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EQUAL Health  Equitable Quality Universal Affordable Center for Policy Analysis
U.S Health Care: Myths and Facts
Members of the Equal listserv suggested covering these issues in presentations on health reform, in exchanges in September, 2009. The Center for Policy Analysis summarized their responses. 1. Who’s More Efficient, Government or the Private Insurance Market?
2. Are We Spending Too Much on Health Care?
3. Do We Pay Too Much for Drugs?
4. Could Importing Drugs Reduce Prices?
5. Can Prevention Programs Reduce Health Care Costs?
6. Is Health Information Technology a Silver Bullet for Reducing Costs?
7. Are there really 46 Million Americans Who Can't Get Health Care?
8. Can Universal Coverage Be Achieved by Mandating Everyone to Buy Insurance?
9. Do We Need More Government Programs to Cover Low-Income People?
10. Bonus: Summary of William Hsiao: Abnormal Economics in the Health Sector

1. Who’s more efficient, government or the private insurance market?
Efficiency means doing the best job at the lowest cost. Government programs do more of the job –
covering the oldest and sickest people, for the most benefits – and at a lower cost than private
insurance companies. Private companies spend about 20% of every dollar on administrative costs or
profit. (Administrative waste on the provider end consumes another 11%.) Medicare spends about
3% on administration, and nothing on profits. Community health centers (supported by federal and
local government) have been documented to achieve better health outcomes with lower expenditures,
fewer ER visits and fewer hospitalizations than private providers
While some people claim that Medicare costs are rising too quickly, it is private insurance premiums
that are truly out of control. From 1970 to 2007, Medicare spending per beneficiary rose 8.5% a year
while private insurance premiums increased 9.7% a year. Had private insurance premiums increased
at the same rate as Medicare spending, since 1970 those private insurance premiums would be 33%
lower than they are today. The difference between Medicare’s ability to control costs and private
insurance premiums is even more striking in the most recently compiled statistics. Over the period
from 1997 to 2007, Medicare’s cost per beneficiary rose on average 4.4% per year while private
insurance premiums increased by 7.4% per year—a 30% difference over the full 10 years.
Two important factors contribute to efficient health care: First, budgets set responsible guidelines for
how fast health care expenditures can grow. Medicare has a budget, unlike private systems; but the
U.S. health care system overall does not have any set limits. Secondly, payment methods can provide
incentives for inefficiency, especially in systems without budget caps. Traditional fee-for-service
plans may encourage doctors to order income-generating medical tests and procedures with only
secondary regard for the patient’s benefit, compared with services that are not reimbursed such as
discussion to explore a patient’s condition. Salaries and capitation are the other major reimbursement
methods. These can lead to under-service, unless there are other organizational and financial
incentives that reinforce attentive care.
Center for Policy Analysis SF Presidio PO. Box 29586, San Francisco, CA 94129 [email protected] 415-922-6204 www.centerforpolicyanalysis.org EQUAL Health  Equitable Quality Universal Affordable Center for Policy Analysis
Both the highly respected, private sector Mayo Clinic and the public Veterans Affairs hospitals are
fine examples of efficiency. Doctors are paid a salary; they don’t earn more by ordering more tests.
They coordinate health care records and have multi-disciplinary medical teams sharing information
about a patient and manage to keep their costs lower. We can use the ingenuity of these successful
American models to improve efficiency.
2. Are We Spending Too Much on Health Care?
In a word, Yes! There’s ample research showing that other countries cover all their residents and
spend less. Canada spent 9.7% of GDP on health care in 2008, Germany 10.7% and the U.S. 15.9%.
U.S. employers have reported for years that the cost of health care is a major drain on their
profitability. The annual spending rate for health care coverage grows faster than most other
segments of the economy.
What’s the primary difference? Higher prices.
Providers – hospitals, doctors, supply and technology companies - charge much higher rates than their counterparts abroad. Provider prices are marked up by 130% to 150% by insurance companies. And Canadians negotiate for the best drug prices on the world market. insurance companies have made the business decision to inflate prices to pay administrative salaries, legal and clerical staff for declining or rescinding coverage (not paying claims) and advertising, to generate profits for stockholders, and distribute additional stock options and bonuses for the management. The EQUAL Coalition includes public health, women’s groups, and advocates for Equitable, Quality. Universal,
Affordable health care. * The Center for Policy Analysis www.centerforpolicyanalysis.org * The California Public
Health Association-North an affiliate of the American Public Health Association www.cphan.org * Rekindling
Reform www.rekindlingreform.org * Older Women’s League San Francisco * California Women’s Agenda
EQUAL Health  Equitable Quality Universal Affordable Center for Policy Analysis

