As The Health Insurance Underwriting Cycle Turns: What Next?

Health Care Administrative Costs in the United States and Canada, 2017

BACKGROUND

Before Canada's single-payer reform, its payment system, health costs, and number of health administrative personnel per capita resembled those of the United States. By 1999, administration accounted for 31% of U.S. health expenditures versus 16.7% in Canada. No recent comprehensive analyses of those costs are available.

OBJECTIVE

To quantify 2017 spending for administration by insurers and providers.

DESIGN

Analyses of government reports, accounting data that providers file with regulators, surveys of physicians, and census-collected data on employment in health care.

SETTING

United States and Canada.

MEASUREMENTS

Insurance overhead; administrative expenditures of hospitals, physicians, nursing homes, home care agencies, and hospices.

RESULTS

U.S. insurers and providers spent $812 billion on administration, amounting to $2497 per capita (34.2% of national health expenditures) versus $551 per capita (17.0%) in Canada: $844 versus $146 on insurers' overhead; $933 versus $196 for hospital administration; $255 versus $123 for nursing home, home care, and hospice administration; and $465 versus $87 for physicians' insurance-related costs. Of the 3.2-percentage point increase in administration's share of U.S. 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.

LIMITATIONS

Estimates exclude dentists, pharmacies, and some other providers; accounting categories for the 2 countries differ somewhat; and methodological changes probably resulted in an underestimate of administrative cost growth since 1999.

CONCLUSION

The gap in health administrative spending between the United States and Canada is large and widening, and it apparently reflects the inefficiencies of the U.S. private insurance-based, multipayer system. The prices that U.S. medical providers charge incorporate a hidden surcharge to cover their costly administrative burden.

PRIMARY FUNDING SOURCE

None.

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