Featured Research

from universities, journals, and other organizations

Private And Public Insurance Choices Could Help Pay For U.S. National Health Care Reform

Date:
July 16, 2009
Source:
Commonwealth Fund
Summary:
As lawmakers debate how to pay for an overhaul of the nation's health care system, a new report projects that including both private and public insurance choices in a new insurance exchange would save the United States as much as $265 billion in administrative costs from 2010 to 2020. Congressional leaders are attempting to keep 10-year federal budget costs of health care reform legislation under $1 trillion.

As lawmakers debate how to pay for an overhaul of the nation's health care system, a new report from The Commonwealth Fund projects that including both private and public insurance choices in a new insurance exchange would save the United States as much as $265 billion in administrative costs from 2010 to 2020. Congressional leaders are attempting to keep 10-year federal budget costs of health care reform legislation under $1 trillion.

"Health reform can help pay for itself, but both private and public insurance choices are critically important," said Commonwealth Fund President Karen Davis, who coauthored the new report. "A public insurance plan can help drive new efficiencies in the system that will produce large cost reductions. Without a public plan, much of those potential savings will be lost."

The Commonwealth Fund Commission on a High Performance Health System has put forward a comprehensive set of policy options to achieve near-universal health insurance coverage while reforming the U.S. health care system to achieve nearly $3 trillion in savings by 2020. Central to this proposal is the creation of a national insurance exchange that would largely replace the individual and small-group insurance markets, offering families and business a choice of private or public plans with a benchmark standardized-benefit package.

The new report, How Health Care Reform Can Lower the Costs of Insurance Administration, says that it is possible to achieve near-universal coverage, improve health care quality and efficiency, and lower the trajectory of health care costs through a comprehensive private-public approach to health reform. A Commonwealth Fund analysis of three paths to reform found that an approach that includes a public plan in the exchange that would pay providers at Medicare rates would save about $265 billion in administrative costs over 2010-2020. On the other hand, an insurance exchange that provided a choice of private plans only would increase administrative costs by $32 billion over the same period.

Savings from the mixed private-public reform approach would be realized through less marketing and underwriting, reduced costs of claims administration, less time spent negotiating provider payment rates, and fewer or standardized commissions to insurance brokers.

"A public plan would create an incentive for competitive private plan premiums with streamlined operations," said Davis. "Savings from these new efficiencies can be used to extend health insurance to people who can't afford it and to improve benefits."

The United States leads all other industrialized countries in the share of national health care expenditures devoted to administration. The cost of administering the U.S. health care system totaled nearly $156 billion in 2007, and that figure is expected to double—reaching $315 billion—by 2018. In addition, costs incurred by physicians in their transactions with health plans are estimated to be as high as $31 billion a year.

About 12.4 percent—or $96 billion—of the $775 billion in privately insured health care spending went for administrative costs in 2007. That $96 billion—representing what insurance companies received in premiums, minus what was paid in medical claims—included claims processing, advertising, sales commissions, underwriting, and other administrative functions; net additions to reserves; rate credits and dividends; premium taxes; and profits. By contrast about 6.1 percent—or $60 billion—of the $974 billion in public program health care spending went for administrative costs in 2007. That includes federal, state, and local governments' administrative costs for public health programs such as Medicare, Medicaid, and the State Children's Health Insurance Program. Medicare prescription drug coverage, provided by private plans, has high administrative costs but is included in public program administration figures. Private Part D plans averaged 11.3 percent in administrative costs as a share of total drug spending.

The absence of underwriting and profits has kept the administrative costs of public insurance programs relatively low. However, between 2005 and 2006, Medicare's annual administrative costs jumped from $12 billion to $20 billion, largely because of increased payments to cover the administrative costs of private health and drug plans participating in the program. By contrast, administrative costs in traditional fee-for-service Medicare actually declined slightly over the same period.

"Health care reform represents a significant opportunity to reduce administrative complexity in the current system," said Sara Collins, a vice president at The Commonwealth Fund and a coauthor of the new report. "These findings indicate that such simplification will help lower premiums and reduce the cost of extending affordable coverage to everyone."

The Commonwealth Fund is a private foundation supporting independent research on health policy reform and a high performance health system.


Story Source:

The above story is based on materials provided by Commonwealth Fund. Note: Materials may be edited for content and length.


Cite This Page:

Commonwealth Fund. "Private And Public Insurance Choices Could Help Pay For U.S. National Health Care Reform." ScienceDaily. ScienceDaily, 16 July 2009. <www.sciencedaily.com/releases/2009/07/090716094001.htm>.
Commonwealth Fund. (2009, July 16). Private And Public Insurance Choices Could Help Pay For U.S. National Health Care Reform. ScienceDaily. Retrieved July 28, 2014 from www.sciencedaily.com/releases/2009/07/090716094001.htm
Commonwealth Fund. "Private And Public Insurance Choices Could Help Pay For U.S. National Health Care Reform." ScienceDaily. www.sciencedaily.com/releases/2009/07/090716094001.htm (accessed July 28, 2014).

Share This




More Health & Medicine News

Monday, July 28, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Deadly Ebola Virus Threatens West Africa

Deadly Ebola Virus Threatens West Africa

AP (July 28, 2014) West African nations and international health organizations are working to contain the largest Ebola outbreak in history. It's one of the deadliest diseases known to man, but the CDC says it's unlikely to spread in the U.S. (July 28) Video provided by AP
Powered by NewsLook.com
$15B Deal on Vets' Health Care Reached

$15B Deal on Vets' Health Care Reached

AP (July 28, 2014) A bipartisan deal to improve veterans health care would authorize at least $15 billion in emergency spending to fix a veterans program scandalized by long patient wait times and falsified records. (July 28) Video provided by AP
Powered by NewsLook.com
Two Americans Contract Ebola in Liberia

Two Americans Contract Ebola in Liberia

Reuters - US Online Video (July 28, 2014) Two American aid workers in Liberia test positive for Ebola while working to combat the deadliest outbreak of the virus ever. Linda So reports. Video provided by Reuters
Powered by NewsLook.com
Traditional African Dishes Teach Healthy Eating

Traditional African Dishes Teach Healthy Eating

AP (July 28, 2014) Classes are being offered nationwide to encourage African Americans to learn about cooking fresh foods based on traditional African cuisine. The program is trying to combat obesity, heart disease and other ailments often linked to diet. (July 28) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins