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U.S. Health Care Spending: Where Is the Waste?

By       Message Stephen Kemble     Permalink
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Many still assume universal health care must mean higher costs, but other countries prove this assumption false. The US spends about twice as much per capita on health care as other industrialized countries, yet others are able to cover everyone and have better health outcomes. If we are to succeed in health care reform, we must ask the question, "What are we spending on health care that other countries are not, and that does not add value to health care?" We are now spending about 18% of our gross domestic product on health care and rising. If we do not correctly identify wasted spending and take steps to reduce it, health care spending will continue to break the budget. Contrary to what some assume, all evidence indicates that government financing in health care is actually far more efficient than the private insurance industry. The "Patient Protection and Affordable Care Act" (PPACA) is built around the private insurance model with government subsidies to fill in some of the gaps. It will not reduce total national health spending or waste, and we will face escalating pressure to restrict necessary care.1,2

 

This Pie Chart is based on evidence from comparison with other countries that have well functioning national health plans, 3,4 from cost analyses of various national and state level health reform proposals, including the PPACA, done by The Lewin Group,2 the Congressional Budget Office (CBO), and Centers for Medicare and Medicaid Services (CMS),1 and from studies on regional variations in health care spending in the US. 5 The percentages are estimates, but based on available evidence they are "in the ballpark." The data is much firmer for administrative costs than for unnecessary and inappropriate care.

 


US Health Care - Total National Health Expenditures by Stephen Kemble



Administrative Waste (est. 24%)

 

Administrative waste is the difference between what the U.S. spends on health care administration and what countries with efficient universal systems spend.3,4 Administrative costs include health insurance administration (premiums collected minus payments to health care providers), and administrative costs for doctors, hospitals, employers, and the public.

 

The "waste" includes marketing and advertising, underwriting, multiple private bureaucracies, highly paid executives, managed care costs, pharmacy benefit manager costs, maintenance of insurance reserves, profit, lobbying and "government relations," employer and broker costs, costs to doctors and hospitals to deal with billing and insurance, and physician time lost to dealing with prior authorizations and formulary restrictions.

 

All of these are directly attributable to use of competing private insurance plans, and especially for-profit insurance companies, to finance health care. None add any measurable value to health care.

 

Unnecessary and Inappropriate Care (est. 20%)

 

Unnecessary and inappropriate care is due to inadequate access to necessary care (under-treatment), or to various forms of over-treatment. There is actually far more under-treatment than over-treatment in the U.S.,6 but much of it is in the form of unnecessary suffering and death due to lack of access to care that does not show up in cost figures.

 

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I am a physician with a longstanding interest in single-payer health care reform. I am a graduate of Harvard Medical School and I trained in both internal medicine and psychiatry. I am now an Assistant Professor of Medicine at the University of (more...)
 

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