American private health care spends a lot for corporate profits and salaries that do not go to care.
Non-profit insurers (or HMOs) pay salaries almost as high as for-profit companies. The former CEO
of Mass Blue Cross recently took a $19 million golden parachute when he left; the current CEO gets
$3 million in annual compensation. If this happens at Ford, you can always choose to buy another
model car. But you can’t disenroll from your employer’s health plan.
Despite spending almost twice as much, the U.S. is rated 37th in the world for health. Men’s life
expectancy is 75.6 years and women’s 80.8 years. Canadian men’s life expectancy is 78.3 years and
women’s 82.9 years. In Germany, it’s 76.5 for men and 82.1 for women.
We can spend the same amount as we do now, and have the best health care in the world.

3. Do We Pay Too Much for Drugs?

The other 19 western industrialized democracies keep drug costs as low as possible by negotiating for
the best drug prices available on the world market. The U.S. does this for the Veterans Affairs
system, and Medicaid, where drug prices are competitive with Canada and the world market.
but not for the rest of the American population. It is illegal for our government to negotiate better
drug prices through Medicare. In addition, pharmacies, hospitals and insurance companies mark
drugs up even more to make a great profit from a captive market, which is us. Drug companies make
a tidy profit overseas. In the U.S. they make a huge profit, historically about 15% a year, often three
or four times the Fortune 500 average, and vying with the oil industry as the most profitable industry
in the economy.

4. Could Importing Drugs Reduce Prices?
We don’t have to import many drugs because we make a lot of them here. We do need to import the
policies that make drugs affordable abroad. The U.S. needs to negotiate drug prices for individuals
and systems, and to control markups on drugs.
The assertion that drug prices have to be high to pay for innovation has been proven false.
Proportionately more new drugs are developed abroad than in the U.S. Drug makers spend huge
sums researching “me too” drugs to get around patents on existing blockbusters, advertising to
promote products like Viagra, entertainment for physicians and legislators, and lobbying and political
contributions to politicians in both parties so that the U.S. will neither negotiate drug prices, nor
reimport drugs from other countries that do (that’s all of them).

5. Can Prevention Programs Reduce Health Care Costs?

Yes and no. Clinical preventive services are vital for better health. For example, annual breast and
cervical screenings for women can find cancer signs early and treat them less expensively. The
The EQUAL Coalition includes public health, women’s groups, and advocates for Equitable, Quality. Universal,
Affordable health care. * The Center for Policy Analysis www.centerforpolicyanalysis.org * The California Public
Health Association-North an affiliate of the American Public Health Association www.cphan.org * Rekindling
Reform www.rekindlingreform.org * Older Women’s League San Francisco * California Women’s Agenda
EQUAL Health  Equitable Quality Universal Affordable Center for Policy Analysis
federally-funded Vaccines for Children program helps vaccinate millions of American babies to
make sure our immunization rates are high and children don’t die of preventable illnesses. Every $1
spent for a vaccine saves $7 in future medical expenses. Government programs can insist on
providing these services.
Community-based prevention – safer neighborhoods, walkable cities, clean air and water, living wage
policies – improve health without driving up hospital bills.
However, prevention alone won’t result in savings to the system. Every dollar “saved” is lost income
for someone in the health care system. Unless the government is able to effectively control the
budget for the health care system as a whole, these providers - doctors, hospitals, supply and drug
companies, as well as insurers - will drive up prices and procedures to assure that they maximize
income.

