Underrated comment, because any "government spending reduction" from "NIH don't spend 500k on crab sex studies" is going to be vastly smaller than "we reduced costs in healthcare by 0.0001%". Big numbers > tiny numbers.
Maybe "admin costs" in healthcare aren't as big as people say, but they're way bigger than what DOGE people have been talking about (though I naively retain hope they'll eventually actually look at the spreadsheets) and - key feature - directly correlated to federal government policy. What do you think the "admins" are "administering?" Oh right... CMS policy, ICD10 codes, compliance... etc....
Interesting article. As a healthcare administrator, seems to me the best way to reduce healthcare costs at the personal level is to create more providers. There’s an intense shortage, driving up salaries restricting access. Additionally, this limits their ability to help intervene in patient care early enough to prevent longer term issues that cost more to solve.
We should probably have a little chat with the commissars at the Central Committee for Physician Quotas who have been throttling med school/residency numbers in order to stave off the specter of "Doctor Glut" and explicitly inflate salaries via constraining supply.
Economics 101 would tell you what happens when you allow suppliers to control new entrants into a market. "Facility fees" is another utterly ridiculous concept that would only be allowed in US healthcare. Why people ignore the blatantly obvious things that are wrong with the system is beyond me.
Pretty much every aspect of healthcare is like that too.
Imagine going to a supermarket to buy a loaf of bread, only to find that no prices were listed. You ask the cashier how much this loaf costs and they say, "I don't know, it depends on your grocery carrier's agreed rates."
So you call your carrier and ask them, but they tell you they won't know the price either until they receive the correct billing codes, which are based on the type of bread, the level to which it was baked, whether it included sesame seeds...etc"
You only learn the actual price weeks later when the bill comes in the mail.
That's health insurance. It doesn't have to be like this. Doctors, publish your prices!
Nobody pays for anything directly with their own money, and what money is “exchanged” might be more of an accounting fiction than anything else (eg. billing $300 for an aspirin or whatever). There’s no discipline on either the demand or supply side which, when combined with all kinds of subsidies and other economic interference, contributes to rising prices. Things would look a lot different if people had to pay for most medical care with their own money, while reserving insurance for much more serious things, the way most insurance is designed to be used.
i'm working on a startup to smooth out end-patient user experience with the healthcare system. there's a huge lack of transparency in how to effectively obtain preventative care (among other things a la physician shortage, etc.) so many people just don't seek proper preventative care, which causes huge spikes in costs during treatment
but it's tough due to the way commercial insurance is tied to employment and there's rarely a chance to get truly accustomed to one system before switching. until you hit medicare age, but then costs are already higher
The problem isn’t administrative bloat but private equity will solve the actual problem by getting rid of administrative bloat?
To what degree are the shortages on the supply end an effect of the commodification and bureaucratization of medicine? A shortage of doctors stems from intelligent people choosing some other vocation. Has the advent of private equity in medicine made the career less attractive?
The problem is we face an “impossible trinity” in healthcare. We want coverage to be 1) Universal, 2) Affordable, and 3) Quality. We really can only pick two.
Demonizing insurance companies gets us nowhere for it misses the root problems.
I’ve made a number of suggestions for improving healthcare, I will list them:
1) Ease residency requirements, caps, and restrictions on foreign practitioners.
2) Abolish so-called “certificates of need.”
3) Ease FDA regulations, perhaps allowing them to automatically approve foreign-approved drugs.
4) Require transparent and bundled pricing (no more hidden chargemasters!)
5) Restore insurance to….insurance. That is, to cover only contingent risks.
6) Issue risk-adjusted vouchers to all Americans to find a carrier of their choice
I appreciate the objectivity, and those are excellent suggestions, but this "impossible trinity" is (and I mean this in the nicest possible way) weak, cowardly, defeatism. It's not your fault! The American government (the actor that runs healthcare) has done an incredible job demonstrating how it might seem impossible, but we can absolutely have all 3 of those things, because we HAVE all 3 of those things in various sub-sectors of the market, and have had them overall in the past, and even at a high level, we still have "universal" (almost no necessary treatment in the US isn't available) and "quality" (the healthcare-achievable results of HEALTHCARE in the US are really high - if a guy dies screaming in pain at 67 from T2D, COPD and heart failure I can 99% guarantee you it was due to causes outside healthcare's control). The only open issue is "affordable", and even there, for most things, it IS - there are just.... specific items... that are breaking that.
