Healthcare bureaucracy cost Americans $812 billion in 2017, representing more than one-third of total expenditures for doctor visits, hospitals, long-term care and health insurance, according to the latest findings published in the Annals of Internal Medicine. Cutting U.S. administrative costs to Canadian levels would have saved more than $600 billion in 2017, the research found.
Health administration costs were more than fourfold higher per capita in the U.S. than in Canada ($2,479 vs. $551 per person), which implemented a single-payer, Medicare For All-style system in 1962. Americans spent $844 per person on insurers' overhead while Canadians spent $146.
Additionally, doctors, hospitals, and other health providers in the U.S. spent far more on administration due to the complexity entailed in billing multiple payers and dealing with the bureaucratic hurdles insurers impose. As a result, hospital administration cost Americans $933 per capita vs. $196 in Canada.
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Worthy of note is that in Canada, hospitals are financed through lump-sum "global budgets" rather than fee-for-service. Physicians' billing costs were also much higher in the U.S., $465 per capita vs. $87 per capita in Canada.
WHAT'S THE IMPACT
The analysis, the first comprehensive study of health administration costs since 1999, was carried out by researchers at Harvard Medical School, the City University of New York at Hunter College, and the University of Ottawa. The authors, who also performed the 1999 study, analyzed thousands of accounting reports that hospitals and other healthcare providers filed with regulators, as well as census data on employment and wages in the health sector. They obtained additional data from surveys of physicians and government reports.
The authors promote a Medicare for All system, saying the gap in health administrative spending between the United States and Canada apparently reflects the inefficiencies of the U.S. private insurance–based, multi-payer system. The prices that U.S. medical providers charge incorporate a hidden surcharge to cover their costly administrative burden, they said.
Administration's share of overall U.S. health spending rose by 3.2% between 1999 and 2017, from 31 to 34.2%. Of the 3.2 percentage point increase, most (2.4%) was due to the expanding role that private insurers have assumed in tax-funded programs such as Medicaid and Medicare.
Private managed care plans now enroll more than one-third of Medicare recipients and a majority of those on Medicaid; Medicare and Medicaid now account for 52% of private insurers' revenues. Private insurers' increasing involvement has pushed up overhead in those public programs; private Medicare Advantage plans take 12% or more of premiums for their overhead, while traditional Medicare's overhead is just 2%, a difference of at least $1,155 per enrollee (per year).
The estimates likely understate administrative costs, and particularly the growth since 1999. The 1999 study included administrative spending for some items such as dental care for which no 2017 data was available. And private insurance overhead has increased since the study's completion, rising by 13.2% between 2017 and 2018 according to official health spending figures released in December.
The authors said a Canadian, Medicare For All type of system could save more than $600 billion each year on bureaucracy, which could then be repurposed to cover America's 30 million uninsured and eliminate copayments and deductibles.
THE LARGER TREND
About one-quarter of total healthcare spending in the U.S. is waste, with a price tag ranging from $760 billion to $935 billion, an October analysis found. The total estimated annual cost of waste was $265.6 billion for administrative complexity alone, including billing and coding waste, and physician time spent reporting on quality measures.
Administrative complexity accounted for the most waste, estimated at $256.6 billion; $230.7 billion to $240.5 billion of the waste was for pricing failure, with price increases far from those expected in a well-functioning market.
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