Single Payor (aka socialized) Healthcare
I've recently read a post over at Centerfield regarding the benefits of a single payor health care system. As I work for Wellpoint, Inc., the largest health insurer in the country, I have some knowledge in this area. I'm attaching an article which discusses the administrative costs for both private insurers and medicare. Its a bit long but is very detailed about actual admin costs using specific examples and costs. Tomorrow I'll talk about the drawbacks to Single Payor systems.
Is Single Payor The Gold Standard For Administrative Overhead? By John Harkey, Ph. D, and Mike Cadger, M.B.A., for Healthleaders News, Aug. 15, 2003
Two recent reports with widely varying estimates of health plan overhead raise some hard questions about the efficiency of insurers. The reports-one by Mathematica Policy Research Inc. and the other sponsored by the Maine Association of Health Plans-reach very different conclusions:
· Mathematica's report, released in December, estimates Maine could provide coverage to all of its uninsured and still save money over the current system by moving to a smartly managed single-payor system with administrative overhead of 5 percent. The current commercial system, it suggests, is heavy on administrative costs. The report maintains the savings to be found in a single-payor system would go a long way toward paying the extra cost of coverage for the uninsured.
· The MAHP report, based on a Milliman USA analysis, questions Mathematica's estimates of overhead and maintains commercial insurer overhead is more in the range of 11-15 percent, instead of the higher Mathematica percentage (estimated at 17 percent by Milliman). But that is still well above the single-payor target of 5 percent, and a large multiple of the Medicare rate of 2.1 percent.
Source: Estimates compiled by Mathematica Policy Research Inc. from various sources. To view a copy of the Mathematica study, go to http://mail.yahoo.com/config/login?/www.mathematica-mpr.com.
So would a single-payer system be more efficient? And are health plans spending to much on the administrative services they provide?
Efficient Health Plans And Efficient Markets The accompanying chart(cut out by me to save space) shows administrative overhead for several kinds of insurers. What is most notable is the wide variation in overhead and the large difference between overhead for the "best practices" insurers... and the average overhead for life and health plans, Blues plans and HMOs ... "Best practices" insurers and HMOs are within range of 5 percent, the Maine target for single-payor. The five companies with very low overheads appear to have some special circumstances leading to low overhead.
· Economies of scale in a single state (Blue Cross Blue Shield of Alabama and Blue Cross Blue Shield of Tennessee)
· A narrow geographic focus (Capital Group, Fallon, Kaiser) · Off-loading medical management expenses to capitated medical groups or IPAs (Kaiser, Fallon, Capital Group) · Market leader position (Fallon, Capital Group, Blues of Alabama and Blues of Tennessee), lowering marketing costs
· Comparatively narrow product offering (Fallon, Capital Group, Kaiser, BCBS of Alabama)
Source: 2002 statutory filings with state departments of insurance except for the Blues average, which is from 2001 corporate annual reports. Life and health small insurers include the group business of Benicorp, Fortis, Golden Rule, The Guardian, John Alden, Nippon, and Principal. Large L&H insurers includes the group business of Aetna Life, Connecticut General and Humana. The Blues average includes 14 Blues companies including the multistate operations of Anthem and WellPoint (counted as one company each). The HMO average includes 35 of the larger HMOs (including Aetna, CIGNA, UnitedHealthcare and the Blues HMOs) in several New England and southeastern states. The averages are not weighted for premium volume.
Medicare overhead has the appearance of a gold standard: 2.1 percent overhead compared to a commercial average of 13 percent and a "best practices" company commercial average in the range of 5-8 percent. Medicare clearly has economies of scale, but its overhead figure is a bit misleading. The average per-member-per-month premium for commercial HMOs in now in the $200-$250 range, while the typical PMPM for Medicare is in the $600 range. If the Medicare PMPM were $200 rather than $600, then it would have an administrative overhead of 6.3 percent rather than 2.1 percent-still very good, but not out of the range of the very lowest-cost private insurers.
For that relatively low overhead, Medicare offers only a single product (little choice except in urban areas where Medicare+Choice is available), provides limited medical management (and that seemingly by lawsuit), conducts provider contracting by fiat (negotiations take place in Congress), and has almost no marketing costs (no competitors).
The administrative overhead of the typical commercial health plan, whether a life and health insurer, HMO, or Blues insurer, is clearly higher than that of Medicare, the Maine 5 percent target and that of "best practices" insurers." And health plans in the "best practices" administrative overhead range may operate in unique market environments often unavailable to competing carriers.
While a single-payor system can achieve low administrative overhead and has tremendous clout in negotiating provider contracts, well run commercial/Blues carriers can achieve overhead nearly to that mark while operating in a competitive environment offering product choices and generating innovation. In fact, it is competition with other insurers in a market environment that is driving the current commercial insurer attack on administrative overhead.
Rather than pointing to a single-payor system, advocates of universal coverage might instead look for better ways to employ competitive plans operating in efficient market environments.
We believe states should become laboratories for exploring new ways to create better functioning, more efficient insurance markets that meet the needs of the various consumer segments, including the currently uninsured.
If states can create more effective and efficient insurance markets, then they will have fewer citizens unable to access those markets, leading to fewer uninsured and lower Medicaid costs.
<<...OLE_Obj...>>
John Harkey, Ph.D., is senior correspondent at HealthLeaders Inc., and has provided research and opinion on the healthcare industry for more than 14 years. He may be reached at http://us.f532.mail.yahoo.com/ym/Compose?To=%20john.harkey@healthleaders.com .