6. Is Health Information Technology a Silver Bullet for Reducing Costs?
Of course not. There is no one “silver bullet.” Health care is a complex system. And, as we said
before, without an overall budget and other features, savings in one place are destined to pop up
somewhere else. But HI technology can help. Take this example: a patient is referred to a specialist
after some medical test results show a possible neurological problem. The neurologist needs to see
the blood test results. These were done recently, but the paperwork was not transferred. Happens all
the time. So what happens? The neurologist repeats the blood test. It’s wasteful—and a hassle for the
patient. Sharing test results and other health information electronically would save money. Similarly,
electronic immunization registries, operating in most states, save doctors money with improved
efficiency at the office and avoids duplicated treatments such as repeat immunizations for kids who
come in with incomplete records. Results from communities that have Health Information Exchanges
show reduced spending through electronic medical records by not duplicating tests.[cite?]
The VA has a 99.993% accuracy rate for prescription fills largely because it is an electronic system,
compared to 3-8% error rate outside the VA.

7. Are there really 46 Million Americans Who Can't Get Health Care?
46 million Americans lack health care insurance at any point in time. Over the course of a year,
millions more are uninsured A 2009 Harvard University study that found that 45,000 deaths a year in
the U.S. - 1 every 12 minutes – are associated with lack of health insurance. A national study that
followed adults under age 65 for 8 years found that those without health insurance were 40% more
likely to have died than those with insurance.
People without insurance can get care if they can pay for it. But even this has severe consequences.
If you sprain an ankle or have a sore throat, you might be able to pay for a simple appointment at a
The EQUAL Coalition includes public health, women’s groups, and advocates for Equitable, Quality. Universal,
Affordable health care. * The Center for Policy Analysis www.centerforpolicyanalysis.org * The California Public
Health Association-North an affiliate of the American Public Health Association www.cphan.org * Rekindling
Reform www.rekindlingreform.org * Older Women’s League San Francisco * California Women’s Agenda
EQUAL Health  Equitable Quality Universal Affordable Center for Policy Analysis
retail clinic. But what if you need your diabetes or heart condition monitored regularly, or you need
an operation with months of physical therapy afterwards, and expensive drugs? That’s more than
most of us can afford. In fact most people without coverage also have lower incomes. We try to do
without, or may end up in an emergency room because we waited and let a small problem get big.
That’s the most expensive care. If we can’t pay the expensive bill, the hospital raises its rates so that
regular, insured patients pay more. That in turn means higher premiums for those with insurance.
Some people who are eligible for existing programs like Medicaid or the State Children’s Insurance
Program are not enrolled in them. Overwhelmingly, this is because these poorly funded programs
ration services by constructing bureaucratic barriers to enrollment and retention. New national
programs should avoid these well-known pitfalls.
8. Can Universal Coverage Be Achieved by Mandating Everyone to Buy Insurance?
Just like auto insurance, if everyone is not covered, rates will go up to compensate for those who are
NOT insured. But there are some differences too. We can choose not to own a car. Enforcement is
also an issue. You have to register your car each year, not yourself! Massachusetts took this
approach, and reduced the percent of uninsured to about 5%. But there are still 27,000 uninsured
people on Cape Cod alone. Some people bought insurance, got the care they needed, then
disenrolled.
Unless insurance is affordable, many Americans will have to make tough choices about paying the
mortgage, buying food or medicine, and paying a health care insurance premium. Moreover, even if
insurance is obtained, coverage may be denied. If you need a certain cancer drug, or a heart
operation and your insurance does not want to pay, are you better off? Probably not.
9. Do We Need More Government Programs to Cover Low-Income People?
If the private market wants to help insure poor Americans, why don’t they? Simple: it just isn’t
profitable. The average American family pays $13,375 a year for insurance premiums alone (Kaiser
Family Foundation Sept 2009). (The 2009 Milliman Medical Index calculates that accounting for
foregone wages adds about another $6,000 a year to the cost of insurance for a family of 4. ) Poor
families can’t afford this! Some of the “low-cost” plans available have high deductibles (you get
nothing until you’ve paid well over $1,000), high co-payments, and lousy coverage (like no dental
care, no vision care, no child birth coverage, no prescription drugs, sometimes spotty coverage even
for hospital care). This kind of coverage isn’t helpful for anyone, including low-income people.
Government care is available to help low-income Americans get the care they need. But when we
separate government care only for the poor, the risk pool is more likely to have people who are
sicker, which can mean their care needs are more expensive. The better solution is to have the
government provide insurance for all of us in a single risk pool as we do now for Americans over age
65 in Medicare.
The EQUAL Coalition includes public health, women’s groups, and advocates for Equitable, Quality. Universal,
Affordable health care. * The Center for Policy Analysis www.centerforpolicyanalysis.org * The California Public
Health Association-North an affiliate of the American Public Health Association www.cphan.org * Rekindling
Reform www.rekindlingreform.org * Older Women’s League San Francisco * California Women’s Agenda
EQUAL Health  Equitable Quality Universal Affordable Center for Policy Analysis

