Care of the Centers for Medicare & Medicaid Services (CMS) National Health Expenditure Accounts, here is a breakdown of national healthcare spending in 2017:

_2019 US Health Spending 2017.png

Some explanation of terms:

Health insurance: private insurance, Medicare, Medicaid and Other (CHIP, Department of Defense and the VA).

Out of pocket: what the public pays, such as co-pays and deductibles.

Other third party payers: worksite healthcare, other private revenues (mainly philanthropy), Indian Health Services, workers' compensation, state and federal maternal/child health, vocational rehabilitation and other programs.

Investment: research, structures, and equipment.

Government public health activities: surveying population's health status and health needs, setting policies and standards, passing laws and regulations, supporting biomedical and health services research, and more. Federal public health services are provided by several agencies, including the Centers for Disease Control and Food and Drug Administration.

I’m going to concentrate on cutting health insurance spending, which consumes 75% of US healthcare expenditures: a whopping 2.6 trillion dollars a year. Some considerations:

  1. Hospital care accounts for almost half of private insurance expenditures. Thanks to monopoly pricing and secret fee arrangements, hospitals charge more than twice the Medicare rate for similar services. So, let’s cut the cost of privately insured hospital care in half by mandating transparent pricing and Medicare fee rates.

  2. Numerous studies have documented that US healthcare providers over-test and over-treat by at least 20%. That includes hospitals, physicians, and other healthcare providers. So, let’s cut the cost of over-testing and over-treatment by 20% through national testing and treatment guidelines and legal reform to reduce defensive medicine.

  3. The US spends much more on prescription drugs than other developed countries. Partly that’s because we’re subsidizing those countries through cost-shifting. But some fat could be trimmed here via transparent drug pricing and by allowing Medicare to negotiate with Big Pharma for lower prices. So let’s cut US drug prices by 20%, which is still higher than what most European countries pay.

  4. The Congressional Budget Office estimates that Medicare and Medicaid fraud account for 10% of total outlays. Medical fraud is much less pervasive with private insurers thanks to effective preauthorization procedures and utilization review. So, let’s eliminate medical fraud by improving administrative oversight (shout out to all those diligent claims adjusters, vilified by physicians everywhere!).

Implementing the above reforms could reduce US healthcare spending by $727 billion. Here’s how I reached that figure:

_2019 Health Insurance Excess Spending.png

Ok, $727 billion is just 21% of $3.5 trillion. Plus, some of the savings may be difficult to pull off. Then again, I addressed only half of overall healthcare spending in this post. Surely, another 10% in savings could be found elsewhere, e.g., reducing over-treatment by healthcare professionals other than physicians, increased transparency and oversight of medical equipment sales and rentals, reductions in hospital administrative staff-hours due to simplified and uniform fee schedules. Etc.

As far as I’m concerned: mission accomplished!

Now consider that roughly 10% of non-elderly Americans lack health insurance. However, extending insurance to these individuals wouldn’t increase healthcare spending by 10%, because the uninsured tend to be younger adults who consume much less healthcare than their elders. For example, people age 55 and over account for over half of total health spending, most of whom are already insured through employers and government programs for the elderly and disabled. Since, as a group, the uninsured are younger and healthier than the insured, extending health insurance to the 10% currently lacking insurance would probably not add more than 5% to overall healthcare spending in this country. Easily paid for through the 25% in savings elaborated above - with plenty left over for other worthy causes.


Behind The Headlines: Private Healthcare Plans Pay Hospitals More Than Twice The Medicare Rate. Exploring the Problem Space, May 27, 2018

Centers for Medicare & Medicaid Services (CMS) National Health Expenditure Accounts

GAO-18-88 and GAO-18-88 Reports on Medicare and Medicaid Fraud 

IOM Report Focuses On $750 Billion In Inefficient Health Care Spending

Lyu et al. (2017) Overtreatment in the United States

NHE Fact Sheet 2017  

Private Insurance Payments to California Hospitals Average More Than Double Medicare Payments “ Richard Kronick and Sarah Hoda Neyaz/West Health Policy Center May 2019

" RAND Study: Hospitals Charging The Privately Insured 2.4 Times What They Charge Medicare Patients” by Avik Roy and The Apothecary/Contributor Group May 11, 2019

The Challenge of Health Care Fraud