The American Health Care System Costs Four Times More Than Canada’s Single-Payer System (and the Public Option Won’t Help)

Lambert here: NC readers are familiar with these arguments, but it never hurts to repeat, and some of the studies cited are new. (Medicare and Medicaid have a very bad neoliberal infestation, too.)

By Igor Derysh, who covers politics for Salon. Cross-posted from Alternet.

The cost of administering health care in the United States costs four times as much as it does in Canada, which has had a single-payer system for nearly 60 years, according to a new study.

The average American pays a whopping $2,497 per year in administrative costs — which fund insurer overhead and salaries of administrative workers as well as executive pay packages and growing profits — compared to $551 per person per year in Canada, according to a study published in the Annals of Internal Medicine last month. The study estimated that cutting administrative costs to Canadian levels could save more than $600 billion per year.

The data contradicts claims by opponents of single-payer health care systems, who have argued that private programs are more efficient than government-run health care. The debate over the feasibility of a single-payer health care has dominated the Democratic presidential race, where candidates like Sen. Bernie Sanders, I-Vt., and Sen. Elizabeth Warren, D-Mass., advocate for a system similar to Canada’s while moderates like former Vice President Joe Biden and former South Bend, Indiana Mayor Pete Buttigieg have warned against scrapping private health care plans entirely.

Canada had administrative costs similar to those in the United States before it switched to a single-payer system in 1962, according to the study’s authors, who are researchers at Harvard Medical School, the City University of New York at Hunter College, and the University of Ottawa. But by 1999, administrative costs accounted for 31% of American health care expenses, compared to less than 17% in Canada.

“The U.S.-Canada disparity in administration is clearly large and growing,” the study’s authors wrote. “Discussions of health reform in the United States should consider whether $812 billion devoted annually to health administration is money well spent.”

The increase in costs was driven in large part due to private insurers’ growing role in administering publicly-funded Medicare and Medicaid programs. More than 50% of private insurers’ revenue comes from Medicare and Medicaid recipients, according to the study. Roughly 12% of premiums for private Medicare Advantage plans are spent on overhead, compared to just 2% in traditional Medicare programs. Medicaid programs also showed a wide disparity in costs in states that shifted many of their Medicaid recipients into private managed care, where administrative costs are twice as high. There was little increase in states that have full control over their Medicaid programs.

As a result, Americans pay far more for the same care.

The average American spent $933 in hospital administration costs, compared to $196 in Canada, according to the research. Americans paid an average of $844 on insurance companies’ overhead, compared to $146 in Canada. Americans spent an average of $465 for physicians’ insurance-related costs, compared to $87 in Canada.

“The gap in health administrative spending between the United States and Canada is large and widening, and it apparently reflects the inefficiencies of the U.S. private insurance-based, multipayer system,” the authors wrote. “The prices that U.S. medical providers charge incorporate a hidden surcharge to cover their costly administrative burden.”

Despite the massive difference in administrative costs, a 2007 study by the Centers for Disease Control and Canada’s health authority found that the overall health of residents in both countries is very similar, though the US actually trails in life expectancy, infant mortality, and fitness.

Many of the additional administrative costs in the US go toward compensation packages for insurance executives, some of whom pocket more than $20 million per year, and billions in profits collected by insurers.

“Americans spend twice as much per person as Canadians on health care. But instead of buying better care, that extra spending buys us sky-high profits and useless paperwork,” said Dr. David Himmelstein, the study’s lead author and a distinguished professor at Hunter College. “Before their single-payer reform, Canadians died younger than Americans, and their infant mortality rate was higher than ours. Now Canadians live three years longer and their infant mortality rate is 22% lower than ours. Under Medicare for All, Americans could cut out the red tape and afford a Rolls Royce version of Canada’s system.”

Himmelstein later told Time that the difference in administrative costs between the two countries would “not only cover all the uninsured but also eliminate all the copayments and deductibles.”

“And, frankly, have money left over,” he added.

