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Maggie Mahar Answers Viewer Questions - Part I

We'd like to thank Maggie Mahar for agreeing to answer viewers' questions about the health industry. Below, in no particular order, is her first set of answers. More of her answers can be found here.




Did you look into this?

-Ed Brown

A: Ed-

Thanks for your question. When comparing Medicare costs in Iowa and New Jersey, the Dartmouth researchers adjusted for differences in local prices as well as race, sex and the underlying health of the population. (They have been doing these regional comparisons for more than two decades so they have become very, very good at making adjustments that assure they are looking at apple to apple comparisons.) For their research see .

After making those adjustments, they discovered that costs were much higher in New Jersey —and they found out why. Looking at very similar patients in NJ and Iowa they discovered that patients in NJ were undergoing more tests and procedures, spending more days in the hospital, and seeing more specialists. Yet outcomes in NJ are no better. Often they are worse. Every treatment carries some risk of side effects when a patient undergoes an unnecessary procedure or an unnecessary hospitalization, he is exposed to risk without benefit. This is why over-treatment is hazardous to your health.

As Dartmouth’s Dr. Elliot Fisher puts it “Hospitals are dangerous places—especially if you don’t need to be there.”

The Dartmouth research also shows that patients are more likely to be over-treated (with no better outcomes) in areas where there are more hospital beds and more specialists. “Build the beds and they will come.” (Or, build the beds and someone will fill them.)

This is not to say that specialists consciously over-treat patients. It’s just that if there are more cardiologists in a particular town, they all have more time in their appointment books. And so they are likely to see a patient suffering from congestive heart failure every three months rather than, say, every six months. Similarly, if they know there are plenty of beds available, they are more likely to hospitalize that patient. And once she is in the hospital, other specialists will consult on the case, run some tests on her... and one thing leads to another.

When there is excess capacity—of beds, diagnostic equipment or specialists’ time --it tends to be used , whether or not it is needed.

I write about this here and also in my book MONEY-DRIVEN MEDICINE.

Q: I'm looking, looking everywhere and can't find this info.


-Amy Jones

A: Amy-

A good question. This year, we as a nation, will spend roughly $2.6 trillion on healthcare. This includes the money that the government (i.e. taxpayers) shell out for care, as well as reimbursements from private sector insurers and the money patients spend out-of-pocket.

The list below shows where that $2.6 trillion winds up. (The numbers are complied by the Centers for Medicare and Medicaid Services).

Hospital Services: 31%
Physicians’ and Clinical Services 21%
Dental and other Professional Care 7%
*Prescription Drugs 10% (16%)
Home Health and Nursing Home Care 8%
Medical Equipment and other personal care 6%
Administrative Costs and Profits of Private Insurance 7%
Public Health Activities 3%
Research, Equipment, and Structures 7%

* “Prescription drugs—10%” includes only the drugs that you and I buy retail, in the pharmacy. If you include all of the drugs that are administered in hospitals, doctors’ offices, and nursing homes, as well as the many medical devices that pharmaceutical companies now sell (ranging from artificial knees to stents) drug-makers take in about 16% of our healthcare dollars. Those dollars show up on our hospital bills, doctors’ bills and nursing home bills, so in each case their share of the pie should be shaved by 1% to 2%

**Administrative Costs and Profits of Private Insurers: This represents the 15% to 20% of our insurance premiums that private insurers keep to cover their marketing, advertising and lobbying expenses, salaries of executives, the cost of “underwriting” (deciding how much to charge patients suffering from pre-existing conditions), all other overhead, plus profits for shareholders.
Because private insurers pay only about 36% of the nation’s $2.6 trillion in health care bills their administrative costs and profits take a smaller slice from the pie than many people think—7% of the $2.6 trillion. If they paid all healthcare bills, their share of the pie would be closer to 20%. But government (i.e. taxpayers) now covers roughly half of all healthcare bills through Medicare, Medicaid, SCHIP, and Veteran’s programs, while patients pay 14% out-of-pocket. If we expand health care insurance to cover everyone, private insurers hope to wind up covering a larger share of our healthcare bills; that’s why they don’t want to have to compete with a public insurance option.

Finally, you asked about insurance company profits. As the cost of healthcare spirals, private insurers’ reimbursements to doctors, hospitals and patients have been climbing by roughly 8% a year for the past ten years. See chart on p. 2 of this report: .

Insurers have been scrambling to pass these rising costs on to patients in the form of higher premiums; this explains why your premiums have been spiraling. But as insurance becomes more and more unaffordable, insurers have been losing customers—while paying higher bills.

As a result, industry profit margins are only about 3%, putting insurers far behind other industries. See this post .


