Part 2 What a Single Payer Health Insurance Plan Looks Like
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore, Maryland.
And a recent study looking at a potential single-payer or government-run health insurance plan for Maryland comes to the conclusion there’d be enormous savings over the existing plan.
Now joining us to talk about all of this is Gerald Friedman. Gerald is a professor of economics at the University of Massachusetts Amherst, and he did this study for Health Care for All Maryland. Thanks for joining us again, Gerald.
GERALD FRIEDMAN, PROF. ECONOMICS, UMASS AMHERST: Thank you for having me.
JAY: So this is part two in a series. If you haven’t watched part one, well, you should, and then come back and watch part two.
So let’s dig in into your study and what you found. So you have a section on savings, and point one is administrative costs. So explain what you found there.
FRIEDMAN: Okay. Well, first of all, there are the administrative costs of the health insurers themselves, who devote a great deal of energy and resources to, first, screening people and supervising what doctors do in order to drive away people who will need extensive care.
The average health insurer in Maryland has what they call a medical loss ratio of 85Â percent. Now, the medical loss ratio is the proportion of health insurance premiums that are actually paid out to provide the health care. In Medicare, the medical loss ratio is 98Â percent.
Wall Street doesn’t like high medical loss ratios. To them, to Wall Street, a high medical loss ratio means that you have too many sick people, you’re not running enough profit. They like the medical loss ratios to be low. We, the consumers of health care, normal people, we like a high medical loss ratio. We want the money we put into the insurance plan to be paid out in benefits.
JAY: So just to be clear, 98Â percent of the money in Medicare is going to pay for health care and 2Â percent for administration. And in Maryland I think you said 15Â percent is going for administration in Maryland.
FRIEDMAN: That’s right. That’s right. And that’s a difference of billions of dollars.
JAY: Yeah, I think you say $3.1Â billion in Maryland alone.
FRIEDMAN: Yeah. Yeah.
JAY: And how much of that is profit in what you’re saying is administration costs?
FRIEDMAN: Oh, some of that is profit. You can’t tell for sure how much is profit. You know, health insurance companies aren’t very forthcoming about that. But a rough estimate would be about $1Â billion of that is going as profits to the owners of the health insurance companies. And they would lose out with a single-payer system.
JAY: Why is there such savings, then? I meanâ€”.
FRIEDMAN: Okay. Well, first there are the savings because you wouldn’t be supervising doctors the way private health insurance companies do. You wouldn’t be paying for advertising. You wouldn’tâ€”you’d have much more efficient billing. Medicare’s really efficient at paying bills because it’s a very large system; so, as you get more people into one plan, you get some of these what economists call economies to scale in the billing and administration operations.
JAY: Back up on the billing. You get a figure of $1.6Â billion of savings in your report. How do you get to that number?
FRIEDMAN: Okay. Okay. Now, the second area of savings is within doctors’ offices, because doctors these days incur enormous expense for billing and insurance-related operations. If you go into your doctor’s office, look around. There’s people there who work full-time dealing with the insurance companies, processing claims.
In Maryland in the 1990s there was a study that found about 15Â percent of clean insurance claims submitted by doctors were automatically returned by one of the insurance companies. They were just sent back. There was nothing wrong with the billâ€”they just sent it back in the hopes that the doctor and the, you know, individual would give up. You know, if they resubmitted the claim, the insurance company paid it. There was a bit of a stink about this and an investigation in the legislature. But I think things like that go on all the time.
So you get a lot of savings in providers’ offices. To give you a Canadian example, Toronto General Hospitalâ€”well, I first gave this using numbers from the 1990s. Toronto General Hospital back then had two people working on insurance claims. Massachusetts General Hospital in Boston, with about the same number of doctors and about the same number of patients, had 250 people working on insurance claims. Now, when I gave this to a legislative committee in Massachusetts, one of the people there came up to me afterwards and told me that my numbers were out of date because her husband worked at Mass General and they now have 450 people working in billing and insurance operations. That’s 450 people in Mass General who are not providing care. They’re being paid to process paper because the insurance companies wantâ€”every insurance company has different forms, has different numbers, different codes.
JAY: And I guess this also goes back to something we talked about in the first part of our interviews, the amount of micromanaging that takes place from the insurance companies. I suppose that creates a counterpart having to deal with the micromanaging on the side of the hospitals.
FRIEDMAN: And the doctors. My family physicianâ€”you know, we have a family doctorâ€”he spends Friday afternoons, a couple of hours every week, filling out forms for the insurance company, the stuff that he has to do. He has to write things out, he has to sign them, he has to make sure, you know, the T’s are crossed and the I’s are dotted and all that.
JAY: Okay. So, now, in your paper youâ€”so you come up with, I think, a $4.6Â billion saving in administrative costs when you compare a single payer to existing. And then your next point is somethingâ€”savings from reduced monopolistic pricing. What is that?
