Administrative Costs Account for Over One-Third of US Health Care Spend

According to a study published in Annals of Internal Medicine, the United States health care systems spent $812 billion in administrative costs in 2017, amounting to $2497 per person, more than four times the $551 per person in Canada.

David U Himmelstein, MD, City University of New York at Hunter College, New York, NY, and colleagues analyzed government reports, accounting data that providers file with regulators, surveys of physicians, and census-collected data on employment in health care, to compare the US multi-payer health system to Canada’s single-payer system.

Per the results of their research, Dr Himmelstein and colleagues suggest that the US could save more than $600 billion in administrative costs by adopting a single payer system.

The spending discrepancy could be attributed to the US’s rising overhead costs of private insurers, which in 2017 totaled $844 for the US compared with Canada’s much lower $146.

“Of the 3.2–percentage point increase in administration's share of US health expenditures since 1999, 2.4 percentage points was due to growth in private insurers' overhead, mostly because of high overhead in their Medicare and Medicaid managed-care plans,” explained the researchers.

Other significant cost comparisons demonstrated higher spend in the US vs Canada included: hospital administration ($933 vs $196, respectively); nursing home, home care, and hospice administration ($255 vs $123); and physicians' insurance-related costs ($465 vs $87).

“The gap in health administrative spending between the United States and Canada is large and widening, and it apparently reflects the inefficiencies of the US private insurance–based, multi-payer system,” concluded Dr Himmelstein and colleagues. “The prices that U.S. medical providers charge incorporate a hidden surcharge to cover their costly administrative burden.”

—Edan Stanley

Reference:
Himmelstein DU, Campbell T, Woolhandler S. Health Care Administrative Costs in the United States and Canada, 2017 [published online January 7, 2020]. Ann Intern Med. 2020; doi:10.7326/M19-2818.