-Mike Boxell

A: Mike-

You are right: we do pay more than the citizens of every other advanced country for virtually every medical service and product. (And this is after adjusting for differences in cost of living.) Moreover, different providers will charge insurers vastly different prices — depending on what deals they have cut with the insurers.

Why? Because we are the only country in the developed world that has chosen to turn healthcare into a largely unregulated for-profit enterprise. In other countries, governments negotiate with drugmakers for discounts. They regulate pricing in many areas, and cap how much patients can be charged. In some countries regional administrators negotiate fees or salaries with health care providers. Often, physicians are on salary, or are paid a lump sum to keep a patient well, rather than being paid “fee-for-service.” By paying doctors “fee-for-service” we are reimbursing them as if they were factory workers on an assembling line, creating perverse incentives to “do more”.

Some governments put a limit on how many doctors are trained in a particular specialty, putting more emphasis on training primary care physicians. This means that people receive more preventive care and better management of chronic diseases, while seeing fewer specialists. Medical research shows that when patients receive more primary care, and see fewer specialists, outcomes are often better — and costs are lower — both in the U.S. and in Europe.

Finally, other countries subsidize medical education. In the U.S. medical students leave school with enormous loans, which means they must charge more, just to pay off those loans while simultaneously launching a career, and, in many cases, starting a family.

Why haven’t we followed the example of other countries and found ways to rein in health care spending? The truth is that a great many people are making fat profits in the present system. Drug-makers’ profit margins, for instance, average around 16%. (I’ve written about this here Some hospitals charge private insurers 115% to 120% of what it actually costs them to care for patients. (See this post Insurers pass on the cost in the form of higher premiums.

Meanwhile, brand-name hospitals invest in hotel-like amenities, marble lobbies, waterfalls, atriums and mahogany paneled conference rooms for physicians. We’re all paying for this—and we really can’t afford it.

But in order to rein in spending, politicians are going to show some spine and take on the lobbyists who represent those making enormous profits on our healthcare system.

Other countries recognize that health care is a necessity—like heat and light—and thus, the industry needs to be regulated, the way the U.S. used to regulate gas & electric companies. (When we decided to de-regulate that sector, we wound up with Enron.)


-Cathy Lester

A: Cathy-

There are two ways that malpractice suits add to the cost of healthcare. First, we all wind up paying the cost of malpractice awards and settlements. Malpractice insurance companies factor the cost into the premiums they charge health care providers; hospitals and doctors pass the cost along to patients. But the total cost of malpractice settlements and awards equals only about 0.5 percent of the $2.6 trillion that we spend on health care. It’s just not a big factor...

But those who argue for tort reform that would limit malpractice awards argue that “fear” of malpractice suits is a much bigger problem: This fear causes doctors to order unnecessary test and treatments in order to protect themselves.

In truth, it is impossible to quantify how much “defensive medicine” adds to the cost of care. When a doctor orders a procedure or sends a patient to the hospital he usually has four or five reasons. Fear of a lawsuit may well be one of them. But in most cases, not even the physician himself could untangle his motives, or say which one is driving the decision.

What we do know is that in states that have capped malpractice awards, over-treatment continues. Texas is a good example. (See Dr. Atul Gawande’s article in the June 1 NEW YORKER at as well as

There are other, better solutions to the fear of malpractice suits. I’ve written about malpractice here: and .


-Dave Searcey

A: Dave-

Mainly people don’t realize that before 1980, most health insurers were non-profit. In 1981, only 12% were for-profit. Up until then, the government, which wanted to encourage non-profit insurers, made federal grants and loans available to them.

But after Ronald Reagan was elected in 1980, he cut off that stream of federal funding. Meanwhile, for-profit insurers saw how quickly health care spending was spiraling, and realized that non-profits no longer had help from the government. For-profit insurers decided that might be able to take over an increasingly insurance lucrative market—and they did just that. By 1986 the share of non-profit insurers had fallen to 41 percent and by the 1990s for-profit insurers controlled the industry.

We don’t need legislation — or a change in the Constitution — to transform the market place for health insurance. Both President Obama and the health care legislation now in the House calls for a public sector insurance option that would be much like Medicare (while incorporating the reforms that Medicare is now planning to raise quality and lower costs.) Beginning in 2013, individuals who wanted to would be able choose this public plan (I call it Medicare E, Medicare for Everyone)—or they could choose a for-profit insurance plan. It would be up to them.

Most likely the public plan would be less expensive than private insurance because it wouldn’t have to lobby Congress, or invest huge sums in marketing and advertising. It wouldn’t have to pay executives seven-figure salaries, or provide profits for investors. If it offered good quality care, over time, more Americans might well choose the public plan.

Some people would prefer to see a single-payer system now. But many Americans who have employer-sponsored insurance want to keep it; they don’t want to be forced into a government plan that they have never seen. There is, I think, much to be said for giving people a chance to see a public sector plan in action, and then choose it, if they wish, rather than feeling that they are being corralled into a public plan.

