Essays

The Price of Private Health Insurance

This essay was published in a shorter form by the on-line edition of the Portland Oregonian

Author: Samuel Metz

Date: 05/23/2010

How much would you pay to keep your private health insurance instead of a single payer system? A thousand dollars? Ten thousand dollars? A million dollars?

How about $350 billion?

Americans are unique among civilized countries in our persistent effort to finance health care with unregulated private insurance. Consequently, our public health is the lowest among civilized nations while our costs are the highest, bar none, in the world.

Driving the high cost is overhead - plain old ponderous paperwork generated by our antiquated private insurance system -$350 billion a year. On a very personal level, that's $1,125 annually paid by each one of us. Make no mistake about it: This money does not pay for health care. It pays for administrators, accountants, billing clerks, and benefits managers to transfer our money to health care providers.

Not all of this goes to private insurance companies themselves, just $126 billion. And not all of that goes to profit and lobbying either, only a couple billion. So where does the rest go?

It goes to coercing insurance companies to pay up.

It isn't easy for a health care provider to collect from an insurance company. After all, this industry denies 30% of all first claims, survives by retaining as much money as possible, and regards the 80% of policy premiums it pays to health care providers as a "medical loss." Hospitals, for example, need sprawling billing departments, often larger than their nursing staff, to act as collection agencies. That's not health care, that's just the cost of doing business with the health insurance industry. That's not all.

Physicians struggle to collect money, too. The average doctor spends $68,000 annually cajoling private insurance companies to pay what is owed. We have 1100 different health insurance companies, each with a herd of benefit schedules. A family practitioner in Chicago might need to deal with 17,000 different schedules, each with a different and complex form to complete. Suddenly you realize what all those clerks are doing behind the counter at your physician's office, staring at computer screens and waiting on hold.

Your employer is not spared the burden of paperwork either. If you're one of the lucky citizens to have employer-sponsored insurance, your harried boss finds the fine print of health insurance policies as baffling as you do. Hence the need for an expert, maybe dozens, just to keep track of your health care benefits.

It adds up - to $350 billion.

Clearly filtering our dollars through private insurance companies squanders a lot of money (one dollar out of every three to be exact ) before it gets to real world health care. These losses evaporate if the US adopted a single payer system. Mind you, single payer systems still have administrative costs, just $350 billion less than we have now.

Let's ponder a moment on how $350 billion in paperwork compares to other costs.

It is more than we spend on immigrant health care ($40 billion ), defensive medicine ($60 billion ), and health insurance fraud ($72 billion ) - combined. It's more than all physicians earn ($160 billion ). It is more than we spend on medications ($261 billion ). It's more than we spend on obesity-related diseases ($144 billion ), tobacco-related diseases ($168 billion ), or alcohol-related diseases ($96 billion ). It's more than we spent on the Afghanistan war last year ($179 billion ). It's more than the annual interest on our national debt ($224 billion ).

And it's more than the extra funding we need to provide comprehensive health care to every single American ($225 billion ).

Every nation that abandoned unregulated private insurance as a way of funding health care now enjoys better health at lower cost. About half our cost on average, both per person and as a percent of gross domestic product (GDP) . Curiously, one of America's own single payer systems, the Veterans Administration, takes care of the sickest patients with the best results at the lowest cost with the highest patient satisfaction in the nation. Can life without private health insurance paperwork be all that bad?

We pay a high price each year to bail out our private health insurance industry. If this $350 billion subsidy required Congressional approval, as did the TARP and financial industry bailouts, would you demand your Senator vote for it?

If we insist on protecting our private health insurance industry with an extra $350 billion each year, we deserve a fair return on our investment.

Are you getting enough value for your $350 billion?