by Samuel Metz, M.D.

It can’t be done. At least it can’t be done if we use private insurance companies to provide that care. More care for more people means more insurance policies. More policies cost more money. Pretty simple.

How much more money will it cost to expand comprehensive health care to all Americans? Projecting from a 2009 study in California, expanding care to the entire country would cost $210 billion more each year. And that’s without the administrative costs of private health insurance.

Administrative costs of private health insurance? But isn’t the free market the most financially efficient method of providing any service at all, including health care?

Many of us believe that concept without question. Thus we Americans are unique in the industrialized world in financing health care with American-style private health insurance. And thus, we are unique in the industrialized world by squandering 40% of our insurance premiums on insurance administration. That is not a misprint…40%.

Of the $875 billion Americans pay annually to private insurance companies, we lose $350 to administration before any of it goes to health care. So where does this money go? First, insurance companies keep 20% of each dollar for their own cost of doing business. The insurance industry does not dispute this figure. The Affordable Care Act attempted to make that 20% administrative loss a legal maximum limit, not just an average, but the insurance industry prevailed. So far, the Department of Health and Human Services has exempted seven states from that requirement, allowing administrative expenses to legally exceed 25% of every dollar collected. And more states are waiting for their exemptions.

From the 80% of premium dollars that the insurance industry eventually passes on to health care providers, there is yet another massive loss. Physicians, hospitals, and nursing homes all struggle to collect their due from insurance companies. This is an industry that, after all, denies 30% of all first claims. Our physicians, hospitals, clinics, and nursing homes spend over $100 billion to collect their due from insurance companies. None of that money goes to patient care.

We Americans believe this is normal. We can’t imagine health care without insurance companies, so we tolerate a health care system that loses more in administrative costs ($350 billion) than the cost of expanding comprehensive care to everyone ($210 billion).

Single payer is different. Single payer financing means replacing thousands of different benefit schedules, insurance plans, and insurance companies (all of whom are dedicated to their own financial interests) with one financing agency dedicated exclusively to providing the best possible health care at the lowest possible cost to its participants (i.e., all of us). Money that formerly went to insurance administrative costs is converted into patient care. 

Does single payer really save administrative costs? Single payer systems around the world and in the U.S. already spend a fraction of the administrative costs of American private insurance companies. This is not a fantasy.

Here are examples:

• Almost every large business in the U.S. uses a “self-funded” financing system for its employees. “Self-funded” systems are single payer systems. These businesses halve their health benefit costs by using single payer instead of private insurance companies.

• The administrative costs of Medicare are less than 2%; those of Medicaid are nearly 1%. Both are single payer plans.

• The Veterans Affairs medical system cares for America’s sickest patients with the best results at the lowest cost with the highest patient satisfaction of any health care system in the U.S. The VA is a single payer system.

• Administrative costs for the national single payer system in Taiwan are less than 2%. Ironically, the Taiwanese system was designed by American economists, including Dr. William Hsiao of Boston and Dr. Chunwei Chi of Oregon State University.

In every population that uses it, single payer provides better care for less money than private health insurance by converting unnecessary administrative costs into health care.

Would single payer financing work on a state or national basis in the U.S.? Every one of the two dozen state and national studies comparing single payer to other financing mechanisms comes to the same conclusion: single payer provides better care to more people for less money than any other system of financing.

If our goal of American health policy is to protect our insurance industry, we should do exactly what we are already doing. Unfortunately the Affordable Care Act guarantees this will happen. 

But if our goal is provide better health care to all Americans for less money, we need not guess, speculate, or experiment. Single payer has already achieved these goals around the world and here at home.

Single payer health care is a proven reality: better care to more people for less money. It’s not impossible; it’s a reality. It’s time to make it universal.

Recommended reading:

1. Samuel Metz. “Origin of the statistic ‘Private insurance diverts 40% of collected premiums’.” December 6, 2012

2. Physicians for a National Health Program website.  “Single Payer System Cost? How Much Would a Single Payer System Cost?” This site does not include the 2009 IHSP national study, the Friedman national study, the Friedman study in Pennsylvania, or the most recent Minnesota study.

3. Institute for Health & Socio-Economic Policy. “Single Payer/Medicare for All. An economic stimulus plan for the nation.” 2009.

4. Kuttner, R. Market-Based Failure — A Second Opinion on U.S. Health Care Costs. N Eng J Med 358 (6): 549-51, February 7, 2008.

5. Woolhandler, S, Himmelstein, DU. Costs of health care administration in the United States and Canada, N Engl J Med 349:768-772, 2003. 

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Tag lines: costs of private health insurance; costs of single payer financing; Affordable Care Act; administrative costs; state exemptions; Medicare; Medicaid; Veterans Administration; universal health care.