Passing the Buck

[Guest guest]

April 22, 2005

OP-ED COLUMNIST

 

Passing the Buck

By PAUL KRUGMAN

 

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.

 

Why do we put up with such an expensive, counterproductive health care

system? Vested interests play an important role. But we also suffer from

ideological blinders: decades of indoctrination in the virtues of market

competition

and the evils of big government have left many Americans unable to comprehend

the idea that sometimes competition is the problem, not the solution.

 

In the next column in this series, I'll talk about how ideology leads to

" reforms " that make things worse.

 

 

E-mail: _krugman_ (krugman)

 

 

 

Copyright 2005 The New York Times Company

 

 

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