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 “...an 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.