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  #1  
Old 02-28-2020, 04:41 PM
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ElDucky ElDucky is offline
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Default Anyone have quick fact on how much insurance adds to the total cost of US health

as a percentage
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  #2  
Old 02-28-2020, 05:39 PM
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Here is an interesting (though a bit biased) paper illustrating the true administrative costs differences-
https://www.cahi.org/cahi_contents/r...ublication.pdf

Basically, the claim repeated out there that Medicare admin costs are 2% while private insurance admin costs are 15-20%, so therefore Medicare for all would save a flat 13-18% is a bit off.

The problem is those numbers are not on the same basis. The Medicare 2% figure does not include all costs associated with admin that a health insurer would, such as administrative salaries, building space costs for employees, cost of capital etc. Put all those in and Medicare comes out to about 5.2%.

In the private sector, included in that 16.7% figure (the paper's average) are premium taxes, commission, and profits. General admin is 8.9%, profit is 2.5%, and premium tax and commissions are 5.3%.

Another thing to account for is that the percentages have different bases. Medicare beneficiaries average a much higher spend than younger commercial beneficiaries. So looking just at percentages skews it, when raw dollar costs per beneficiary are closer.

TLDR- True admin costs in a Medicare for all world would likely be 5-8%, saving up to 1-4% on commercial admin. Then you get savings for no profit (2.5%) and for no commissions (let's call it 2.5% as well).

Ballparking it from this study, commercial insurance admin likely adds around 6% - 9% more than M4A would.
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  #3  
Old 02-28-2020, 06:00 PM
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Quote:
Originally Posted by MayanActuary View Post
Here is an interesting (though a bit biased) paper illustrating the true administrative costs differences-
https://www.cahi.org/cahi_contents/r...ublication.pdf

Basically, the claim repeated out there that Medicare admin costs are 2% while private insurance admin costs are 15-20%, so therefore Medicare for all would save a flat 13-18% is a bit off.

The problem is those numbers are not on the same basis. The Medicare 2% figure does not include all costs associated with admin that a health insurer would, such as administrative salaries, building space costs for employees, cost of capital etc. Put all those in and Medicare comes out to about 5.2%.

In the private sector, included in that 16.7% figure (the paper's average) are premium taxes, commission, and profits. General admin is 8.9%, profit is 2.5%, and premium tax and commissions are 5.3%.

Another thing to account for is that the percentages have different bases. Medicare beneficiaries average a much higher spend than younger commercial beneficiaries. So looking just at percentages skews it, when raw dollar costs per beneficiary are closer.

TLDR- True admin costs in a Medicare for all world would likely be 5-8%, saving up to 1-4% on commercial admin. Then you get savings for no profit (2.5%) and for no commissions (let's call it 2.5% as well).

Ballparking it from this study, commercial insurance admin likely adds around 6% - 9% more than M4A would.
Thanks for the post. Interesting read.
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Old 03-13-2020, 08:51 AM
z.d z.d is offline
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I read a study recently that Billing and Insurance related activity (BIR) is ~25% of admin costs for a provider practice and ~20% for a hospital.

I can dig it up if your interested.
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  #5  
Old 03-18-2020, 03:32 PM
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Default admin is expensive!!

As an example, using insurance to pay for primary care adds dramatically to the cost, as admin folks have to be added on both sides of the equation, at the doctor's office and at the insurance company. This is comparing to paying directly for primary care. It's 45-50% more expensive to pay for primary care with insurance than it is to pay directly, and that doesn't include indirect impacts such as moral hazard.
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  #6  
Old 03-19-2020, 12:06 PM
WhosOnFirst WhosOnFirst is offline
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Quote:
Originally Posted by kooky cookie View Post
As an example, using insurance to pay for primary care adds dramatically to the cost, as admin folks have to be added on both sides of the equation, at the doctor's office and at the insurance company. This is comparing to paying directly for primary care. It's 45-50% more expensive to pay for primary care with insurance than it is to pay directly, and that doesn't include indirect impacts such as moral hazard.
Don't providers need the admin staff regardless of who is paying? Even with Medicare or Medicaid, they still need to pay staff to submit claims, deal with denials, get pre-auth, etc. I can't imagine the administrative cost is higher for commercial payments relative to government payments in the current system.

Taking that a step further though, in general payments from the commercial side will be higher. So if there are extra administrative costs associated with commercial payments, there is also extra revenue. This must balance out in some way for the provider or they would not accept the commercial payments.
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Old 03-19-2020, 01:19 PM
New York Actuary New York Actuary is offline
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Quote:
Originally Posted by MayanActuary View Post
Here is an interesting (though a bit biased) paper illustrating the true administrative costs differences-
https://www.cahi.org/cahi_contents/r...ublication.pdf

Basically, the claim repeated out there that Medicare admin costs are 2% while private insurance admin costs are 15-20%, so therefore Medicare for all would save a flat 13-18% is a bit off.

