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Analysis of Private Health Insurance Industry $2 Trillion “Savings” Proposal

Written by: Scott R on May 13, 2009 8:44 PM EDT

Linked to groups: Democracy for Ohio (DFO), DFA Film Club, Democracy for Maryland, DFA New Jersey, DFA Campaign Academy Alumni

The private health insurance industry proposes to reduce health care spend and slow rate increases over the next 10 years to provide $2 trillion in “savings”?

Let's analyze what that might mean.

Analysis of Private Health Insurance Industry $2 Trillion Savings Proposal

The purpose of this analysis is meant to provide grounding, and further the discussions and progress of US health care reform.

Please note that all statistics are rounded to make the calculations and comprehension of the concepts more straightforward.

Please provide feedback to make this information more correct and useful.

US Private Health Insurance Industry $2 Trillion Savings Proposal

The private health insurance industry proposes to reduce health care spend and slow premium increases over the next 10 years to provide $2 trillion in savings.

2009 US Health Care Spend

Total 2009 US health care annual spend is widely accepted to be US $2.5 trillion.

US Private Health Insurance Industry Market

Today, 1200 US private health insurance companies make up the US private health insurance industry that insures 60% of the US population, or 180 million Americans.

Approximately 180 million Americans are covered by private health insurance. At an estimate of $10,000 per person per year, that amounts to roughly $1.8 trillion annually.

At $1.8 trillion annually, the private health insurance industry administers 70% of the total $2.5 trillion US health care annual spend.

Whether for profit or non profit, the private health insurance industry is lucrative. In fact, of the $1.8 trillion private health insurance industry, 31% goes directly to private health insurance industry administrative costs and income. So, for every US health care dollar spent by privately insured Americans, an average of 31 cents goes to the US private health insurers' administration and income, or approximately $580 billion annually.

If the private health insurance industry continues to administer 70% of the US health care industry at $1.8 trillion annually over the next 10 years, the total 10 year private health insurance industry would be $18 trillion at current US health insurance industry premiums and health care costs (obviously assuming no growth or reduction in the private health insurance and health care industries).

Also, if the private health industry continues a 31% administrative costs and income at $580 billion annually over the next 10 years, the health insurance industry would receive $5.8 trillion for administrative costs and income at current US health insurance industry premiums and health care costs (once again assuming no growth or reduction in the private health insurance and health care industries).

However, the US health care industry is estimated to grow as much as 60% or to a total of $40 trillion over the next 10 years.

If the private health insurance industry continues to administer 70% of the total US health care annual spend over the next 10 years, the total private health insurance industry would be $24 trillion.

And if the private health insurance industry maintains a 31% overhead over the next 10 years, a total of over $7.7 trillion would go directly to private health insurance industry operational costs and income.

Over the next 10 years, the private health insurance industry could potentially see a $24 trillion industry that includes $7.7 trillion operational costs and income.

Does it really cost $7.7 trillion to write policies and process health care bills?

With a potential total industry of nearly $24 trillion over the next 10 years, I am not surprised that the private health insurance industry proposed $2 trillion in reduced spending and slower premium increases. That's less than 10% in an industry that is projected to grow 60%.

US Private Health Insurance Industry Overhead

How does the private health insurance industry realize a 31% overhead today?

The 180 million Americans with private health insurance are statistically healthier, wealthier, and have less costly medical conditions (e.g. not terminally ill like a larger segment of those on Medicare, etc.). By taking advantage of advances in information technology, automating business processes, and setting policies to deny coverage and insure the young, healthy, and wealthy is where the private health insurance industry realizes 31% overhead for administrative costs and income.

US Medicare and Medicaid/SCHIP Markets

How does private health insurance overhead compare to Medicare and Medicaid/SCHIP?

Medicare covers 45 million seniors or 15 percent of the US population. At an estimate of $10,000 per person per year, that amounts to $450 billion annually (including unfortunately $60 billion in fraud annually), with an overhead of only 3% or $13.5 billion annually due to no income requirement or excessive administrative costs and salaries.

Medicare has some excesses and inefficiencies. Also, seniors are statistically an unhealthier segment of the US population, while many require more expensive long term health care, especially the terminally ill. The fact that this segment of the US population is growing the fastest will make matters even more complicated in the very near future.

Medicaid/SCHIP costs are $300 billion annually (also including unfortunately $40 billion in fraud annually) for 30 million children, families, and seniors who are 65 or older, blind or disabled and have limited income, or roughly 10 percent of the US population. At an estimate of $10,000 per person per year, that amounts to roughly $300 billion annually, with an overhead of only 3% or $9 billion annually due to no income requirement or excessive administrative costs and salaries.

Medicaid/SCHIP also has some excesses and inefficiencies. Additionally, low income groups are statistically an unhealthier and less literate segment of any population, and administering health care coverage and treatment can be more challenging. Regrettably, this segment of the US population is also growing.

Discuss

Analysis of Private Health Insurance Industry $2 Trillion “Savings” Proposal

Written by: Scott R on May 13, 2009 7:53 PM EDT

Linked to groups: Fair Share For Health Care Initiative, Michigan Democracy for America, Democracy for NYC, Democracy for Ohio (DFO), DFA New Jersey

The private health insurance industry proposes to reduce health care spend and slow rate increases over the next 10 years to provide $2 trillion in “savings”?

Let's analyze what that might mean.

Analysis of Private Health Insurance Industry $2 Trillion Savings Proposal

The purpose of this analysis is meant to provide grounding, and further the discussions and progress ofUS health care reform.