Improving the prognosis of healthcare in the USA

Summarized by Tashrique Rahman, PharmD, MBA

Galvani AP, Parpia AS, Foster EM, Singer BH, Fitzpatrick MC. Improving the prognosis of health care in the USA. Lancet. 2020;395(10223):524-533. doi:10.1016/S0140-6736(19)33019-3

This Lancet study estimated the national healthcare expenditure under the single-payer universal healthcare system detailed in the Medicare for All act. The study developed the Single-payer healthcare interactive Financing Tool (SHIFT) which enables the customization of a national financing plan. Such customization allowed a payroll tax to replace insurance premiums paid by employers and individuals. Projections from SHIFT indicated that a single-payer system would yield net savings leading to coverage expansion, service improvements, administrative efficiency and lower drug prices.

Fees for hospital and clinical services

  • Medicare reimburses hospitals and physicians for services across all services at fixed rates. Application of fees negotiated by Medicare across all services for all individuals means reduced fees for hospital and clinical services. The study calculated hospital and clinical fees would be reduced by 5.54% and 7.38% respectively leading to a annual savings of $100 billion

          • Lower fees per service would be offset by savings from reduced billing and administrative redundancies which represent $768 billion cost for healthcare providers. Consolidation of billing into a unified system is estimated to reduce this expenditure by $284 billion

  • A single-payer billing system eliminates unpaid bills which can exceed $35 billion each year for hospitals alone. Lower Medicaid fees will be reimbursed by higher Medicare reimbursements.

          • This will mitigate the financial struggles healthcare organizations face in low-income communities

Unified system for billing and administration

Administrative overhead costs comprise 12.4% of spending for insurance companies compared with 2.2% for the Medicare scheme. Applying Medicare's current overhead rate, the savings is estimated at $219 billion if all insurance schemes are consolidated into the Medicare framework

  • This eliminates excessive compensation of health insurance company executives, some of whom earn more than $20 million annually

  • A comprehensive database of healthcare charges facilitates detection of fraud. Taiwan observed an 8% reduction in overall national expenditure by switching to a single-payer system

Pharmaceutical Price negotiation

  • There are legislations that prohibit Medicare from negotiating prices for pharmaceuticals, supplies or equipment. On the other hand, The US department of Veterans Affairs (VA) has the capacity to negotiate prices (aligning with therapeutic value of pharmaceuticals) and their bargaining power results in pharmaceutical prices that are 40% lower than those under Medicare.

  • Permitting price negotiation and administering a formulary similar to the VA, a single-payer system would increase savings by more than $180 billion

Expansion of Coverage and services and the synergy between health and prosperity

  • 38 million Americans tend to forego necessary treatments and prophylactic treatments. Uninsured individuals use healthcare services at 50.1% of the rate of those with adequate insurance

  • 41 million Americas are termed underinsured as their insurance plans come with high deductibles and copays. Underinsured individuals use healthcare services at 86% of the rate of those with adequate insurance

A single-payer system expands the access and use of health services among the uninsured and the underinsured

  • A single-payer system will forego short sighted cost cutting tendencies of private insurance companies that jeopardizes the long term health of Americans. For example, a single-payer system will utilize physical therapies for pain ( a strategy often underutilized by private companies for cheaper alternatives such as opioids which can be addictive).

  • A single-payer system will extend access to screening and preventative care which can avert the progression of chronic diseases such as diabetes which alone is responsible for $73.7 billion in losses across the USA

    • Universal coverage will save 68531 lives in the USA on a annual basis (calculating number of deaths for each age cohort if all Americans became insured)

    • Universal coverage will save 1.73 million life-years annually (based on age distribution of avertable premature deaths and their corresponding life expectancies)

How will we pay for it?

  • This questions is most often asked with the negative implication that a possible transition to a single-payer system will be burdensome and cost-inefficient. The 2017 Centers for Medicare and Medicaid services estimate that USA spends $3492 billion on healthcare.

      • Eliminating uncompensated hospital fees add $38 billion annually which increases spending to $3530 billion

      • Expanding insurance to everyone add $191 billion annually

      • Eliminating avoidable emergency room visits and hospitalizations will decrease spending totaling to $78.21 billion

      • Reducing reimbursement rates for hospitals, physicians, and clinical fees (22% lower than private insurance but 30% higher than Medicaid) will decrease $100 billion in spending

      • Reducing pharmaceutical prices via negotiations will decrease $188 billion in spending

      • Reducing overhead expenditure saves $219 billion annually

      • Improving fraud detection saves $102 billion annually

Confused by all the numbers?? We have diagrams to help you understand. Click here!!

          • Proposed expenditure after adjusting for changes is $3034 billion annually which is $458 billion less than the national health-care expenditure in 2017

          • $2261 billion is already allocated to health care by existing government and philanthropic resources

          • Further $773 billion must be collected by the government to fully implement the Medicare for All act. Following are the ways we get it:

              • Employer contribution to health insurance currently average $10446 per employee and covers 71% of household's premiums. Employer premiums are equivalent to 12.29% tax on payroll.

              • A 10% payroll tax will generate $436 billion annually resulting in $100 billion savings for employers. This means employers will NO LONGER have to manage health-care benefits

              • A 5% tax on household income will yield $375 billion ($38 billion more than the $337 billion required). A 5% household tax replacing premiums will correlate to average household out-of-pocket spending going down from $5847 to $3478 (43% in savings)