Administrative Cost in Health Care

Nov. 18, 2009

Himmelstein and Woolhandler

0%

5%

10%

15%

1960

1965

1970

1975

1980

1985

1990

1995

2000

Per

cent

of

GD

P

U.S.

Canada

Americans Lead the World in Hours Worked

Source: International Labor Organization, 1999

1399

1560

1656

1731

1889

1883

1966

0 250 500 750 1000 1250 1500 1750 2000

Norway

Germany

France

U.K.

Japan

U.S. (1980)

U.S. (1997)

Hours/worker-year - 1997

Poverty Rates, 1997U.S. and Other Industrialized Nations

Source: Luxembourg Income Study Working PapersNote: U.S. figure for 1997, other nations most recent available year

6%

8%

9%

11%

11%

11%

17%

0% 5% 10% 15% 20%

Netherlands

France

Sweden

Canada

UK

Germany

US

% of Population Below Poverty Level

On the one hand,

• Greater poverty makes our health care system work harder

• But on the other hand …

Poverty-related illness is partly an effect of our health care system

• Our system for health care financing exacerbates the effect of poverty on health

• by making the opportunity cost high for the poor to obtain health care

Source: Oxford Rev Econ Pol 1989;5(1):89

Who Pays For Health Care?Regressivity Of U.S. Health Financing

3

1.75

1.31 1.27 1.23 1.15 1.1 1.07 0.99

0.64

0

0.5

1

1.5

2

2.5

3

3.5

POOREST RICHESTINCOME DECILE

Shar

e of

Hea

lth P

aym

ents

/Sha

re o

f In

com

e

Source: Premier's Common Future Of Health, Excludes Out-of-Pocket Costs

Who Pays For Canada's NHP?Province Of Alberta

0.74 0.77 0.851

1.21.3 1.3

0

0.5

1

1.5

2

15,000 25,000 35,000 50,000 75,000 100 K 125 K

FAMILY INCOME

Shar

e of

Hea

lth P

aym

ents

/Sha

re

of In

com

e

Why are hospital administrative costs less in Canada?

• Global budgets– Operating budget– Capital investment budget

• Negotiated with Province• No bills.• No need to track and bill for individual

services and goods

Why are physicians’ administrative costs lower in Canada?

• Single payer• One place to send bills• One set of rules• T. R. Reid: France, Germany, Japan, though

with multiple competing private insurers, have– One system of submitting bills– One set of rules for what gets paid for– One set of prices

Why are Canada’s system administrative costs lower?

• No need to determine who is eligible for what– Canada’s overall administrative % close to

Medicare (before Medicare + Choice), less than Medicaid

• No marketing of insurance• No billing or collecting insurance premiums

Number of Insurance Products

Private insurers’ High Overhead

Variation in Medicare Spending:Some Regions Already Spend at Canadian Level

Infant Deaths by Income, Canada 1996Even the Poor Do Better than U.S. Average

3.94.7 5.1 5.2

6.5

7.8

0123456789

Wealthiest20%

Middle20%

Poorest20%

U.S.Average

Infa

nt

Mo

rtali

ty

Homeless in TorontoDeath Rate Elevated, But Lower than In

U.S.

Source: JAMA 2000; 283:2152

7301680

22273048

0500

10001500

2000250030003500

Toro

nto

Non

-Hom

eles

s

Toro

nto

Hom

eles

s

Bost

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omel

ess

New

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kH

omel

ess

Annu

al D

eath

s Pe

r 100

,000

M

en A

ge 4

5-64

What's OK in Canada? Compared to the U.S….

• Life expectancy 2 years longer

• Infant deaths 25% lower

• Universal comprehensive coverage

• More MD visits, hospital care; less bureaucracy

• Quality of care equivalent to insured Americans’

• Free choice of doctor/hospital

• Health spending 5/8 U.S. level

What's the Matter in Canada?• One spigot makes it easy to cut flow of funds

• Government funding cuts → 30% of hospital beds closed during 1990s → waits and dissatisfaction

• But spigot has turned back up recently. Waits are shorter.

“We believe we can make much progress in the [WTO] negotiations to allow the opportunity for U.S. businesses to expand into foreign healthcare markets ... public ownership of healthcare has made it difficult for U.S. private-sector healthcare providers to market in foreign countries.”

U.S. Coalition of Service Industries