the UK or Oz? That is, are there certain procedures that you can't get.

B) What is the typical wait time for you between when you ask for an appointment and when you get to see your doctor?

C) Can you pick your local GP in the UK? Or are GPs assigned to particular districts?

Raised By Republicans said...

Dr. S.

With the huge profit margins one other kinds of insurance, why are insurance companies so insistent on staying in the health care business?

Dr. Strangelove said...

It's a much bigger market. I suspect advertising costs are much higher in things like auto insurance. Not to mention the "brokers" they have to whom they must pay kickbacks.

Raised By Republicans said...

Yeah, I figured it was something like that. A small profit from 200 million transactions is big money.

The Law Talking Guy said...

Dr.S - the huge profits in auto insurance are EXACTLY why insurance companies want mandatory health insurance without a public option! Mandatory auto insurance has been a disastrous policy from this point of view.

Raised By Republicans said...

We get right wing lurkers who now and again pop in and leave obnoxious little rants when we blog about race issues and stuff. But when we have a serious, detailed discussion about health care policy... crickets.

Dr. Strangelove said...

Yup, crickets. The right-wingers should be deeply upset about the auto insurance stuff, especially as the government forces them to buy it. But they are too busy selling said insurance :-)

Pombat said...

RbR's questions:

A - are there procedures that you can't get in Aus/UK?

Um, to be honest, I don't really know, as I've always been pretty healthy. My understanding was always that anything you need, you can get done. Elective surgery, such as cosmetic surgery etc, is a different matter, but anything that has an impact on your health, will get fixed for you. Of course, if there are a choice of techniques/drugs/whatever, you may not have immediate NHS/Medicare-funded access to the latest/most expensive/one you want because it's trendy, but you will have access to a proven remedy.
[there was a big fuss in the UK a couple of years back about an extremely expensive, yet not necessarily magic-cure, cancer drug not being available, or not available to all or something]

B - typical wait time to see doctor?

In both countries, you can see your doctor that day if you have some kind of emergency (like flu, suspected gastro, that kind of thing). For general/regular check-ups, you'd be really unlucky to have to wait a week.

The waiting times are for seeing specialists/having surgery. The oft quoted one is that you have to wait for two years to have a hip replacement. To be honest, I'm not entirely sure of the truth of it, but it seems to be a simple equation of number of medicos specialising in something, vs number of patients needing that something. It varies by geographical location too - some areas just manage their healthcare better, and seem to have more of the right medicos.

You get seen quicker in private practice as they can pay specialists more, and after a certain time in public practice, fighting bureaucracy and dealing with whoever turns up, some specialists understandably get fed up and decide to go and get paid more in the private sector, seeing fewer patients, in nicer surroundings. Can't blame them really, and at least they stay in medicine, rather than just quitting completely.

So, yes, there are waiting lists for certain procedures, I have no real idea on exactly how long they are, but we certainly don't have people dropping like flies left right and centre due to a lack of care. I remember our elderly diabetic neighbour got an abcess on his leg, didn't tell anyone until it got so big he needed amputation (he had a health visitor who came to see him, but hid it from them, because he thought he'd have to leave the village & maybe go into care if he 'fessed up). As soon as it was noticed, he was straight into hospital, and sorted out within a couple of days.

C - can you pick your local GP in the UK, or are they assigned to districts?

Yes and no, mostly yes. Each surgery has its own catchment area/district/whatever, and each surgery has multiple doctors in it. If you live in a really really tiny place, your local surgery may have only one doctor, who is by default your doctor, and tough luck if you don't like them. You have to live in a VERY small and out of the way place though - we're talking unprounceable hamlets in the Highlands of Scotland or depths of Wales. Most places, you'll have at least one surgery, with a handful of docs. Bigger towns, there'll be multiple surgeries, with overlapping areas. So you choose your surgery if there's more than one, and you can then choose a doctor within that surgery. In practice, you usually get assigned to the first doctor you see when you first visit/register, but you can always change that by requesting to see another one, as you're allowed to see any doc in the surgery you choose once registered with that surgery, and of course you have a gender choice too (I prefer female doctors for certain checks for example, so usually just register with a female doc). The only exception to the choice being when your doc's having a holiday - in that case the choice is one of the other docs, a locum, or wait til your doc gets back.

Pombat said...

ps I would like to see some info on the 'socialist' Scandinavian countries and their health care - that would be good.

