(Reuters Health)—U.S. insurers and providers spent more than $800 billion in 2017 on administration, or nearly $2,500 per person—more than four times the per-capita administrative costs in Canada’s single-payer system, a new study finds.
Over one-third of all healthcare costs in the U.S. were due to insurance company overhead and provider time spent on billing, vs. about 17% spent on administration in Canada, researchers reported in Annals of Internal Medicine.1
Cutting U.S. administrative costs to the $550 per capita (in 2017 U.S. dollars) level in Canada could save more than $600 billion, the researchers say.
“The average American is paying more than $2,000 a year for useless bureaucracy,” says lead author David Himmelstein, MD, a distinguished professor of public health at the City University of New York at Hunter College, and a lecturer at Harvard Medical School, Boston.
“That money could be spent for care if we had a ‘Medicare for all program’,” Dr. Himmelstein says.
To calculate the difference in administrative costs between the U.S. and Canadian systems, Dr. Himmelstein and colleagues examined Medicare filings made by hospitals and nursing homes. For physicians, the researchers used information from surveys and census data on employment and wages to estimate costs. The Canadian data came from the Canadian Institute for Health Information and an insurance trade association.
When the researchers broke down the 2017 per-capita health administration costs in both countries, they found that insurer overhead accounted for $844 in the U.S. vs. $146 in Canada; hospital administration was $933 vs. $196; nursing home, home care and hospice administration was $255 vs. $123; and physicians’ insurance-related costs were $465 vs. $87
They also found there had been a 3.2% increase in U.S. administrative costs since 1999, most of which was ascribed to the expansion of Medicare and Medicaid managed-care plans. Overhead of private Medicare Advantage plans, which now cover about a third of Medicare enrollees, is six-fold higher than traditional Medicare (12.3% versus 2%), they report. That 2% is comparable to the overhead in the Canadian system.
Why are administrative costs so high in the U.S.?
It’s because the insurance companies and healthcare providers are engaged in a tug of war, each trying in its own way to game the system, Dr. Himmelstein says. How a patient’s treatment is coded can make a huge difference in the amount insurance companies pay. For example, Dr. Himmelstein says, if a patient comes in because of heart failure and the visit is coded as an acute exacerbation of the condition, the payment is significantly higher than if the visit is simply coded as heart failure.
This upcoding of patient visits has led insurance companies to require more and more paperwork backing up each diagnosis, Dr. Himmelstein says. The result is more hours that healthcare providers need to put in to deal with billing.
“[One study] looked at how many characters were included in an average physician’s note in the U.S. and in other countries,” Dr. Himmelstein says. “Notes from U.S. physicians were four times longer to meet the bureaucratic requirements of the payment system.”
The new study is “the first analysis of administrative costs in the U.S. and Canada in almost 20 years,” says Albert Wu, MD, an internist and professor of health policy and management at the Johns Hopkins School of Public Health, Baltimore. “It’s an important paper.”
“It’s clear that health costs in the U.S. have soared,” Dr. Wu says. “We’re paying for an inefficient and wasteful fee-for-services system.”
“Some folks estimate that the U.S. would save $628 billion if administrative costs were as low as they are in Canada,” says Jamie Daw, an assistant professor of health policy and management at Columbia University’s Mailman School of Public Health.
“That’s a staggering amount,” Ms. Daw says. “It’s more than enough to pay for all of Medicaid spending or nearly enough to cover all out-of-pocket and prescription drug spending by Americans.”
Reference
- Himmelstein DU, Campbell T, Woolhandler S. Healthcare administrative costs in the United States and Canada, 2017. Ann Intern Med. 2020 Jan 7. [Epub ahead of print]