Democrats like Biden and Buttigieg have argued that it would be a mistake to switch to a single-payer system because many people have private insurance plans they like. Both have proposed a public option, which would allow people to buy into a government-run health care program but would not do away with private plans.

But study senior author Dr. Steffie Woolhandler, at Hunter College and lecturer at Harvard Medical School, argued that a public option would make things worse, not better, because they would leave profit-seeking private insurance in place.

“Medicare for All could save more than $600 billion each year on bureaucracy, and repurpose that money to cover America’s 30 million uninsured and eliminate copayments and deductibles for everyone,” she said. “Reforms like a public option that leave private insurers in place can’t deliver big administrative savings. As a result, public option reform would cost much more and cover much less than Medicare for All.”

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

33 comments

  1. jackiebass

    Private insurance funded by public money has to be a big money maker. You don’t have to watch TV for very long before you will be bombarded by ads pushing Medicare Advantage plans. They make it sound like a government plan by calling themself The Medicare Rights Help Line. Call them up and they will instantly tell you about all of the free benefits yo qualify for. That’s according to their pitch man Broadway Joe. You get all of this for free. In fact you may get back your Part B premiums. Unfortunately many old people are very vulnerable and will fall for their pitch. People need to contact their congress people and demand that traditional medicare has to offer all of the things advantage plans offer. These Advantage Plans are actually the means to privatize Medicare. If enough people fall for their pitch it will be used as an excuse to get rid of traditional medicare. Don’t expect the present DNC to protect medicare. Obama was close to a deal with republicans to cut SS and Medicare.

    Reply
    1. The Historian

      Medicare Advantage plans sell simply because Medicare does not cover all medical costs. Yes, those Medicare Advantage companies do pitch all sorts of nonsense, but the fact that Medicare is inadequate to cover all medical costs and people on Medicare need more coverage is still there, isn’t it?

      So what do you want these people to do? Give up their Medicare Advantage plans and go without needed healthcare? Bankrupt themselves? Contacting your congress people will get you NOTHING, as MANY people who have tried have found out.

      Obviously the Medicare system we have is inadequate, which is why I am wary of M4A – I would prefer universal healthcare instead, but many of us older people have no choice – we have to buy a Medicare Advantage plan and it has nothing to do with “falling for their pitch” – it has to do with the realities of our current healthcare system.

      Reply
      1. tegnost

        In the event that M4A is ever implemented the medicare advantage scam will go away with all the rest of the health insurance companies. And what about “everybody in, no one out”? Sounds like universal health care to me.

        Reply
        1. The Historian

          There are a lot of iterations of the M4A plans out there. Which one are you talking about? And did you ever critically analyze your favorite plan to see how it can be gamed? Because you can bet that the insurance companies have already done that.

          Just “faith” in M4A is not enough – you just might end up with another ACA calling itself M4A.

          Reply
          1. tegnost

            https://www.bettermedicarealliance.org/newsroom/bma-news/azar-house-republicans-say-medicare-all-threatens-ma-plans

            opening passage…
            “HHS Secretary Alex Azar and House Republicans criticized the recently introduced Medicare For All bill at a House Energy & Commerce health subcommittee hearing Tuesday (March 12), saying it would eliminate Medicare Advantage (MA) plans, a claim that the office of Rep. Pramila Jayapal (D-WA) said was true, but the office said the bill would cover everything MA does.”

            yeah it’s really complicated…

            Reply
        2. jefemt

          I would encourage EVERYONE to attend Medicare meetings/ information sessions for medicare enrollees, seniors, etc. Sitting through one of those will set a person straight about how M4All has become a ridiculously over-complicated byzantine system.

          We want a universal care program, available to all, cradle to grave. Do’t throw the baby out with the bath-water, but don’t be afraid to aggressively re-tool it.

          We could do it!

          I see another comment mentioning Jaypal’s Bill— we all need to click the link and read that

          Reply
          1. Oh

            Jaypal’s bill is the closest thing to Univeral healthcare. Bernie Sanders’ bill still uses private industry, I believe.

            The current healthcare system – “Elites and rich folks in, everbody else out”.