10. Bonus section: Summary of William Hsiao: Abnormal economics in the health sector.
William C. Hsiao Health Policy 32 (1995) 125-139

Abstract: The implosion of centrally-planned economies has led to a widespread and uncritical belief that a
free market is the best mechanism for structuring the economic and social sectors. This paper offers a critical
analysis of the effectiveness of using free market principles to structure the health sector. We try to answer
two questions: in what spheres can the market operate freely? In what spheres is government action required?
According to economic theory, the market is only appropriate for producing and distributing private goods. This
study analyzed health care and subdivides it into three categories (public, merit, and private goods) to clarify
where the market has a legitimate role. Next, we analyze two of the five markets in the health sector--financing
and delivery - and assess the respective roles of the market and government. Competitive markets have
certain prerequisites. We identify the major market failures by evaluating where these conditions are not
satisfied. Next, we draw on international experience to ascertain the seriousness of those failures and the
capacity of government action to correct them. Lessons are drawn about the appropriateness of market
strategies to finance and deliver health care.

Summary of Hsiao by Maggie Huff–Rousselle: Distortions in the Health Care Market Drive Up
Prices Without Improving Care
We definitely need innovation. But our system was not designed to treat people with chronic disease
(which now accounts for 75% of our spending).
The health sector is plagued by market distortions and failures, characteristics that can profoundly
impact public health, especially for those goods and services that are a public good. The multiple
barriers to market entry, and the inability of consumers to make adequately informed decisions in the
health market, combine to give suppliers significant control over consumer demand. William Hsiao
documents these failings compellingly
These market failures and distortions are particularly pronounced in the pharmaceutical sector where:
1) there is little incentive for research and development focused on the major health problems of the
most disenfranchised segments of the world’s populations, since such investments are unlikely to
result in profitable business initiatives; 2) a lack of neutrality and transparency in providing scientific
information means that, not only can consumers not make well-informed decisions, but physicians’
prescribing decisions are also not adequately informed; 3) the cost of obtaining patent rights and the
market muscle of patents in an era of globalization (along with capital investment issues) can
reinforce barriers to market entry; and, 4) the barriers to market entry combined with the inability of
both consumers and physicians to make informed decisions give suppliers tremendous influence over
demand.
1http://www.pnhp.org/single_payer_resources/administrative_waste_consumes_31_percent_of_health_spending.php 2 ble 13)
The EQUAL Coalition includes public health, women’s groups, and advocates for Equitable, Quality. Universal,
Affordable health care. * The Center for Policy Analysis www.centerforpolicyanalysis.org * The California Public
Health Association-North an affiliate of the American Public Health Association www.cphan.org * Rekindling
Reform www.rekindlingreform.org * Older Women’s League San Francisco * California Women’s Agenda

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