Tuesday, June 7, 2011

Medical costs in the US

Medical costs are relatively high in the US as compared to most other countries.  Surprising, it is not the elderly or the overweight, drug users, or malpractice

First a list of things that are rumored to be the problem, but are not.

  1. Elderly care.  While elderly care is expensive, we have less elderly people as a percent of citizens and of patients than other countries (Japan, Europe, etc.)
  2. We do a lot more Outpatient spending - 41% of total care - than others.  Some claim this allows higher profit margins.  Others claim that outpatient spending is cheaper than inpatient spending, so it is better to pay $1000 ($300 of which is profit) on outpatient, than to pay $1500 ($100 of which is profit) for inpatient.    While outpatient spending does take up almost 41% of our health care costs, it is hard to make a reasoned argument to shift to the more expensive inpatient care.
  3. Our doctors are paid more than in other countries as well, but again, that is about 3% of total health care costs.  Not significant
  4. Malpractice awards account for less than 2% of overall spending - high, but not affecting costs significantly.
  5. Obesity does affect costs, but only a tiny percent.  Again, about 2%.  

A comparison of the money actually spent reveals the following:

  1.  Providers overcharge - on average 118% higher for medication, more so for procedures.
  2.  Administrative costs are high - about 21% of total costs - which is about double what other countries pay.

So lets deal with those two issues. 1)  Expensive medication and procedures are INTENTIONALLY built into the system.  Expensive drugs are there to pay for research.  We pay $20 a pill for aids medication that costs $1 to make, because the company that makes that drug investigated 2,000 other drugs to figure out which one works.  Hospitals etc. overcharge for procedures to pay for people without insurance.  The simplest way to reduce the ridiculous overcharging is to provide some form of health insurance for all.

Second, Administrative costs are high in large part due to HMO's and the other newer insurance plans.  Old style plans had lower administrative costs.  It should also be noted that Medicare and Medicare have some of the LOWEST administrative costs.  While there may be some debate about Medicare (specialized population with similar needs - they charge the same per person, but less per $ because old people have higher needs), Medicaid is a much better comparison and has costs of between eight to twelve percent.  This means that government run health care programs have LESS administrative costs than private plans.  And Administrative costs are the most important reason why American health care is so expensive.

P.S. I got much of this information from SOURCE, which, while they presented numbers made multiple obvious logical errors in their argument (not checking percentages for doctors, not looking at the reasons for the overcharging, not comparing to medicare and medicaid, etc.)

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