            Reply
      2. False Solace

        Sanders’ bill in the Senate and Jayapal’s bill in the House are universal, free at point of service, all inclusive plans. They represent meaningful reforms of current Medicare as well as expanding it to all age groups. See tegnost’s comment elsewhere in this thread for the links. This is what is meant by M4A. Corporate-owned sellouts usually refer to things like “… For All Who Want It” or “public option” or “affordability” or “access” to muddy the waters.

        Reply
      3. Anon

        You don’t have to buy a Medicare Advantage Plan, Historian. You could buy “gap” insurance in one of NINE specific private insurance plans certified by CMS (the governing body for Medicare & Medicaid).

        Advantage Plans cost more than “gap” insurance. They are attractive to people in high population density areas because this private insurance provider can create economies of scale for their facilities. Advantage Plans are essentially managed care plans that have the ability to attract doctors to their facilities/administration.

        I agree with you that a single-payer system could eliminate the necessity of “gap” insurance AND reduce the 30% administrative overhead/vigorish extracted by private medical insurers.

        Many people use the short-hand M4A acronym for the broad idea of a national health system and because “medicare” is a term familiar to many.

        Reply
        1. Oh

          The last time I checked, Gap plan premium were more expensive and had a different set to deductibles and other limitations.

          Reply
        2. codewalker

          One of the biggest failures of Medicare Advantage is the benefits are capped. Once you hit the cap, you are out of pocket.

          Real Medicare has no cap.

          Also, Medicare Advantage has a fixed network of Doctors and facilities. You have little choice. If you have a malady that requires a specialist not in the network, you are on your own.

          Reply
        3. Discouraged in WI

          In our experience, Advantage plans are less expensive than gap plans. When my husband retired about 7 years ago, he went on the Medicare + gap insurance, because he has some health issues; I took the Medicare Advantage plan because I did not. Over the seven years, I figure that we have saved over $20,000 by not having the second gap plan. I know that the Medicare Advantage plans are subsidized, and I would completely support a single payer plan, but as currently administered, it is not true that gap plans are cheaper than Medicare Advantage.

          Reply
  2. KLG

    “Reforms like a public option that leave private insurers in place can’t deliver big administrative savings. As a result, public option reform would cost much more and cover much less than Medicare for All.”

    A feature, not a bug.

    Reply
    1. Carla

      “Cost more, cover less” — a mantra for American health care.

      Back in the day, when single-payer activists spoke about Medicare for All, it was always preceded by “Expanded and Improved.” Let’s get back in that habit. We must have Expanded and Improved Medicare for All!

      Jayapal’s bill, HR 1384, NOT the Sanders bill, details exactly how to expand and improve M4A.

      https://www.congress.gov/bill/116th-congress/house-bill/1384

      Reply
  3. Eureka Springs

    Note to Tom Friedman,

    I’m declaring 60 billion to be a Bloomberg unit. Tell the world we could save ten Bloomberg units a year.

    Reply
    1. JeffC

      Perspectives on $60B to share with the less numerate:

      It’s 60,000 millions, folks.

      It’s (just over) a million years of the US median family income.

      Reply
      1. notabanktoadie

        But obviously (smirk) MB is worth that much. /sarc

        Thanks Michael Bloomberg for demonstrating (personally, no less!) how unjust our economic system is since you are obviously no Solomon!

        Reply
  4. Oh

    I cannot for the life of me understand why they call Buttigieg, Biden et al moderates when they’re right wing pro-corporate shills.

    Reply
    1. notabanktoadie

      Good question since the former = 5 times as much.

      I learned a lot about ratios when desperately waiting for a prescription refill of what used to be an OTC drug (amphetamine).

      Oh, how I love Progressives and their meddling ways! (Actually, I prefer the original God since He is more merciful than them and far wiser.)

      Reply
  5. Tom Bradford

    New Zealand has an excellent publicly-funded health service with a smaller private system in parallel, and health insurance for those who prefer the latter.