Incidentally, costs for UK healthcare: an average income earner would pay about 20-25% total taxes on their salary, which is income tax and 'national insurance' - NI is supposedly the bit that pays for health & state pensions. Having just googled to find the rates, courtesy of the UK Customs dept, it's either 5% or 11% depending on which category you are (can't figure that right now), and your employer pays 13% of your salary too. No-one pays anything on the first six grand or so of your salary though, because that's your tax free allowance. Average salary in the UK is in the low twenty thousands I believe.

In Aus, you're looking at a 1.5% Medicare levy I think (i.e. tax, taken by payroll at the same time as income tax, just like NI in the UK), plus your private healthcare costs, which for Spotted H and I are about fifty bucks a month each I think. Maybe a bit more, could be as much as seventy (it's through Spotted H's work, so I'm not entirely sure - comes straight off his paycheque, and we're reassessing it soon - that's top cover, we're not sure we need it all).

On that other note, car insurance is so very different from health care - if they could see past the profits, they'd know that. Car insurance is so that there's money to pay for any mess you make with your car, being allowed to drive a car is not a fundamental right nor requirement, therefore requiring you to purchase insurance to drive is fair. Health care is a right (I believe) - everyone should know that if anything ever happens to them (like being hit by a car!), they'll be cared for until they're healthy, regardless of their income or coverage. Yes, I'm fine with people getting 'better' care if they have more coverage/cash, but there should be a base level accessible to all.

Raised By Republicans said...

I'm afraid I don't have much personal info on Scandinavian health care. During the time I've spent there I was able to pick up that dental care is free for children and half of it is paid for for adults. I do know that Denmark has both public and private hospitals and doctors so I gather that is very similar to what Pombat described for the UK and Oz.

Interesting about the waiting and choice issues. Here, I usually have to wait two months to get a regular check up with the hospital/clinic I go to. I go to that clinic because of its affiliation with my employer and the insurance company my employer uses (so my employer picked the doctors). That clinic has satellite locations where I can just drop in for more urgent things (like flu f.ex.). But there I probably won't see an M.D. but just a "nurse practitioner" which is a nurse with a certain amount of extra training enabling him or her to prescribe drugs.

An anecdote about bureaucracy: My grandmother recently passed away. When she was in her final days she couldn't swallow (too weak and suffering from dementia). But she was in a lot of pain so my aunt (a physical therapist) tried to get the nurse and doctor at the nursing home to give her pain-killers in suppository form. The insurance company refused saying that the suppositories were only designated for certain ailments none of which she had. My aunt tried to explain that her mother couldn't swallow anymore to no avail. The costumer service people said that they could review the situation and after some days/weeks of processing give a more considered decision. Obviously, not much good for my grandmother would likely have been dead by then and was suffering pain all that time. It was only because my aunt (through her work) had met the VP of the insurance company in question that she was able to get the insurance company to review the situation more urgently. Fortunately, a few phone calls did the trick. But not every family is as well connected. My point in this little story is that the myth Republicans are really pushing now is that government run health care will insert a bureaucrat between you and your doctor. The implication is that there is not one there already.

The Law Talking Guy said...

I don't want to get into a big fight about whether driving a car is a fundamental right. Let's just say that there are plenty of places in the USA (and Australia) which were designed and built around having an automobile. For residents of such places, the theoretical option to forego a car is actually an extreme burden. For most such people, it might as well be a right or requirement.

I don't think that really makes health insurance and car insurance different. In fact, car insurance rates in CA may exceed health insurance rates.

I would also note that car and health insurance rates sre connected: the main purpose of car insurance is to cover the health costs of people who don't have them covered under a no-fault health care system. If we made it a no-fault system where health care costs were not charged to the drivers, car insurance would be much, much cheaper.

Pombat said...

There are plenty of places in every country in the world where having a car makes your life easier. That does not make it a fundamental human right - there is always the option of moving house to somewhere that you don't need a car to make your life easier. And yes, moving house may be tricky etc, but it is possible (alternatively you can pretend to be from a non-first world country and suck it up). Having access to decent health care that will, for example, be able to treat your child so that they do not die from diarrhoea related dehydration, is a right as far as I am concerned. It is totally different.

I agree that car insurance costs would probably be lower in places where those costs do not have to cover someone else's health care. I have no idea what car insurance rates are like in the US, nor in Australia for that matter, but in the UK they can be as little as a few hundred a year for a small car such as a Fiesta. And you can choose anything from third party (just the other people's costs get covered), right through to fully comprehensive (all your costs get covered, whether in an accident, or a theft situation); it's illegal to drive with no insurance. In Aus, your car 'rego' includes third party insurance, and it's illegal to drive without a rego label.