FRIEDMAN: Now, hereâ€”there are two aspects here. The first is pharmaceuticals, drugs. McKinsey Global Institute, hardly a left-wing body, estimates that U.S. drug prices are 60Â percent higher than the prices paid by people in other advanced capitalist economiesâ€”Canada and Western Europe, Japan. The reason is we are the only country that has a decentralized system of buying drugs. You know, every pharmacy negotiates its own drugs, insurance companies all negotiate, and the drug companies are in a very strong position to bargain and to drive hard bargains and high prices.
I take stuff for my thyroid. It happens my dog takes chemically the same thing. My drug is twice as expensive as his. My wife said, well, why don’t you take the dog’s? I was like, ah, well, okay.
JAY: I think it’s important to point out, too, that when President Obama was stickhandling his health care legislation, whichâ€”at the time, he was still supporting public option, eventually gave up on that. But as part of the keeping public option, he made a deal with PHrMA not to undercut PHrMA’s prices in the U.S., not to let Canadian drugs into the United States. And they wound up giving up on the public option, but he never went back and undid the deal with PHrMA.
FRIEDMAN: That’s right. That’s right. You know, you can only take on so many battles politically. I’m not going to argue about his handling of that. But it’sâ€”a lot of people in northern New England cross the border to Canada to by their drugs. It’s cheaper, about 60Â percent cheaper.
I’m saying that if the state of Maryland set up a single drug purchasing agency, it could go to, you know, the drug companies (and there are only a handful of them) and, you know, bargain down the prices. Then people from Delaware and Virginia would start crossing the border into Maryland to buy their drugs.
JAY: Now, in your report you talk about elite hospitals and providersâ€”. What is that point about?
FRIEDMAN: That is a very low number that I use. Massachusetts Attorney General Martha Coakleyâ€”who has a bit of a history in health care, given that she lost a Senate race to Scott Brown. But Martha Coakley has been putting out these reports showing the enormous range in pricing for the same procedures, for a CAT scan, for an MRI, for a simple appendectomy, for a simple birthâ€”not talking about the complicated births of prenatal units, etc., but for a simple birthâ€”and the range will be two-, three-to-one, going from a local hospital in Northampton to a more elite hospital in Springfield, Massachusetts, or not to mention going to Johns Hopkins or Massachusetts General Hospital.
And it’s not just the elite hospitals. It’s also certain medical suppliers, you know, certain wheelchair manufacturers and, you know, producers of MRI machines, whatever, have serious market power and they’re overcharging.
So I put in we could drive down their prices 5Â percent. You know, that’s a low number, I think.
JAY: And the number you come up with is about $1Â billion, and you think that it could be significantly more than that, you’re saying.
FRIEDMAN: There are two other aspects of that. One is that these elite hospitals are seriously overcharging. The second is that they engage in practices that lead to duplication of services, etc. A certain unnamed physician (I won’t say who told me this) who used to practice at an elite hospital in Boston told me that if you walk into his hospital holding a CAT scan that justâ€”at a facility in Northampton or Massachusetts or someplace else, you know, but a respectable facility, you walk in with your CAT scan, they will insist on doing another CAT scan, because they will charge for that other CAT scan. You know, it’s a complete waste, it means extra radiation for the patients, but they will make money from it and they will charge twice as much for that CAT scan, or three times as much, according to Martha Coakley, as your local hospital.
JAY: Now, in your next point you talk about some kind of integration of this single-payer plan with Medicaid, which the states are already spending money on, and you come up with another $1.2Â billion. How do you get that?
FRIEDMAN: Well, there are extra expenses associated with a single government-run health care system. Part of the problem we have nowâ€”and this shows up for people in the cities andâ€”you know, more and more Americans are on Medicaid. And the doctors are very reluctant to take on Medicaid patients, and when they do, they provide worse care.
There was just a recent study by the Organization for Economic Co-operation and Development about this, that Americanâ€”poor people in the United States get significantly worse care compared to other people in the United States relative to the situation of poor people in other countries, other advanced countries. And part of that is because Medicaid underpays. In Maryland I believe it’s something on the order of 19Â percentâ€”prices provided by our Medicaid are that much lower than prices paid for the same service by Medicare.
The result is doctors avoid Medicaid patients, Medicaid patients have to travel further to find a doctor, often cannot find any doctor at all. Now, if we had a singleâ€”a one-payer system, then you couldn’t discriminate against people on the basis of, you know, whether they were rich or poor. That would be a boon for the doctors providing for Medicaid patients, and it would be a boon for Medicaid patients, who would be in a better position to get decent care.
FRIEDMAN: But it would cost money.
JAY: Okay. Now, in the final analysis, you total up all the savings you found. You come up with something like just over 24Â percent saving over the existing system in terms of the overall expenditure on health care in Maryland. So in the next part of our interview, we’ll pick up on this. And we’ll also have to go a little further, because even with all this saving, if I understand things correctly, that still doesn’t really pay for all the costs of what a single-payer system would be in Maryland. And we’ll talk about, well, then, how does that get addressed.
So please join us for the next segment of our interview with Gerald Friedman on The Real News Network.
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