Addressing Healthcare Costs -Adminstrative Costs

The primary contributors to higher costs are administrative costs, healthcare professional labor, and pharmaceutical.  Administrative costs in the USA average 8% with some reported to be over 15% compared to other countries 1% to 3%. Medicare while many opponents of government managed care administrative costs are around 2% (Medicare is More Efficient Than Private Insurance). Physician and nurses salaries are also higher in the USA than in most other countries.  Primary care physician average $218,173 while in other high-income countries salaries are $86,607 to $154,126.  The USA medical education system is more costly and more prolonged than those in other countries. Regarding pharmaceuticals in different counties, the average cost ranges between $466 to $939 while in the USA is $1,443. The first in this series will be addressed administrative costs, followed by health professional salaries, and pharmaceutical expenses.

Administrative Costs

Our current private health insurance system as shared has a substantially higher expense to administer the programs compared to Medicare.  Addressing these costs assuming there will continue to be a private insurance option is critical.  Some of the differences between Medicare and the private sector is they spend significant amounts of time reviewing the population that they are serving. They carefully examine claims, double check against eligibility requirements, often seek other medical opinions/alternatives for treatment and so forth. All of these activities drive up costs. Historically Medicare is not involved to this extent in their reviews of claims.

Another issue is that the private insurance industry typically has a provider network in which they carefully monitor their activities and negotiate their reimbursements rates. This is unlike Medicare which has a flat payment schedule for all providers. Thus, again raising administrative costs.

Marketing costs for the private and insurance companies are incredibly high in comparison to Medicare which has little or no marketing costs. It is it more costly to market to an individual than a group. Private insurance companies market to both. Thus attempting to enroll consumers into their health care plans is an expensive adventure.

While the costs of administering the Medicare program is substantially less with healthcare for all program, there will undoubtedly be an increase in the expenses. Primarily the cost increase will be driven by the significant growth in the number of individuals enrolled in the plan. However, experts estimate the cost will not significantly exceed the expected 3% associated with administrative costs.

Another difference between the Medicare program and private sector is also the salaries of executives. With so many different private insurance companies the cost of merely just having sufficient administrative support as well as higher executive salaries is also significant. In the most likely scenario where a private and combination Medicare and/or expansion of the Affordable Care Act will be the most viable option, the private sector will have to adjust their costs given the reimbursement limitations that will be imposed on administrative overhead. The cap will force efficiency and perhaps encourage fewer review processes. These actions may mean some restrictions on treatments and specific pharmaceutical that are outside of a negotiated rate.  For more information check out 2017 article in PolitiFact Comparing administrative costs for private insurance and Medicare.