‘Greedy” and “expensive,” “money” and “profit”—these were the dominant answers when researchers hired by the public policy website The Morning Call asked average Americans what words come to mind when they thought about health insurance companies. While insurers are likely to treat this outcome as a public relations problem, more evidence that U.S. consumers simply have it right was included in a recent investigation of rising health care costs. The New York Times reported in May that, public perceptions of high-salaried physicians notwithstanding, the most over-rewarded players in American health care were actually paper pushers, not the pill prescribers.
While some medical specialists certainly earn eye-popping salaries, the true high earners in American health care are most often found in the beige back offices that never feature in television medical dramas. According to the Times report, the base pay of insurance and hospital executives and administrators far outstrips most doctors’ salaries. The average insurance chief executive officer earns $584,000, hospital C.E.O. $386,000 and hospital administrator $237,000. Those figures compare with the $306,000 most surgeons can expect to earn and the $185,000 earned by most physicians.
Individual cases cited by the Times are disheartening. While families struggle to pay for adequate care, insurance company executives are raking in millions each year in salaries and stock options. In a deal the Times characterized as “not unusual in the industry,” Mark T. Bertolini, chief executive of Aetna, earned $977,000 in 2012; that year he took home a total compensation package, with stocks and options, that was worth over $36 million.
Despite some success in decelerating costs achieved by the Affordable Care Act, U.S. health care’s overall price-tag—projected to be $3 trillion in 2014—remains startling, especially compared with peer states. Few advanced economies devote more than 11 percent of their gross domestic product to health care. In the United States, health care claims 18 percent of all annual economic output, and its per capita cost, $8,500, is more than double that of many other Western nations.
While tort-reform resisting attorneys, outright fraud, over-billing and unnecessary procedures are typically blamed for the vast difference in costs—and not coincidentally outcomes—between the United States and its industrialized peers, U.S. overspending on health care administration is a robust contributor to the problem. The Commonwealth Fund reports that the United States spends $606 per capita on it. That compares with $277 spent in the next most bureaucracy-burdened state, France, and a low of just $35 per capita in Norway.
Why are U.S. administrative costs so extravagant? Because of the system’s reliance on for-profit entities and its unique complexity, there are administrative positions that do not exist anywhere else in the industrialized West.
The nation’s so-called reform debate sacrificed common sense for political expediency and the larger goal of expanded coverage. The single-payer option, which would have eliminated layers of bureaucracy, was never a serious contender in reform negotiations. It should have been, and at a more opportune political moment it should be honestly revisited. The problem now is how to locate cost-saving opportunities in a system that remains overloaded with expensive and exasperating bureaucracy. Inefficiencies in personnel policies and record-keeping need to be tracked down, and employer-buyers of insurance plans need to scrutinize their insurer’s compensation policies carefully to turn back a proliferation of too-richly rewarded managers. The A.C.A. has set minimum standards for care versus administrative costs, the Medical Loss Ratio, and requires insurers to issue rebates to enrollees if these minimums are not met. Those standards should be tightened and scrupulously policed.
Pope Francis has emphasized the problems of economic inequality. In his 2014 World Day of Peace Message, he worried over the contemporary tendency to seek “happiness and security in consumption and earnings out of all proportion to the principles of a sound economy.” He called for a social order that guarantees basic rights, including access to education and adequate health care. Discouraging excessive compensation will preserve revenue that can be directed to expanding health care access, answering both social concerns in one stroke.
Health care costs have also been at the heart of the budget paralysis in Washington. That spending cannot be contained without addressing the preposterous costs of health care administration. The needs of the nation’s taxpayers and its sick, injured and indigent must be placed above the interests of health industry shareholders, executives and bureaucrats.