Kinds of Healthcare Costs

I learned that there are two kinds of medical costs, broadly categorized: care costs and managerial costs. They’re kind of self explanatory, don’t you think?

The interesting thing about the U.S. healthcare system is that I’ve never seen an aggregate percentage estimate of just how much of our total healthcare spending (you know, that 18-ish percent of GDP) goes to managerial costs. Maybe some health economist has come up with that number somewhere, but I haven’t seen it. Think about it–you would have to estimate and add the total managerial costs of Medicare, Medicaid, the private insurance sector, CHIP, the VA system, the system for congress and for those with kidney failure and for native Americans. . . . Sounds fun. Other countries have anywhere between 2 to 5 percent estimates for their total managerial costs.

What I have heard, though, are estimates for the total managerial costs of Medicare (2 percent) and the private insurance industry (20 percent). You’d think the 2 percent is awesome and the 20 percent is horrible. Well, the 20 percent is horrible, but not bad considering they’ve got to spend so much money on screening applicants and trying to find ways to deny claims and developing thousands of new compensation plans and payment schedules and paying awesome executives. (It is the private sector, after all.)

And as for the 2 percent, I think it might be a little too low. Maybe a little more spending on managerial stuff could go towards ways to prevent fraud, cause apparently that’s a pretty big thing with Medicare. So maybe every extra dollar of fraud prevention would save a few dollars of fake claims, up to a point. That would maybe leave the Medicare number up around 3 percent, which is still not too bad. Unless you don’t trust government’s estimates of their own efficiency. They want to look good, right? Number-fudging isn’t that hard to do, especially with something so complex as healthcare.

Qualifications?

I read this book once–it’s called Complications by Atul Gawande. Two things happened: (1) I decided Dr. Gawande is awesome, and (2) I realized that the delivery of healthcare is imperfect. I don’t know how I missed it before. Maybe it has something to do with the fact that I grew up in Canada. (The secret’s out!)

From reading that book until now, I’ve read nearly everything I’ve been able to get my hands on about health policy. So, in the midst of taking the MCAT (twice) and my wife giving birth (twice), I’ve been reading about this. And I have some goals to go along with this reading. I’m convinced I can improve the delivery of healthcare in this land of freedom. I can make it more efficient and effective. How? Well, I’m studying business strategy. I’m studying health policy. I’m studying the delivery of healthcare from the front lines–as a physician (in training). I figure being a student of these aspects of the health system is a good start. Another good start is this blog. This is my place for synthesis of information. It’s where I turn disparate facts about the health system into useful knowledge and understanding. So, thanks for joining me. If you learn from this blog something–anything–about how healthcare works in the United States, then maybe you will be more likely to know a good policy when you see one. So let’s figure out how this system works, the causes of its problems, and how to solve them.

Who understands health policy?

A better question is, Who can explain health policy if they understand it? Well, I figure a student is often more likely to be able to explain simply what little he knows than some high-level expert who is thinking at a completely different level than 95 percent of Americans. Let the fun begin.