In the meantime, the public plan could set a high bar for quality care at an affordable price. For-profit insurers would have to try to match that benchmark. Some for-profit insurers would have trouble competing; it would depend on how innovative they were.

Non-profit insurers in the private sector like Geisinger or Kaiser Permanente would be likely to do well in this context—they are already more like a government plan.. They have no shareholders, and the best non-profits put a real emphasis on providing high-quality care. It seems to me a good idea to have some private sector insurers as alternatives to the government plan. What if Jed Bush is elected president in eight years? Think of what Margaret Thatcher did to the UK’s single-payer system when she became prime minister.

I’ve written about the importance of the public sector option here:'s_best_interest/.


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I am always looking for more information on this subject as well as others. I found your site very informative and well written. Your layout is easy to follow and I appreciate your contribution to the topic.


Haven't gone through the entire interview, but Maggie once supported mandates, an insurance industry windfall. Is that still the case?

Jack Lohman

Dave G.- Half a loaf might be an improvement if Obama weren't serving day old mushy white bread (as in a weak and delayed public option, or a cooperative that with never get off the ground). Medicare for all!
I believe we'll someday have it, or that the empire will fall and crush us all.

Miss Jan -

I apologize.

You are correct and I was out of line.

Ive encountered many poor/lower income people that seem very anxious
to slit their own throats by screaming "Death Panels!" and fighting against the
very thing that would help lower their medical costs.

I incorrectly assumed that you were opposed to both the public option AND
single payer. I was wrong.

I see that you support single payer. It is the most efficient system.

Again, I apologize and I hope things get better in your life.

BTW - You're right about it being difficult to get help. youve got to keep trying.
If you are like me, you have no choice. I hate it when people think people
'choose' welfare. Nobody 'chooses' welfare. Thats such an arrogant slap in
the face. Im surprised our recent economic turndown didnt open more
eyes than it seems to have. Maybe it did and I just dont know.

have you considerd the importance of supporting public option because if you oppose it in an effort to get single payer than you may ONLY get a mnadate for everyone to obtain private insurance (which is the insurance companies AND Republicans AND blue dog democrats want).

God save us from those who worship the corporations!

Not sure why I am being attacked unfairly by "Dave G." I do not support a public option because I frankly support ONLY a single payer option. I also feel extremely strongly that all politicians have sold us out to the insurance interests.

Dave G you need to read for comprehension before you go accusing people with off the wall idiocy.

Excuse me Dave G - I DO NOT watch "Fox News" and have ZERO to do with any right wing media or left wing media. I get news from a variety of sources and make up my own mind about what I read from ORIGINAL SOURCE MATERIAL.

Stop engaging in victim blaming. That sort of thing is what got us all into this Great Depression Revisited mess.

You talk big about civil and respectful dialogue, but when I hear some of the things you're saying about the 9/12 movement, calling people old retiree's morons, well I'm a part of that movement, and I'm not that old, but I am tired of government, repulican, democrat and independents telling me they know better than I, want is best for me. I want my freedom back and if you can't see what the people in D.C. were all about, you're the moron.

Compulsory consumption, of chocolate bars or insurance, without another reasonable option surely must be unconstitutional. Without Medicare E, any resultant compulsory consumption health care reform certainly deserves overturning on said grounds. But where are the relevant Constitutional clauses?

I am a retired civil servant and so Uncle Sam covers 2/3 of my insurance premium and the insurers have to take me and can't drop me. At the same time, if a public insurance option were offered at an affordable price, but I was taxed a little more, my outlay would be about the same. What is the problem with an increased tax that relieves me of some of my costs? Revenue neutral.

Miss Jan -

stop paying attention to FOX news and other right wing media outlets. they have done nothing but distort facts and outright lie.

You cannot and will not be able to make a decision that will be fair to you unless and until you have actual facts.

Ive been on welfare and foodstamps. For two years I lived on thirty five dollars a month that my mom sent me becuase you cant buy toilet paper or soap with food stamps. You also cant buy a bus pass.

Our current system sucks.
Ive been through it.
Medicare is SO MUCH BETTER!

If you have fought against the public insurance CHOICE then you only have yourself to thank for your lack of choices and the resulting worse deal.

The Republicans and the blue dog democrats are primarily interested in keeping insurance companies happy. Why else would they want to mandate private insurance coverage?

just remember who it was who fought to get a public insurance CHOICE and who it was who fought so hard against it. (and WHY!!!)

when insurance companies dont want something, it pays to look into why they dont want it.

Maggie Mahar -

I would like to ask Amy Jones' question in a different way because you seemed to have
answered it without giving me what information I had hoped you would.