RbR: regardless of the fact that you got things 'fixed', that's still a horrible horrible situation. What the Republicans seem to be refusing to admit is that the difference between private and public health care (in the context of the US), appears to be thus: public, you would have a bureaucrat 'between' you and your doctor, which in practice would mean some invisible paper-shuffler somewhere leaving you to get on with things; private you have several profit-motivated 'bureaucrats' between you and your doctor, trying their damnedest to stop you getting any care that may cost them money. It seems totally different to private care in UK/Aus - there it's set up to be very customer focussed, I guess because we have the public option to keep them honest, or at least helpful...

Raised By Republicans said...

Interesting LTG. I hadn't thought about the effect a single payer health care plan would have on my auto-insurance. I also carry a certain amount of homeowners' insurance designed to cover injuries to people other than me on my property. That would go down too.

I imagine it would have a similar but not as dramatic effect on malpractice insurance. Once you start looking for hidden costs imposed by private payment for health care you find it everywhere!

Pombat said...

RbR: nice thought that the cost to you personally would go down - I'm reckoning that your auto, house, and everything else insurance would remain just as expensive for *you* as now, and the difference in cost would magically turn itself into company profits. But I could just be being cynical - I mean, it's not like the executives at the top of these companies are bad, or at all greedy, people, now is it?...

Raised By Republicans said...

Pombat, the way my insurance policy is set up, it is a la carte so I could selectively reduce or eliminate certain aspects of coverage.

Also, with auto and home owner's insurance there is a genuine market - unlike health insurance. So I could chose a different company on my own without any input from my employer.

Dr. Strangelove said...

It is interesting to consider how, in a supposedly competitive marketplace, profit margins on insurance policies can remain so high. Usually one looks for barriers to market entry--and there is a fair amount of overhead (staff, office branches, etc.)--but I think the profit margin is just too big to explain away like that.

The ability segment the market must have something to with it, I figure. Somehow the market is not functioning as we believe it ought to.

Raised By Republicans said...

True, Dr. S. Profit margins are awfully high. In a fully competitive market, profits should be approaching zero.

It's not like "competition" in the cable TV services - each company gets a regional monopoly. But I do think there must be something fishy going on. Some sort of cartel behavior.

Pombat said...

Looking at RbR's suggestion that auto insurance would go down if you didn't have to have a component for other peoples' health, I've just found this article on a cycling blog I read, which I think links in here nicely - continuing thinking along the lines of the article, I come to the conclusion that your personal healthcare costs should be reduced if you don't have an automobile...

Raised By Republicans said...

To be fair, it was LTG's suggestion not mine.

The Law Talking Guy said...

You need only look around every major city in America and see all the skyscrapers with insurance company names on them to figure out how much profit they make.

It's just not a very competitive market out there for most kinds of insurance.

What is most irksome is that you are not really insuring against anything other than your own illiquidity.

The Law Talking Guy said...

To follow up, RBR, you are absolutely right. Almost all "liability insurance" is about the cost of medical care or payment for wrongful death. The former should be taken care of by a single-payer health insurance system. The latter could be taken care of by general social insurance such as they have in New Zealand. It does boggle the mind that we rely on private liability insurance and lawyers (with their massively inefficient contingent fees) for situations of wrongful death.

Note that we took care of a lot of this for employees with a "worker's compensation" system.

Raised By Republicans said...

"It does boggle the mind that we rely on private liability insurance and lawyers (with their massively inefficient contingent fees) for situations of wrongful death."

Actually, we've essentially used the tort system to privatize the regulatory system. Whereas most countries would use government enforcement to punish companies for polluting whole towns or using dangerous production processes that injure workers, we use law suits.

Not very efficient at all.

The Law Talking Guy said...

I'm not sure how inefficient it is to use the tort system for regulatory enforcement. Sure, it seems indirect and odd, but let's ask what the societal cost is of using the tort system in this way compared to its benefits? I mean, yes it's a poor way of compensating individual plaintiffs, but fear of lawsuits seems to motivate improved corporate behavior more than anything else I can think of. Other than maintaining a judiciary, which is both really cheap and has lots of other uses, this sort of regulatory system is free to the taxpayer. And it is also remarkably resistant to political change because whatever you can say about politicization of the courts, they are the least political branch of government, or at least the least partisan.

I think our tort enforcement system has worked well for issues of product safety and okay for issues of workplace rule enforcement in white-collar businesses (OSHA, by contrast, is expensive and works poorly).

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