    I recently found myself in urgent need of a TURP. My initial diagnosis and treatment was at the E&R at the local public hospital for free and after that I received regular visits at home from the community nurse to check for problems. However electing to ‘go private’ meant shortening my wait for surgery by about two weeks – two weeks of having a catheter in my bladder and a bag of warm liquid permanently strapped to my leg – and I could afford it so went that route. Surgeon, anesthetist and 80 minutes in theatre cost me around NZ$5,000 and two nights in a private ward cost me NZ$4,000. (Currently NZ$1=US$0.64).

    So yes, I jumped the queue, but that also means someone in the public system had his surgery advanced and there was a small saving of cost to the health service.

    It’s worth mentioning that New Zealand also has ACC, the Accident Compensation System. Through ACC the State picks up the personal costs arising from an accident – on the road, at home, in sport, at work or wherever – and with no fault liability. ACC compensation can be used for private health care, which gives the Government considerable incentive to keep the brakes on the costs of private health care.

    Reply
    1. Jim

      New Zealand also has a national pharmaceutical Plan too. It also has the lowest formulary levels of any western country. And no access to most drugs Americans can purchase because your government has basically closed the door to pharmaceutical companies doing business in your country. So you get what you (all) pay for. Lousy Or no access to life saving drugs and treatments. Also no research tests are able to be participated in for sick patients.

      Reply
  6. d

    I just wonder how to get to single payer. Though Canada and the UK did can we? It will be hard to get it through congress if we can’t convince those Healthcare that its better for them too. Difficult, but not impossible

    Reply
    1. Jim

      God bless you all if you do. Talk to any working educated canadian about our so called “single payer” system. It’s broke and expensive and gives lousy service and outcomes. Canadians pay per capita second to the USA in health care costs. Our system here is nowhere near as efficient robust and successful as the american health care system. At least in the USA you get a choice We have nothing worth emulating up here believe me

      Reply
      1. Dan

        It’s so unpopular that it’s political suicide to even mention getting rid of it. Ditto every other country that has it.

        Reply
  7. James

    Not one comment by a Canadian on here. I for one would gladly get rid of our “single payer” system. We pay on average 10% of everything we spend to cover hospital and health care. Food ,cars, houses, pets, gas, and everything else. Everything. Imagine your spending for the year after taxes now take off another 10%. We also pay a very high federal income tax and on too of that a provincial income tax that flows back into healthcare as a transfer payment. Then most people, some 80% of canadian workers pays for a health insurance that averages between 600-2000 per year to cover a hospital room if you’re lucky enough to have a bed to be admitted to. Paramedicals are paid out of pocket as well

    We have doctor shortages as nobody wants to go to med school to make a paltry 18 dollar fee per patient visit. Our hospitals are over run with mental health or social cases that have no place else to go to. When we have er’s staffed we have a 4-12 hour wait to see a basic doctor in a hospital setting. And don’t try to look for a family gp

    I find it farcical that the only cost looked at was administrative costs. Of course they would be higher Canadas health administrative costs are hidden in government operations budgets. Canada’s “health care” system is sick and can’t afford life support. And as an aside i can pay to get my boobs done or a facelift but i can not pay to get a cancer treatment. It’s a joke.

    Reply
    1. jrkrideau

      Ah yes, Canadian health care is so horrible.

      I had a bad accident and fractured a vertebra. Helpful citizens raced to my aid and called for an ambulance which got me to Emerg where I was triaged, send for x-rays and then an MRI.

      Three weeks care in the acute care hospital and then a transfer to a dedicated rehab hospital. Four weeks occupational and physio rehab supervised by a specialist rehabilitation physician and then release.

      My treatment team in the rehab hospital arranged for weekly home visits from a physiotherapist and an occupational therapist for a couple of months plus arranged for a bath bench and walker for a month until my mobility improved.

      So far I have had a follow-up appointment with my neurosurgeon and my rehab physician since my release 3 months ago and should have one more with my rehab physician.

      Total out of pocket charges: a $45 bill for the initial ambulance.

      Canadian health care is pure hell.

      Reply

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