Cost Reduction

How SB 810 (Single Payer) Reduces Costs

A 2005 Lewin Group Report shows California saving money by adopting a Single Payer system.

1. Reducing Insurer Administration 69%- saves $9.686 billion
2. Reducing Physician Administration 30%- saves $6.614 billion
3. Reducing Hospital Administration 22%- saves $3.56 billion
4. Bulk Purchasing of Prescription Drugs – saves $4.418 billion
5. Bulk Purchasing of Medical Equipment – saves $786 million
6. Increased Primary Care – saves $3.408 billion
7. Reduced Fraud – saves $783 million

1) Only 4% of Medicare and Medicaid budgets go to administration compared to 20% and more for private insurance. According to the World Health Organization, private insurers higher costs are “mainly due to the extensive bureaucracy required to assess risk, rate premiums, design benefit packages and review, pay or refuse claims.” Single Payer public insurance does not waste money to assessing insurer risk (“avoiding potentially expensive patients”). A single payer only sets one benefit package instead of thousands, which creates an enormous bureaucracy to “game” plan benefits. Furthermore, the costs of changing insurance plans would be eliminated.  Employers no longer have to evaluate numerous benefit programs.

2) & 3) Physician and hospital administration are greatly reduced because there is only one insurance plan to file claims with instead of thousands with their own idiosyncratic rules requiring legions of administrators to interpret. Cost would be reduced in adjudication of claims and contracting with insurance companies. Furthermore, since hospitals will be given an annual operating budget, hospital bill generation and collection of unpaid services would be eliminated.  With a global budgeting, hospitals would have the incentive to treat patients more efficiently instead of getting paid more money to keep people in the hospital as long as possible.

4) A Single Payer system buys prescription drugs in bulk, which saves between 25-40% depending on whether a person currently has drug coverage. A Single Payer system uses generics whenever possible and does not buy expensive “me too” (patented drugs that are almost identical to the generic, say one molecule different, but can cost up to 17 times as much) drugs. If two are more brand name alternatives exist for a given medical therapy, the Single Payer could lower costs by only selecting the drugs with the lowest cost.

5) Like with the prescription drugs, durable medical equipment prices would be reduced by buying in bulk with the threat of manufacturers and suppliers being shut out of the Single Payer market.

6) By providing comprehensive coverage, people would get their care from doctor office visits instead of emergency room visits which are far more expensive often because 1) the patient’s condition is far worse because he waited too long to get treated 2) primary care is far cheaper in a doctor’s office than an emergency room.

7) Roughly 5% of all health claims are inaccurate. A Single Payer system establishes an authority with the power to subpoena business and financial records of health providers-a power private insurers do not have. Hence, less fraud is likely to occur and more likely to be detected in a Single Payer system.