As C above states, "things have changed." Without digging too deeply into the specifics (though your suggestions would very much help!) there is no reason we can't restore that status quo and un-change the things that have made everything more costly.
The idea that IT is a new cost is obviously wrong: before computers, all of those records had to be kept and conveyed on paper, which was more expensive.
"America’s spending on administrators is in line with the spending of other countries, America is just richer".
I find your reading of the third graph rather baffling. It's a log scale on the Y axis. The US dot is about a half-log unit (i.e. ~3x / capita) above that of the eyeball-average of the next clump of rich countries, for a technical complexity of care that is not greater. How is that "in line" with peer countries? This seems to be a play on words.
Great article, but there are massive categorization problems in the data. This is not your fault at all, you are 100% assessing the "data" correctly, I am saying the data is mislabeled and also often deliberately misleading, and due to characteristics of the healthcare system, using terms, concepts and assumptions that make sense in other fields, but just.... don't here. I think this problem screws up a lot of normal-smart-numerate-person reporting on healthcare finances, in the same way that Vietnam-era soldiers reporting "yes we definitely killed 372.4 official Viet Cong soldiers last month" screwed up McNamara-style assessment of how the war effort was going.
Non-teacher expenses are a huge cause of the increase in education costs, but nobody gives a fuck. Whenever people talk about admin costs they almost always know nothing and they are just giving you their vibes about an industry.
Medical cost trend is the only thing that matters in the long run, but it’s impossible to get people excited about “i lowered trend 2% by making some hard choices” in the health sector. Decades later, when that 2% has compounded to where we are today, everyone is upset with the result, but it’s too late to change it.
Please apply to work at DOGE. Seriously. You'll be writing articles about their decisions anyway.
Underrated comment, because any "government spending reduction" from "NIH don't spend 500k on crab sex studies" is going to be vastly smaller than "we reduced costs in healthcare by 0.0001%". Big numbers > tiny numbers.
Maybe "admin costs" in healthcare aren't as big as people say, but they're way bigger than what DOGE people have been talking about (though I naively retain hope they'll eventually actually look at the spreadsheets) and - key feature - directly correlated to federal government policy. What do you think the "admins" are "administering?" Oh right... CMS policy, ICD10 codes, compliance... etc....
Interesting article. As a healthcare administrator, seems to me the best way to reduce healthcare costs at the personal level is to create more providers. There’s an intense shortage, driving up salaries restricting access. Additionally, this limits their ability to help intervene in patient care early enough to prevent longer term issues that cost more to solve.
Definitely!
We should probably have a little chat with the commissars at the Central Committee for Physician Quotas who have been throttling med school/residency numbers in order to stave off the specter of "Doctor Glut" and explicitly inflate salaries via constraining supply.
Economics 101 would tell you what happens when you allow suppliers to control new entrants into a market. "Facility fees" is another utterly ridiculous concept that would only be allowed in US healthcare. Why people ignore the blatantly obvious things that are wrong with the system is beyond me.
Thanks so much for this. I avoided digging into admin costs, because I had a hunch it wasn’t a big deal.
Admin bloat is just one small brick in the wall of misinformation about healthcare. It would be great if you write more about this topic.
I never focused on it either for this very reason. There are so many other systemic perverse incentives to worry about.
Great writeup, there is much misunderstood about American healthcare these days.
Megan McArdle has been banging the same drum for years now.
Very interesting. I keep thinking about Certificate of Need laws and how absolutely bonkers they are. Totally counterproductive.
It's crazy right? Talk about shooting yourself in the foot.
Yeah, if we applied CONs to any other industry outside of medicine we'd immediately see how boneheaded and stupid they are.
Pretty much every aspect of healthcare is like that too.
Imagine going to a supermarket to buy a loaf of bread, only to find that no prices were listed. You ask the cashier how much this loaf costs and they say, "I don't know, it depends on your grocery carrier's agreed rates."
So you call your carrier and ask them, but they tell you they won't know the price either until they receive the correct billing codes, which are based on the type of bread, the level to which it was baked, whether it included sesame seeds...etc"
You only learn the actual price weeks later when the bill comes in the mail.
That's health insurance. It doesn't have to be like this. Doctors, publish your prices!
Or maybe don't!
