Tuesday, April 04, 2006

“You need us more than we need you.”

This was a line allegedly spoken by a representative from the giant Wisconsin health care provider Aurora Health Care to a representative from the Wisconsin health insurance company WPS.

The line exemplifies perfectly one of the significant problems with a multiple-payer health care system. Namely, the bargaining power of the payers is weaker than the bargaining power of the providers.

WPS is suing Aurora in an attempt to break up its hold on the Wisconsin health care market. The hope is that by making Aurora smaller, payers like WPS will regain a stronger foothold during contract negotiations.

A better idea, however, is to increase the bargaining power of the payers by putting them under one umbrella for negotiations.

While it may seem like breaking up provider conglomerates like Aurora is just as effective of an idea, and one that is perhaps more "free market friendly," it ignores another major factor in the rising cost of health care--administrative costs.

Estimates in the New England Journal of Medicine put administrative costs at about 31% of the total cost for health care in the US (as opposed to about 16% in single-payer systems). The more payers and providers we have out there, the higher these administrative costs will be.

Consolidating the number of payers is the most efficient way to handle the rising overall costs of health care. The sooner we institute policies in Wisconsin and throughout the country that reflect this fact, the sooner the health care industry will need us just as much as we need it.

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