Healthcare cost is extraordinarily high in America. We spend 50-100% more per person than other developed countries. It is not because their care is better, to the contrary. Our cost is high for a number of reasons which I discussed in some detail in Health Attitude: Unraveling and Solving the Complexities of Healthcare. The media and political focus seems to be on healthcare insurance premiums. Premiums relate to the underlying cost of the healthcare delivery, which special interest groups have been successful in convincing politicians to not talk about. Although I have just somewhat defended healthcare insurance companies, there are reasons to scrutinize them.
Lets start by looking at six of the 35 or so healthcare payers and see what they pay their CEOs. The average for the six companies is $18,650,000. This pay level is 35% higher than the average for all industry CEOs. If you look at the average compensation for doctors, nurses, and home health aides, they earn $189,000, $71,000 and $33,000 respectively. The range for each goes to roughly 50% higher than the average. Compensation varies by speciality and location. If you look at their compensation relative to the CEO’s, you find the average CEO at the six companies makes 99 times more than a doctor, 263 times more than a nurse, and 848 times more than a home health aide.
Being CEO is a tough job with a lot of responsibility, pressure from stakeholders, and turnover for not delivering desired results. They deserve a premium, but how much of a premium? I cannot think of any rationale to support what they are paid. Nobody is worth that much. The blame lies with board of director compensation committees. I have served on several such committees and learned the only source of comparison comes from compensation consultants who basically look at what other CEOs are paid compared to the one the committee is about to approve. Most committees don’t want to take the view their CEO is worth less than others similarly situated. It is a bad system, and shareholders need to speak out more.
Another area of high cost is lobbying. We indirectly pay for it. The Pharmaceuticals/Health Products industry spent $250 million last year and has 1,400 lobbyists. A lot of money goes toward re-election campaign funds for politicians of both parties. Their top priority is getting re-elected. People filing for personal bankruptcy because of medication costs don’t make the list. The Insurance industry spends $150 million and has 900 lobbyists. This includes all kinds of insurance but the largest spender is Blue Cross Blue Shield healthcare which spent $20 million. The Hospital and Nursing Home industry spent $100 million and has 800 lobbyists. What a system!
I know a number of my readers believe an answer to much of the cost problem is a single payer system. I do not think so, and detailed why in Health Attitude. The real problem with the payers is administrative inefficiency. Canada has 13 payers and Germany has 200. What is different is the countries mandate administrative standards. In the U.S., each payer does things differently, and it takes doctors and their staffs incredible hours sorting out what is covered and what is not. If we had the administrative efficiency of Canada, we could save $300 billion. Single payer cannot solve the problem. Congress can’t agree on simple concepts. There is no way they would legislate eliminating dozens of multi-billion-$ insurance companies. Zero chance. There are a handful of simple things Congress could do to reduce healthcare cost by at least a half-trillion-$. They just don’t want to. Read more about the problems and my proposed solutions in Health Attitude: Unraveling and Solving the Complexities of Healthcare.
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