See: https://www.nber.org/papers/w32580
There is always a paper.... :D
Nobody pays for anything directly with their own money, and what money is “exchanged” might be more of an accounting fiction than anything else (eg. billing $300 for an aspirin or whatever). There’s no discipline on either the demand or supply side which, when combined with all kinds of subsidies and other economic interference, contributes to rising prices. Things would look a lot different if people had to pay for most medical care with their own money, while reserving insurance for much more serious things, the way most insurance is designed to be used.
Exactly! Insurance needs to return to its intended purpose.
i'm working on a startup to smooth out end-patient user experience with the healthcare system. there's a huge lack of transparency in how to effectively obtain preventative care (among other things a la physician shortage, etc.) so many people just don't seek proper preventative care, which causes huge spikes in costs during treatment
but it's tough due to the way commercial insurance is tied to employment and there's rarely a chance to get truly accustomed to one system before switching. until you hit medicare age, but then costs are already higher
The problem isn’t administrative bloat but private equity will solve the actual problem by getting rid of administrative bloat?
To what degree are the shortages on the supply end an effect of the commodification and bureaucratization of medicine? A shortage of doctors stems from intelligent people choosing some other vocation. Has the advent of private equity in medicine made the career less attractive?
https://www.wsj.com/articles/doctors-organize-to-push-back-against-private-equity-takeovers-16aa2c94
Great piece Cremieux.
The problem is we face an “impossible trinity” in healthcare. We want coverage to be 1) Universal, 2) Affordable, and 3) Quality. We really can only pick two.
Demonizing insurance companies gets us nowhere for it misses the root problems.
I’ve made a number of suggestions for improving healthcare, I will list them:
1) Ease residency requirements, caps, and restrictions on foreign practitioners.
2) Abolish so-called “certificates of need.”
3) Ease FDA regulations, perhaps allowing them to automatically approve foreign-approved drugs.
4) Require transparent and bundled pricing (no more hidden chargemasters!)
5) Restore insurance to….insurance. That is, to cover only contingent risks.
6) Issue risk-adjusted vouchers to all Americans to find a carrier of their choice
I appreciate the objectivity, and those are excellent suggestions, but this "impossible trinity" is (and I mean this in the nicest possible way) weak, cowardly, defeatism. It's not your fault! The American government (the actor that runs healthcare) has done an incredible job demonstrating how it might seem impossible, but we can absolutely have all 3 of those things, because we HAVE all 3 of those things in various sub-sectors of the market, and have had them overall in the past, and even at a high level, we still have "universal" (almost no necessary treatment in the US isn't available) and "quality" (the healthcare-achievable results of HEALTHCARE in the US are really high - if a guy dies screaming in pain at 67 from T2D, COPD and heart failure I can 99% guarantee you it was due to causes outside healthcare's control). The only open issue is "affordable", and even there, for most things, it IS - there are just.... specific items... that are breaking that.
As C above states, "things have changed." Without digging too deeply into the specifics (though your suggestions would very much help!) there is no reason we can't restore that status quo and un-change the things that have made everything more costly.
Nice reading list
The idea that IT is a new cost is obviously wrong: before computers, all of those records had to be kept and conveyed on paper, which was more expensive.
"America’s spending on administrators is in line with the spending of other countries, America is just richer".
I find your reading of the third graph rather baffling. It's a log scale on the Y axis. The US dot is about a half-log unit (i.e. ~3x / capita) above that of the eyeball-average of the next clump of rich countries, for a technical complexity of care that is not greater. How is that "in line" with peer countries? This seems to be a play on words.
Great article, but there are massive categorization problems in the data. This is not your fault at all, you are 100% assessing the "data" correctly, I am saying the data is mislabeled and also often deliberately misleading, and due to characteristics of the healthcare system, using terms, concepts and assumptions that make sense in other fields, but just.... don't here. I think this problem screws up a lot of normal-smart-numerate-person reporting on healthcare finances, in the same way that Vietnam-era soldiers reporting "yes we definitely killed 372.4 official Viet Cong soldiers last month" screwed up McNamara-style assessment of how the war effort was going.
Just to be clear, are you advocating for more private equity ownership in healthcare?
Non-teacher expenses are a huge cause of the increase in education costs, but nobody gives a fuck. Whenever people talk about admin costs they almost always know nothing and they are just giving you their vibes about an industry.
Medical cost trend is the only thing that matters in the long run, but it’s impossible to get people excited about “i lowered trend 2% by making some hard choices” in the health sector. Decades later, when that 2% has compounded to where we are today, everyone is upset with the result, but it’s too late to change it.