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Passing the Buck
By PAUL KRUGMAN
Published: April 22, 2005
The United States spends far more on health care than other advanced
countries. Yet we don't appear to receive more medical services. And we have
lower life-expectancy and higher infant-mortality rates than countries that
spend less than half as much per person. How do we do it?
An important part of the answer is that much of our health care spending is
devoted to passing the buck: trying to get someone else to pay the bills.
According to the World Health Organization, in the United States
administrative expenses eat up about 15 percent of the money paid in
premiums to private health insurance companies, but only 4 percent of the
budgets of public insurance programs, which consist mainly of Medicare and
Medicaid. The numbers for both public and private insurance are similar in
other countries - but because we rely much more heavily than anyone else on
private insurance, our total administrative costs are much higher.
According to the health organization, the higher costs of private insurers
are "mainly due to the extensive bureaucracy required to assess risk, rate
premiums, design benefit packages and review, pay or refuse claims." Public
insurance plans have far less bureaucracy because they don't try to screen
out high-risk clients or charge them higher fees.
And the costs directly incurred by insurers are only half the story. Doctors
"must hire office personnel just to deal with the insurance companies," Dr.
Atul Gawande, a practicing physician, wrote in The New Yorker. "A well-run
office can get the insurer's rejection rate down from 30 percent to, say, 15
percent. That's how a doctor makes money. ... It's a war with insurance,
every step of the way."
Isn't competition supposed to make the private sector more efficient than
the public sector? Well, as the World Health Organization put it in a
discussion of Western Europe, private insurers generally don't compete by
delivering care at lower cost. Instead, they "compete on the basis of risk
selection" - that is, by turning away people who are likely to have high
medical bills and by refusing or delaying any payment they can.
Yet the cost of providing medical care to those denied private insurance
doesn't go away. If individuals are poor, or if medical expenses impoverish
them, they are covered by Medicaid. Otherwise, they pay out of pocket or
rely on the charity of public hospitals.
So we've created a vast and hugely expensive insurance bureaucracy that
accomplishes nothing. The resources spent by private insurers don't reduce
overall costs; they simply shift those costs to other people and
institutions. It's perverse but true that this system, which insures only 85
percent of the population, costs much more than we would pay for a system
that covered everyone.
And the costs go beyond wasted money.
First, in the U.S. system, medical costs act as a tax on employment. For
example, General Motors is losing money on every car it makes because of the
burden of health care costs. As a result, it may be forced to lay off
thousands of workers, or may even go out of business. Yet the insurance
premiums saved by firing workers are no saving at all to society as a whole:
somebody still ends up paying the bills.
Second, Americans without insurance eventually receive medical care - but
the operative word is "eventually." According to Kaiser Family Foundation
data, the uninsured are about three times as likely as the insured to
postpone seeking care, fail to get needed care, leave prescriptions unfilled
or skip recommended treatment. And many end up disabled - or die - because
of these delays.
Think about how crazy all of this is. At a rough guess, between two million
and three million Americans are employed by insurers and health care
providers not to deliver health care, but to pass the buck for that care to
someone else. And the result of all their exertions is to make the nation
poorer and sicker.
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