State Health Care Reform: Key Questions and Answers

Health | Policy Reports

No. 311
Monday, April 21, 2008
by Linda Gorman and R. Allan Jensen

Does Modeling by the Lewin Group Bias State Choices?

"The assumptions behind the Lewin Group model are biased toward central planning."

In almost every case, the recommendations of the Colorado Commission were influenced by Lewin Group assumptions that having fewer entities providing a specific function would lower costs by reducing administrative overhead, and that centralized control would more effectively deploy resources than independent private actors governed by profit in a functioning market system.  As explained in Appendix C, the Lewin Group model makes certain assumptions that implicitly bias its results toward finding that central planning will lower costs.

For example, the Lewin Group systematically overstates the cost of private insurance relative to public programs.  It assumes that single-payer programs will have the same administrative costs as Medicare — about 1.8 percent of benefits.  This ignores growing evidence that Medicare’s overhead costs are much higher.  For example, it ignores the administrative costs of supplemental policies required to fill the gaps in Medicare coverage.  The Lewin Group also overstates private insurance administrative expenses.

Lewin bases its assumptions about physician administrative costs on a survey of just 335 physician practices self-selected from a statistically unrepresentative sample.  It assumes millions of dollars in savings on building occupancy costs and on furniture and equipment from centralized purchasing and volume discounts.  Lewin also assumes benefits for physician support staff will fall 12.5 percent under single-payer, and the cost of administrative duties by medical assistants and registered nurses will drop 66 percent.  It is unlikely that moving to a single-payer system will reduce patient record keeping or the amount of office space needed to see patients.  These assumptions likely produce inflated estimates of cost savings.

"Lewin overstates private administrative costs and understates government costs."

Similar assumptions plague Lewin’s treatment of hospital cost reductions under single-payer.  It assumes that hospital costs for data processing are reduced by 36 percent.  It also estimates patient accounting, credit and collection, and admitting costs will be reduced by 50 percent, 90 percent and 40 percent, respectively.  For reasons that are unclear, the model assumes that medical records costs will be reduced by 10 percent.  Depreciation and amortization are assumed to be reduced 23 percent.  Apparently, when government runs things capital does not depreciate and interest costs are no longer a consideration.  Social work services are assumed to fall 50 percent under a government plan.  Finally, maintenance and repairs and plant operations are each assumed to fall 23 percent.  Apparently repairs will be less frequent when a single payer controls operations.41


NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.

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