An ad announced by the Kerry campaign June 21 shows the candidate making a pitch for his health care plan, which he says “will save literally billions of dollars” by streamlining medical paperwork. He’s right.
Not mentioned, of course, is that the biggest savings in his plan would hold down the cost of health insurance by having federal taxpayers pick up most of the tab for “catastrophic” medical bills.
The ad is named “Paperwork.” It’s totally positive, never mentioning Bush. Kerry simply makes one of his standard arguments for the health care plan he first outlined in December, 2003.
John Kerry for President
Kerry: We spend about $1.5 trillion every year on healthcare in America. $350 billion of that has nothing to do with care. It’s all paperwork. Administrative overhead.
I have a healthcare plan that can reduce the cost of healthcare. We can lower their premiums. And we will save literally billions of dollars in healthcare costs in America by becoming more streamlined and more efficient.
I am John Kerry and I approve this message.
Statistics On Target
Kerry seems to be on target with his statistics. According to official federal government estimates, the US really did spend $1.55 trillion on health care in 2002. The figure is certainly even higher this year, given that health-care spending is rising even faster than the general level of inflation.
Kerry’s $350 billion figure for what’s spent on health care paperwork and administrative overhead is far less certain, but still a reasonable estimate. Various scholarly studies have put the cost of paperwork and administrative overhead at anywhere from 7.6% to 31% of the total cost of healthcare in the US. Kerry’s figure is just over 23%, on the high side but still not unreasonable.
Kerry could have defended an estimate as high as $480 billion a year had he cited the 31% figure, which comes from a study last year in the New England Journal of Medicine. But the same issue of the New England Journal also carried an editorial saying the 31% figure is too high by at least $50 billion, and noted other studies that have put the figure as low as 7.6% — which still would figure to $118 billion for 2002 alone. The editorial also said it isn’t possible to estimate the cost of administrative overhead accurately in any case. So the real figure is anybody’s guess, and Kerry’s $350 billion figure was well within the range of the estimates.
Savings Claim on Firm Ground
Kerry also is on reasonably firm ground when he says his healthcare plan “can reduce the cost of healthcare” and “will save literally billions of dollars in healthcare costs in America by becoming more streamlined and more efficient.” One of Kerry’s proposals would require private insurance companies that do business with the government to use simplified technology for submitting and processing their claims.
Kenneth E. Thorpe of Emory University, an expert in financing of health care, says from 30% to 40% of health care transactions still rely on paper claims, which can cost from $5 to $20 each. Automated claims can slash that cost to as little as fifty cents each. Thorpe estimates that Kerry’s proposal to require more automated claims processing would save an average of $4 to $5 on each claim, with total savings just to the government of $6 billion in the first year, and nearly $80 billion over 10 years. There would be further savings to individuals and businesses, too, but Thorpe gave no estimate for those.
To be fair, the President hasn’t been idle in this area. This year Bush established a new “National Coordinator for Health Information Technology” whose job is to come up with a plan to speed up the adoption of electronic health records and electronic prescriptions for medications. But unlike Kerry, the administration isn’t proposing mandatory use of automated claims and isn’t claiming its initiative will cut costs greatly. The head of the new office, David Brailer, testified June 17 that the administration’s goal is to use information technology to improve the quality of care and reduce medical mistakes, and that it “may even reduce health care costs” as well (emphasis added).
Who Pays for Lower Premiums?
Kerry is also correct when he says his plan can “lower . . . premiums” for health insurance, though he fails to mention that most of the savings would result from shifting the expense to federal taxpayers. The heart of the Kerry plan would have the federal government pay health plans 75% of the cost of “catastrophic” medical bills — roughly those over $50,000 a year for one patient — in return for which the plans would agree to cut the premiums charged to workers by 10%. Thorpe estimates that Kerry’s reinsurance plan alone would cost the government $257 billion over 10 years. Thorpe estimates the cost of the entire Kerry healthcare package at $653 billion over 10 years, even after subtracting estimated savings from such things as increased use of computerized medical claims and requirements for more aggressive “disease management” of such expensive ailments as congestive heart failure and diabetes.
To be sure, that’s taking money from taxpayers to subsidize businesses and workers who pay for health insurance, just as the President’s supporters often say. It’s also true, according to Thorpe’s estimates, that Kerry’s costly plan would extend health insurance to 27 million persons who don’t have it now, while Bush’s rival health care proposal would cover only an additional 2.4 million.
Footnote: For those who might be wondering, Thorpe is Chair of the Department of Health Policy & Management in the Rollins School of Public Health of Emory University, Atlanta, GA. During the Clinton administration he served as Deputy Assistant Secretary for Health Policy in the U.S. Department of Health and Human Services, coordinating financial estimates of Clinton’s health care reform proposals for the White House. Despite his Clinton connection, Thorpe’s estimates of the cost of the Kerry plan have been cited without question by the Bush campaign to justify their contention that Kerry will be forced to raise taxes to pay for his plan.)
Update, Sep. 30, 2005: Professor Thorpe updated his original analysis, “Federal Costs and Savings Associated with Sen. Kerry’s Health Care Plan,” in Aug. 2004. Because the original paper is no longer available, our footnotes and links reflect Thorpe’s updated analysis. All figures attributed to Thorpe remain the same.
Watch Kerry Ad: “Paperwork”
US Department of Health & Human Services, Centers for Medicare and Medicaid Services, “National Health Accounts: Definitions, Sources, and Methods Used in the NHE 2002, ” 24 March 2004.
Steffie Woolhandler, Terry Campbell & David U. Himmelstein, “Cost of Health Care Administration in the United States and Canada,” New England Journal of Medicine, 21 Aug 2003: 768-775.
Henry J. Aaron, “The Costs of Health Care Administration in the United States and Canada – Questionable Answers to a Questionable Question.” New England Journal of Medicine, 21 Aug 2003: 801-803.
Patricia M. Danzon, “Hidden Overhead Costs: is Canada’s System Really Less Expensive?” Health Affairs, Spring 1992: 25.
John Kerry, “John Kerry’s Plan to Make Health Care Affordable to Every American ,” John Kerry for President, 14 Dec 2003.
Kenneth E. Thorpe, “Federal Costs and Savings Associated with Senator Kerry’s Health Care Plan ,” 2 Aug 2004.
Kenneth E. Thorpe, “Federal Costs and Newly Insured under President Bush’s Health Insurance Proposals ,” 5 May 2004.
Kenneth E. Thorpe, “The Impact of Sen. John Kerry’s Health Care Proposal on Health Care Costs,” 22 June 2004.
David J. Brailer, “Testimony” US House of Representatives, Ways & Means Committee, Subcommittee on Health, 17 June 2004.