Thursday, July 31, 2008

Dollars and Dollars

In re: Megan McArdle's pondering about single payer spending.
Right now, just about half the healthcare dollars spent in America come out of government coffers. This is expected, in the not-too-distant future, to open up unsustainable holes in the budget. Single payer will patch those holes only if we can generate a dollar in reduced spending on the currently uncovered for every new dollar we want to spend on the sickly. The three general proposals to do so are:

  1. Reduce administrative costs
  2. Squeeze out pharma profits
  3. Preventative care
With administrative costs only 15% of private spending, and pharma profits about 10% of the 10% of healthcare costs represented by drug spending, that had better be some amazing preventative care.

This strikes me as a weird comparison. Assume that the government does pay ~50% of medical costs, including medicare, medicaid, and the VA. If the government picks up the rest of the population, they get the other half of the funding.1 The 15% administrative costs is not just wrangling (which medicare doesn't do), but also profits. Medicare admin costs are frequently cited at 3%, which would mean that if you take the other 50% of revenue, 12% of that, i.e. 6% of total spending gets freed up to cover the currently uninsured. Sure, it's weak math, but then so is McArdle's.

1. Or whatever. The public will feel they are entitled to approximately what private insurers were getting before.

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