Michael Cadger is president of Great-West Life's southeast division. He can be reached at http://us.f532.mail.yahoo.com/ym/Compose?To=%20Michael.cadger@gwl.com
Is Single Payor The Gold Standard For Administrative Overhead? By John Harkey, Ph. D, and Mike Cadger, M.B.A., for Healthleaders News, Aug. 15, 2003
Two recent reports with widely varying estimates of health plan overhead raise some hard questions about the efficiency of insurers. The reports-one by Mathematica Policy Research Inc. and the other sponsored by the Maine Association of Health Plans-reach very different conclusions:
· Mathematica's report, released in December, estimates Maine could provide coverage to all of its uninsured and still save money over the current system by moving to a smartly managed single-payor system with administrative overhead of 5 percent. The current commercial system, it suggests, is heavy on administrative costs. The report maintains the savings to be found in a single-payor system would go a long way toward paying the extra cost of coverage for the uninsured.
· The MAHP report, based on a Milliman USA analysis, questions Mathematica's estimates of overhead and maintains commercial insurer overhead is more in the range of 11-15 percent, instead of the higher Mathematica percentage (estimated at 17 percent by Milliman). But that is still well above the single-payor target of 5 percent, and a large multiple of the Medicare rate of 2.1 percent.
Source: Estimates compiled by Mathematica Policy Research Inc. from various sources. To view a copy of the Mathematica study, go to http://mail.yahoo.com/config/login?/www.mathematica-mpr.com.
So would a single-payer system be more efficient? And are health plans spending to much on the administrative services they provide?
Efficient Health Plans And Efficient Markets The accompanying chart(cut out by me to save space) shows administrative overhead for several kinds of insurers. What is most notable is the wide variation in overhead and the large difference between overhead for the "best practices" insurers... and the average overhead for life and health plans, Blues plans and HMOs ... "Best practices" insurers and HMOs are within range of 5 percent, the Maine target for single-payor. The five companies with very low overheads appear to have some special circumstances leading to low overhead.
· Economies of scale in a single state (Blue Cross Blue Shield of Alabama and Blue Cross Blue Shield of Tennessee)
· A narrow geographic focus (Capital Group, Fallon, Kaiser) · Off-loading medical management expenses to capitated medical groups or IPAs (Kaiser, Fallon, Capital Group) · Market leader position (Fallon, Capital Group, Blues of Alabama and Blues of Tennessee), lowering marketing costs
· Comparatively narrow product offering (Fallon, Capital Group, Kaiser, BCBS of Alabama)
Source: 2002 statutory filings with state departments of insurance except for the Blues average, which is from 2001 corporate annual reports. Life and health small insurers include the group business of Benicorp, Fortis, Golden Rule, The Guardian, John Alden, Nippon, and Principal. Large L&H insurers includes the group business of Aetna Life, Connecticut General and Humana. The Blues average includes 14 Blues companies including the multistate operations of Anthem and WellPoint (counted as one company each). The HMO average includes 35 of the larger HMOs (including Aetna, CIGNA, UnitedHealthcare and the Blues HMOs) in several New England and southeastern states. The averages are not weighted for premium volume.
Medicare overhead has the appearance of a gold standard: 2.1 percent overhead compared to a commercial average of 13 percent and a "best practices" company commercial average in the range of 5-8 percent. Medicare clearly has economies of scale, but its overhead figure is a bit misleading. The average per-member-per-month premium for commercial HMOs in now in the $200-$250 range, while the typical PMPM for Medicare is in the $600 range. If the Medicare PMPM were $200 rather than $600, then it would have an administrative overhead of 6.3 percent rather than 2.1 percent-still very good, but not out of the range of the very lowest-cost private insurers.
For that relatively low overhead, Medicare offers only a single product (little choice except in urban areas where Medicare+Choice is available), provides limited medical management (and that seemingly by lawsuit), conducts provider contracting by fiat (negotiations take place in Congress), and has almost no marketing costs (no competitors).
The administrative overhead of the typical commercial health plan, whether a life and health insurer, HMO, or Blues insurer, is clearly higher than that of Medicare, the Maine 5 percent target and that of "best practices" insurers." And health plans in the "best practices" administrative overhead range may operate in unique market environments often unavailable to competing carriers.
While a single-payor system can achieve low administrative overhead and has tremendous clout in negotiating provider contracts, well run commercial/Blues carriers can achieve overhead nearly to that mark while operating in a competitive environment offering product choices and generating innovation. In fact, it is competition with other insurers in a market environment that is driving the current commercial insurer attack on administrative overhead.
Rather than pointing to a single-payor system, advocates of universal coverage might instead look for better ways to employ competitive plans operating in efficient market environments.
We believe states should become laboratories for exploring new ways to create better functioning, more efficient insurance markets that meet the needs of the various consumer segments, including the currently uninsured.
If states can create more effective and efficient insurance markets, then they will have fewer citizens unable to access those markets, leading to fewer uninsured and lower Medicaid costs.
<<...OLE_Obj...>>
John Harkey, Ph.D., is senior correspondent at HealthLeaders Inc., and has provided research and opinion on the healthcare industry for more than 14 years. He may be reached at http://us.f532.mail.yahoo.com/ym/Compose?To=%20john.harkey@healthleaders.com .
Michael Cadger is president of Great-West Life's southeast division. He can be reached at http://us.f532.mail.yahoo.com/ym/Compose?To=%20Michael.cadger@gwl.com
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