The problem is those numbers are not on the same basis. The Medicare 2% figure does not include all costs associated with admin that a health insurer would, such as administrative salaries, building space costs for employees, cost of capital etc. Put all those in and Medicare comes out to about 5.2%.

In the private sector, included in that 16.7% figure (the paper's average) are premium taxes, commission, and profits. General admin is 8.9%, profit is 2.5%, and premium tax and commissions are 5.3%.

Another thing to account for is that the percentages have different bases. Medicare beneficiaries average a much higher spend than younger commercial beneficiaries. So looking just at percentages skews it, when raw dollar costs per beneficiary are closer.

TLDR- True admin costs in a Medicare for all world would likely be 5-8%, saving up to 1-4% on commercial admin. Then you get savings for no profit (2.5%) and for no commissions (let's call it 2.5% as well).

Ballparking it from this study, commercial insurance admin likely adds around 6% - 9% more than M4A would.
Have you done a similar analysis with respect to the impact of the differences in reimbursement rates between the government programs versus commercial insurance?
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  #8  
Old 03-27-2020, 04:07 PM
kooky cookie kooky cookie is offline
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Whosonfirst - I'm comparing having admin employees and submitting claims to 3rd party payers to not doing that at all. The most common example of providers who are able to cut admin costs so dramatically are Direct Primary Care (DPC) providers. They only accept payment from individuals and sometimes employers. No insurance carriers, Medicare, Medicaid, etc, no claims. Other types of providers are starting to get into the direct pay market, too, including specialists and surgery centers. It's almost difficult to believe how much can be saved sometimes by forgoing all of the extra steps and extra costs of insurance.

From the standpoint of actuarial principles, DPC makes a great deal of sense. Primary care is not an insurable risk. Some people who have DPC are unprotected from catastrophic expenses, others are covered through sharing ministries or employer plans.

I'm a big fan of paying directly for routine medications as well. The markups, kickbacks and other shenanigans associated with PBMs and insurance companies are what makes Rx so expensive. Paying directly at wholesale commonly saves 90-95% off on prescription costs. Again, when you first look at it, it's tempting to think it's too good to be true.

Cheers!
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  #9  
Old 03-30-2020, 09:34 AM
WhosOnFirst WhosOnFirst is offline
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Quote:
Originally Posted by kooky cookie View Post
Whosonfirst - I'm comparing having admin employees and submitting claims to 3rd party payers to not doing that at all. The most common example of providers who are able to cut admin costs so dramatically are Direct Primary Care (DPC) providers. They only accept payment from individuals and sometimes employers. No insurance carriers, Medicare, Medicaid, etc, no claims. Other types of providers are starting to get into the direct pay market, too, including specialists and surgery centers. It's almost difficult to believe how much can be saved sometimes by forgoing all of the extra steps and extra costs of insurance.

From the standpoint of actuarial principles, DPC makes a great deal of sense. Primary care is not an insurable risk. Some people who have DPC are unprotected from catastrophic expenses, others are covered through sharing ministries or employer plans.

I'm a big fan of paying directly for routine medications as well. The markups, kickbacks and other shenanigans associated with PBMs and insurance companies are what makes Rx so expensive. Paying directly at wholesale commonly saves 90-95% off on prescription costs. Again, when you first look at it, it's tempting to think it's too good to be true.

Cheers!
That makes sense. You still need billing staff but on a scale of what a construction company needs as opposed to what a typical provider normally staffs.

I'd look at the costing from a different perspective. I'd estimate the number of full time billing staff required based upon number of doctors in a practice for both the insurance and non-insurance practices. From there you can estimate the annual wages of both types of billing staffs. That would provide a discount estimate on the billing admin costs.

For most small practices there is probably no difference. I can't imagine a doctor practicing solo has more than one billing person for example. In a large practice, say 50+ doctors, where many billing staff are used it is unlikely that the practice will turn away commercial/government payments. I think that you'd probably be looking at roughly a move from an employee who costs about $65K per year (benefits included) to staff that gets paid about $50K per year. Maybe a reduction of 10% of total staff. I don't think the typical practice is going to save more than $250K and it is probably closer to a lower bound of like $20K.

In your scenario, are the doctors pocketing the profit (which is what I'd assume would happen), paying higher wages to support staff, or offering a lower allowed amount? If one of the first two, the whole analysis is moot as the total cost of care in the system remains unchanged.
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  #10  
Old 03-31-2020, 12:32 PM
Kalium Kalium is offline
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Quote:
Originally Posted by ElDucky View Post
as a percentage
50-75%.

Based on healthcare in the US (mainly insurance) being 18% of GDP; most other developed countries (which are a mix of state & insurance) at 11-13%, and the UK (fully state) at 10%.

Not all of this is down to insurance directly, as there may be differences in the amount and timeliness of treatment, and a higher medical indemnity cost in the US. But it may be a reasonable rough guide / upper bound.
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