The Health Insurance Mirage

This might hurt a bit . . .

I’m as eager to hate on the private insurance companies as anyone, but the hate inspired by Luigi’s dubious rebellion tends to miss some important facts. The major one is the extent to which the inscos are mere intermediaries in the health care spending gravy train. In other words, the bloat in our health care costs is not mainly due to insurance. A few numbers will make this clear. Bloat aside, the private health insurance sector is replete with outrages and injustices, but we are tracking the big dollars here.

Total health care spending in the U.S. in 2022 was $4.5 trillion, or 17 percent of GDP. It is often pointed out that this is much higher than other wealthy nations and apparently brings nothing in the way of superior health outcomes. So where is all this money, our money, going?

Here is health care spending as a percent of Gross Domestic Product for 2023, courtesy of Statista:

Net insurance industry income (profits) in the first half of 2023 was only $18 billion. Double that for the year and you can calculate the share of the total yourself: 36 billion vs. 4,500 billion. I was shocked myself to see it was so low. (The last time I looked at these numbers was ages ago.) You could throw in the salaries of the insco CEOs, such as the unfortunate victim of Luigi and his homebrew pistol, and it would hardly amount to a rounding error.

My friend, the estimable Matt Bruenig, begs to differ, but his argument doesn’t fly. He begins by claiming the insurance industry’s take is understated, but then he merges that industry with the category of private providers’ administrative costs. These are all the poor sods doing paperwork for hospitals and physicians’ practices. You could say that the grand total of administrative costs is due to the existence of a multi-payer system of private insurance, but the fact remains, the additional money does not redound to the benefit of inscos or their owners.

Even after some juggling with the numbers, the most Matt can come up with for his excess administration cost category is $528 billion. (See above total spending figure.) I don’t doubt we could save a bundle in this vein, but it still leaves a lot of work in economizing.

The industry profits are also net of the salaries of legions of insco employees, those friendly people who delay, deny, and depose their customers. Most of these middle-management jackals are not rich. So the real juice is what the inscos and the government pay for.

We have to be careful here, because you can be locked up for talking nasty about inscos, hurting their fee-fees. If you’re old like me you remember “the customer is always right.” Ha ha. In the U.S., as well as in Soviet Union, the customer is never right!

Note that over half of Medicare spending also goes through the inscos, through the medium of the Medicare Advantage program. Republicans complain about Medicare spending, but they want to push Medicaid (the state-run health insurance program for lower income families) in the same direction. We could imagine a Medicare For All system where administrative costs are much reduced. But the U.S. disadvantage. relative to other countries with socialized health insurance, remains. How do all those geniuses in Europe manage to cram down their expenses?

It still comes down to what we pay to the providers of health care. For that we can look at National Health Expenditure data. Check it while you can, before Doctor Oz (raised to prominence by Oprah, much thanks) fucks up the Center for Medicare and Medicaid Services. Don’t blame me if you click on the link next year and find recommendations for green coffee bean extract and saw palmetto.

The National Health Expenditure data tell a similar story. The vast bulk of total spending of $4.46 trillion for 2022, the most recent year published, is to hospitals and doctors. Built into the hospital and doctor totals could be included costs of things like medical devices and drugs. I like to cite Dean Baker on how those costs are inflated by socially dysfunctional patents, but those numbers are not broken out in this data.

A few other things of interest are. Home health care, those nice ladies from Third World nations who come to your house, make your lunch, and wipe your chin, is a small piece, just three percent. I could end up there myself. The separated categories of drugs and medical equipment are less than I would have guessed, about ten percent. I can’t say how much more of that is included in the other categories. Probably nobody else knows either.

Most relevant to the axe I am grinding here, by the NHE data the net cost of private insurance is a little more than just six percent of the total (that goes beyond profits to include the total costs of running the companies). True enough, the cost of public administration is less, a point I have already acknowledged. There is still a long way from there to savings that would put us on a par with, say, Germany, France, or Switzerland, and further still to the welfare state paradise of Sweden.

Perhaps the crux of Matt’s point, to which I fully subscribe, is that under a single-payer system, the government could exploit its negotiating leverage to squeeze provider payments across the board. Ideally that would still need to go beyond administration costs, as Matt’s own number attests.

If you want to shoot all the implicated parties, you’re going to need a lot of bullets.

P.S. In response to a note from a colleague, I would like to relay her comments, that behind many physicians, other health care providers, even health insurance companies themselves, are the financial sharks, private equity outfits, that have bought up their practices. Doctors may not even know what their patients are being charged. Their personal feelings are beside the point. You could say doctors are being absorbed into the working class. Some of them are unionizing. None of that affects the argument that the importance of private health insurance companies in health care costs tends to be overstated.

I had a dentist I was seeing for decades. He was really good. He sold his practice and shut down his little office. For my next appointment, I walk into this immense facility. On my left are a line of dental chairs and dentists attending to patients. He was one of them, but I was not assigned to him. Instead I had to see this nice young lady. I never went back.

I also had a doctor I was seeing for decades. He had a two-person office. I could always get him on the phone after leaving a message. He retired. My new doctor won’t answer the goddamn phone. Neither will her nurses. They won’t use email. I can send a fax (who keeps a fax machine at home these days?) or leave a phone message, which is often not answered. I had a similar experience with a different doctor, a specialist. He told me that now doctors are so intent on maximizing volume they don’t want to spend time talking to patients. For that you have to pay extra, for so-called “concierge service.” Fucking hell. Fortunately my specialist is diligent about answering email.

Don’t get old.