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Monday, January 8th, 2007

Schwarzenegger’s Universal Coverage

Interesting developments out in California - Arnold is now proposing universal coverage. The details aren’t available yet so it’s hard to say exactly how it will work, but one note in his speech caught my attention:

The governor would require employers to provide insurance or pay into a state fund that would help people buy their own insurance; he would require insurers to cover everyone, regardless of medical condition; he would require 85 percent of insurance premiums be spent on patient care; he would substantially increase the MediCal reimbursement for doctors.

Link

That’s pretty bold. If I’m reading the press right, the proposal requires insurers to invest 85% of their income on patient care, leaving 15% to be split between profit, and administration. The federal Medicare and Medicaid programs have a percentage of administration that is around 5-10%, and they don’t have to make a profit, advertise, or put much effort into fraud prevention. Healthcare in general is administration intensive which, considering the business they’re in makes sense. Even Canada’s universal healthcare administration costs exceed 15%. (In the United States some estimates put private admin at around 20-30%.)

If a provider can’t keep their admin under say, 10% (leaving just 5% in profit) how will the quality of the admin be effected, and how will that effect the care people receive? I also wonder how a provider with a current administration costs of say 25% will adjust to the new guidlines without going out of business. Market forces will of course take effect, but if the numbers are completely unrealistic, it could get ugly. It should be interesting to see what the health care industry has to say about Schwarzenegger’s plan, considering they seem to be the ones footing most of the bill.