Administrative Costs: Difference between the Medical Savings Account System and the Present System

Stanley Feld M.D.,FACP,MACE

In my view none of the published estimates of administrative costs to the healthcare system are correct. The latest estimate of administrative costs to the healthcare system was $150 billion dollars. I bet this estimate is only half of the administrative costs. The estimate represents only the costs the insurance companies add on to their insurance premium calculation. It does not represent the cost to the physicians to process each claim.

My estimate for the administrative cost to the physician for each office visit is $35- $40. The physicians’ administrative costs include the cost of physicians’ time to complete the paper work for each encounter as well as the cost of back office personnel for processing each claim to completion. Many claims are adjusted by the insurance company and disputed by the providers. The claims are then resubmitted for another round of non medical value added costs. The total cost to the system could represent $300 billion dollars. Three hundred billion dollar savings can go a long way to reducing insurance premiums to manageable and affordable levels. I could also go a long way toward increasing accessibility to care.

A few weeks ago I wrote about economists declaring that we can afford the cost of our excellent healthcare system. I blasted the concept as ridiculous. The economists ignore the inefficiencies and not medical value added cost to the system.

This week an article appeared titled “Running on Empty: Healthcare As the Engine of the Economy by Brian Kleeper and Alian Enthoven.
“Healthcare insiders know that the industry’s rosy prospects can continue only if its funding remains stable. Most also acknowledge that the dollars are not likely to flow as they have in the past.
The reality into the foreseeable future is that healthcare–at least beyond a narrow definition of “basic care”–will remain a voluntary buy. In fact, there’s every indication that group purchasers are quietly abandoning the market. A wealth of recent data shows that healthcare cost growth is pricing corporate and governmental purchasers out of the market for coverage.
Reports from the Kaiser Family Foundation and the Department of Commerce’s Bureau of Economic Analysis show that, between 1999 and 2004, premiums–the point where costs converge from throughout the healthcare continuum–grew 5.5 times general inflation, 4.0 times workers earnings and 2.3 times the growth of business income.”

Please recall that much of the increase also results from a faulty DRG system. The present system reimburses on hospital charges and not hospital costs. The DRG system contributes to the engine of the inflationary medical costs.

“The numbers are spectacular. And purchasers are responding. In September 2006, another Kaiser report on employer health benefits showed that, between 2001 and 2006, the percentage of employers offering coverage plummeted from 68 percent to 61 percent, a 10.3 percent drop over five years or a 2.1 percent annual erosion rate. During the same period, the percentage of employees with coverage dropped from 65 percent to 59 percent. Data from other sources show that certain workers–those in the private sector, service workers, retail employees–were particularly vulnerable to losing coverage.
Meanwhile, Florida’s Office of Insurance Regulation released data showing that, between 1996 and 2004, 132,000 small employers (with 50 or fewer employees) stopped offering health coverage. This represents a 53 percent drop, while enrollees in small group plans fell by 760,000 individuals (42 percent, or 5.25 percent annually). The state’s population grew by three million during this period.”

As fewer and fewer people have health insurance coverage there is less and less premium dollars in the system. At present we have 46.7 million uninsured in America, 80% of whom would buy affordable insurance if they could.

Jon Lowder’s blog entry of November 10, 2006 nailed the problem. There are precipitous enrollment drops and an increasing uninsured population.

“These precipitous enrollment drops make sense, particularly when you compare the scale of healthcare cost to earnings. The actuarial firm Milliman calculated that the total coverage costs for a family of four averaged $12,214 in 2005. But one-quarter of the nation’s workers made less than $18,800, and one-third of its families made less than $35,000. How can mainstream Americans stay in a game that’s stacked like this?”

Worse, healthcare is 1/7th of the economy and 1/11th of its job market. If this sector develops a large demand-resource mismatch and becomes financially unstable, the disruptions could cascade to and destabilize others sectors, threatening the national economic security.

Many people who follow the healthcare crisis know all of this. Unfortunately the public is not aware of much of it. We only realize that health insurance cost more and more. We have discussed much of this previously.
However, no leader has the courage to step forward and do something about it. I have emphasized much of the leadership can be exerted at the state level by state boards that license the insurance industry,hospitals and physicians. No one has organized the people to protest. The excuse is that the healthcare system can not be fixed. It is impossible to control physicians. I believe all these excuses are smoke to cloud the solution. The facilitator stakeholders are simply holding on to what they falsely perceive is their vested interest.

“A theory of limits applies here. In a voluntary market, healthcare purchasers–employers or taxpayers–will tolerate only so much cost growth. Then they’ll recede. It is preposterous to believe the well won’t run dry.”

All of these pricing mismatches and excess non medical value added costs can be eliminated by permitting the patient to be in control of their healthcare dollar and selling pure insurance that is fairly priced. The ideal Medical Saving Accounts system represent pure insurance in the form of high deducible health insurance and motivation for the patient to become an informed consumer.

The cost of processing claim could be eliminated completely. The service claims could be adjudicated instantly with a credit card. Thousands of diverse businesses adjudicate claims on purchases instantly daily at a low cost. The use of credit cards to pay for Medical Savings Accounts could provide an instant savings of 150 billion dollars to costs in the healthcare system. The losers will be the non competitive insurance company. The winner will be the bright flexible company that puts the system in place.