If we spend 2.6 trillion on 'healthcare':

how much is "the government" (Medicare, Medicaid)
and how much is the private insurance sector?

how many people are in "the government"(medicare and Medicaid)
and how many people are in the private insurance?

The Republicans want to say that 'Medicare is going broke' and they
use this as a weapon againt a public option. I try to tell as many
people as I can that Medicare is going broke because they take care
of all of the sickest and most expensive individulas while private insurance
cherry picks healthy people.

It seems to me that the private insurance sector covers many more people
than the government (and it is an apples and oranges comparison because
private insurance companies cherry pick healthy people). They also are
thelargest share of the "2.6 trillion" dollars. we can see the money in
the budget that is spent on Medciare and Medicaid but the private insurance
sector isnt so easy for us to see. (not for me anyway).
the Republicans want to claim that Medicare/Medicaid "dominates" the markets now. To me that would mean that the most people are in Medicare and Medicaid and I dont believe thats true. Its also not possible to compare them becuase private insurance only deals with healthy (relatively) people.

I believe that medicare and Medicaid do much more for the money they
spend than do the private insurance companies and that is why it makes
sense to, if not do single payer, then at the very least include a public option.

I hope Im being clear.

Dont the private insurance companies use more money per person than
does the government?

Im one of those who couldnt even get insurance becuase of pre existing conditions.
A public option would have helped me greatly becuase it would have meant I
could get health care BEFORE I lost everything I owned.

Well thank you Jack BUT having too many times reached out for help and been thoroughly kicked in the head I am unwilling to try that again anytime soon. And now I see by recent news reports that we will be FINED if we do not buy health insurance. Oh goody. More fines to be paid by those who don't have any money in the first place. Wonderful! I wonder if any country is accepting political refugees from here???

Miss Jan: Your premiums would obviously be subsidized under universal coverage if what you report about your income is accurate. I want to thank you for driving an old car and shopping secondhand. Many good people, better off than you, do such things voluntarily as a matter of conservation of raw materials, the environment and climate. Also, thank you for not buying cable (the airwaves belong to the people) or going for the glamour-glitz.

Socialized medicine would be educational in effect and lead to fairer taxation and income distribution. People oppose it because they live in fear at present. Don't be afraid to assert your human rights, Miss Jan. Ask for help; demand justice and fairness.

What no one will address is the cost to the individual or family of mandatory health insurance. I see a lot of people upset at what they perceive as government control of "their bodies" but when someone has been out of a job and/or unemployment has run out or they are "working poor" or slightly above how in the world do you pay this mandatory insurance? Do we make a choice between food and mandatory health insurance? Oh - wait - I already do that for mandatory car insurance. Do we give up our tiny rentals costing what will have to go to mandatory health insurance? I have no luxuries - no cable, no phone, car with over 300K miles, no new clothes (shop at Goodwill when I am desperate), no winter coat, no restaurant meals, no vacations or trips, no new books or music, hand-me-down furniture from what a demolished motel was throwing away. WHERE would someone like me be able to pay for mandatory health insurance? Why aren't people asking this question? We are past recession into another depression - where is personal income going to increase to cover paying mandatory health insurance???

I think, any fair minded person, would agree that malpractice plays some role in health care costs. The actual cost of a poorly regulated malpractice system is the only point of debate.

At the very least, aren't frivolous malpractice suits (and I assume we all agree these do exist) an ethical issue that should be addressed while we are tackling all these important topics surrounding health care?

Shouldn't we seize this moment to address tort reform? Why wouldn't we try to make the system better in every way?

Why should we give the legal system a "break" when we are turning such a critical eye to medical profession?

Thank you.

In the paragraph bellow states,

"**Administrative Costs and Profits of Private Insurers: This represents the 15% to 20% of our insurance premiums that private insurers keep to cover their marketing, advertising and lobbying expenses, salaries of executives.... etc.,"

It does not address the facts in real life of ordinary citizens. It far exceed the cost of "living standards
set by the government!"
The cost of living standards for the last 10 years, annually average between 2% to 3% ( percent),
as it has been reported by the government.
Further more it has been stated, the cost of "living for the next 2 years will be eliminated" for social security beneficiary.
The difference between 2% and 15% is 700%. The 700% increases on annual bases is not
sustainable in any society, and not sustainable in any form of political or social system!
I am not disputing your report. I believe that the report should have address the reality of life
of every day ordinary citizens.

Have you seen anywhere an estimate of what health insurance premiums would be for a pool that consisted of all USA citizens and legal residents?

I became eligible for Medicare in 2006 after being awarded disability benefits. I find the premiums quite reasonable even though my income is a lot lower than when I was covered by private insurance.

There certainly needs to be a program on cost containment too, but seems that our starting point for insurance discussions should start with looking at the largest pool, then decide what more than that we can afford.

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