Taking health-care reform to extremes.

Photographer: Hal Yeager/Getty Images

Medicare Paperwork for All

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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In making his case for universal health care, Senator Bernie Sanders has reignited a debate over whether the U.S. should have a single-payer system. It would simplify the administration of health insurance, but his proposal is nevertheless ill-advised -- not least because it’s possible to simplify billing and claims processing in health care without making such an extreme change.

In 2014, the net cost of health insurance in the U.S. was almost $200 billion, most of which was for billing and related expenses (as opposed to things like premium taxes and profits). These costs can readily be lowered. After all, other countries with mixed private-public systems -- including the Netherlands, Switzerland and Germany -- have administrative processes that cost 25 to 60 percent less than ours.

Although the Affordable Care Act included some provisions aimed at cutting administrative costs, much more can be done. The Center for American Progress has assembled several proposals that it estimates could save $40 billion a year.

One step that should be taken immediately is to simplify the transaction process involved in billing and processing claims. Medicare’s processing costs are relatively low, in part because administrative contractors streamline the payment process. All health-care payments could be gradually moved to this platform.

Such a change could be made in steps. First, state Medicaid programs could begin using regional Medicare administrative contractors to process claims. Then Medicare Advantage programs, which are private insurance plans that currently enroll about 30 percent of Medicare beneficiaries, could be required to do the same. Next, the government could either require or provide incentives for self-insured employer plans to use the system. Ultimately, the economies of scale would become large enough to encourage private insurers to adopt the system, too. Policy makers could add incentives, if need be.

This reform would be practical and generate larger benefits than may be immediately apparent. The Medicare administrative process is already regionalized and subject to competition among processing contractors. It already includes standards for efficiency and provider education, and requires transparency in processing.

At the same time, doctors and other care providers would save money and effort by dealing with just one payment-processing system, and the consistency in paperwork would reduce errors. Various studies estimate that providers could save as much as 25 percent on claims processing.

Medicare would see incremental savings from consolidated processing. States would, too (and the federal government would save on matching payments in Medicaid). And all parties -- including private health insurers -- would gain from the standardization.

In other words, instead of Medicare for all, as Sanders proposes, we just need Medicare processing for all. It may not sound as sexy, but it’s much more achievable -- and would bring significant savings.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the authors of this story:
Peter R. Orszag at porszag3@bloomberg.net
Timothy G Ferris at tferris@partners.org

To contact the editor responsible for this story:
Mary Duenwald at mduenwald@bloomberg.net