Health insurance maze a major financial burden on hospitals, doctors, businesses

Kahn and Woolhandler both agreed that that kind of friction was likely a necessary byproduct of any health care system in which there are multiple, private insurers competing.

“When you have that kind of complexity, there are a lot of gears moving at the same time, and it’s inevitable that some of them aren’t going to fit together,” Kahn said. “That means there will be friction when things try to move.”

Nevertheless, most of the proposals to decrease administrative costs largely ignore this fundamental structural issue, and limit their proposals to incremental steps to save paperwork within the context of a friction-laden system. For example, a report that was released last week by the Center for American Progress, a liberal-leaning think tank, suggested several measures that would reduce administrative costs, such as expanding funding for electronic infrastructure in hospitals and doctors offices and creating a new federal office dedicated to simplifying the health care administrative process.

Yet if all of the authors’ recommendations were implemented, the estimated savings would only be about a quarter of the currently estimated excess administrative costs.

See no evil, hear no evil

According to Woolhandler, an advocate for single-payer health insurance, efforts to “reach for the low-hanging fruit…ignore the root of the problem,” she said. “As long as you’ve got a multi-payer, for-profit insurance system, you’re going to pay for it in administrative costs.”

During the debate over health reform in 2008 and 2009, President Obama rejected proposals to move the United States toward a single-payer system. But Woolhandler, Kahn, and others who have studied the administrative costs associated with a private, multi-payer health care system continue to urge policy-makers to look at a real-life example of an alternative, right across the border.

In Canada, which has a single-payer system, hospitals receive a lump-sum payment each month from the government, which is negotiated annually based on the amount and cost of the services they provided the previous year. Physicians still have to bill for their services, but they only have to send their bills to one place — the government.

Toronto General Hospital, for example, has a billing department of three. “That’s just for the extra things, like if people want a television in their room,” said Jillian Howard, a spokesperson for Toronto General.

By contrast, the billing department at Massachusetts General Hospital — which is similar to Toronto General in terms of the number of hospital beds, total number of employees, and the kinds of services offered — has a staff of more than 300.

Kahn estimates that, if the United States were to move to a single-payer system along the lines of Canada’s, the savings would be over $300 billion a year.

“You’d think peoples’ eyes would light up at that,” he said, but he has come to believe that many policy makers and advocates are simply willing to accept that those higher costs will be passed along to patients.

“If you’re just ideologically committed to a free-market health insurance system,” he said, “then the fact that it imposes hundreds of billions of dollars worth of inefficiencies every year doesn’t seem to matter very much.”