Administrative Cost Savings Is No Myth

Since November 4th, interest in health reform proposals has understandably intensified.  I like to flatter myself that this blog might make a small contribution.  But I do have a day job and so the horn I blow here only has one note; if we simplify the system we can find the money we need to cover the people without health insurance and increase product satisfaction among all stakeholders.  

I am not a policy wonk who views the health care system wonderfully distilled through the glorious abstraction of statistics; nor am I encumbered by practical politics.   I view the system from the bottom looking up.  I have a stake in the present system, but that stake is poorly represented in these musings.  I am a gatekeeper to the health care maze.  In my ideal world there would be far less need for the work I am doing.

I know from daily encounters just how daunting that maze is for people needing care.  I tend to demonize piece rate physicians who are too quick to deny care rather than trust the maze.

So when I read others who write about health care reform I look for my theme.  On Sunday, November 23, 2008, the Washington Post published an opinion piece by Shannon Brownlee and Ezekiel Emanuel, 5 Myths About Our Ailing Health-Care System.  The authors are right on target with four of the five myths that they debunk.  They drive home the point that we are paying a lot of money for our health care, that we are paying a lot of money for not particularly good health care, that we really are paying the price through premiums, taxes, and lost wages, and that Americans are ready for a change.

I take issue with myth #3 – we would save a lot of money if we could cut the administrative waste of private insurance.  The authors don’t think much of that notion.  Since administrative complexity, and consequently costs, is my central theme, I need to take issue with the authors on this one.  The authors argue that if the private sector were to spend on administration what Canada spends, the potential savings is only $120 billion.  That’s not enough to cover the cost of covering the uninsured, they assert.  In addition, it would only be a one-time savings. 

First, $120 million is well within the cost range most often cited to cover the uninsured.  If not enough, it is certainly close enough.  Covering the uninsured is a major motivation for politicians.  There may be lots of reasons to reform health care, but only this one will move politicians to act.  If there is savings to pay for that coverage, that is additional motivation for political decision makers.

Second, the savings is not a one-time savings.  The savings recurs with every health service that is now billed to a private payer.  I fail to see how the authors can argue otherwise, unless they fail to understand just how duplicative the current bureaucratic maze is.

The authors’ argue that administrative costs are not a major driver of health cost inflation.  True, but those costs pay for administrative services that add little value to population health and add considerably to the inflation of frustration experienced by both patient and provider alike.  

My real beef is that they limit themselves to administrative savings from private insurance.  They ignore the savings from government programs.  Government programs do tend to have much lower administrative costs than the private sector, even lower than the benchmark 15% number used to generate the $120 million administrative savings mentioned earlier.

There are just too many government programs.  And the government programs intersect with the private programs and other government programs in too many confusing and complex ways.  See, for example, my discussion of our program’s encounter with the Veteran’s Administration.

The authors argue rightly on myth #4 – health care reform is going to cost a bundle – that a better organized delivery system will produce greater savings than any administrative savings.  But to achieve the long-term benefits of a better organized health care delivery system, we need better organized patient delivery systems and better organized payment delivery systems.  

The ideal is a system that enrolls people once and payment flows from a single source to those delivering care.  That is admittedly an ideal, but meaningful reform proposals need to keep that target in mind and not layer even more programs, regulations and bureaucracies over top of the current system.

So, to Ms. Brownlee and Dr. Emanuel I maintain that cutting administrative waste to save money is not a myth; it is a necessary first step toward a more efficient delivery system.


One Response to Administrative Cost Savings Is No Myth

  1. Alexis Cala says:

    I enjoyed reading Brownlee and Emanuel’s myths. Though I have to wonder how many people have insurance and have never thought about where the money was coming from to pay for it?

    46 million uninsured, to me, $120 million could at least make a dent! Even if it were a small dent, isn’t it worth a shot? Cutting administrative waste seems like a fairly logical place to start. Why not take a few tips from other countries, like Canada, that have working universal programs and aren’t spending half what we do? Your “ideal system” for example, one that is accessible and functional, that’s what we need.

    We’re also talking about your health and health care, check us out at

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