A study by researchers at Harvard Medical School and Public Citizen finds
that health care bureaucracy last year cost the United States $399.4
billion.
The study estimates that national health insurance (NHI) could
save at least $286 billion annually on paperwork, enough to cover all of
the uninsured and to provide full prescription drug coverage for
everyone in the United States.
The study, to
be published in the forthcoming International Journal of Health Services was based on the most comprehensive analysis to date of
health administration spending, including data on the administrative
costs of health insurers, employers' health benefit programs, hospitals,
nursing homes, home care agencies, physicians and other practitioners in
the United States and Canada.
The authors found that bureaucracy
accounts for at least 31 percent of total U.S. health spending compared
to 16.7 percent in Canada. They also found that administration has
grown far faster in the United States than in Canada.
The potential administrative savings of $286 billion annually under
national health insurance could:
1. Offset the cost of covering the uninsured (estimated at $80
billion)
2. Cover all out-of-pocket prescription drugs costs for seniors as well
as those under 65 (estimated at $53 billion in 2003)
3. Fund retraining and job placement programs for insurance workers and
others who would lose their jobs under NHI (estimated at $20 billion)
4. Make substantial improvements in coverage and quality of care for
U.S. consumers who already have insurance
Looked at another way, the potential administrative savings are
equivalent to $6,940 for each of the 41.2 million people uninsured in
2001 (the most recent figure available for the uninsured at the time
study was carried out), more than enough to pay for health coverage.
The study found wide variation among states in the potential
administrative savings available per uninsured resident.
Texas, with
4.96 million uninsured (nearly one in four Texans), could save a total
of $19.5 billion a year on administration under NHI, which would make
available $3,925 per uninsured resident per year.
Massachusetts, which
has very high per capita health administrative spending and a relatively
low rate of uninsurance, could save a total of $8.6 billion a year,
which would make available $16,453 per uninsured person.
California, with
6.7 million uninsured, could save a total of $33.7 billion a year, which
would make available $5,016 per uninsured person. (See accompanying
chart for details on other states.)
Last week, the government reported that health spending accounts for a
record 15 percent of the nation's economy and that health care spending
shot up by 9.3 percent in 2002. Insurance overhead (one component of
administrative costs) rose by a whopping 16.8 percent in 2002, after a
12.5 percent increase in 2001, making it the fastest growing component
of health expenditure over the past three years. Hence the figures in
the Harvard/Public Citizen Report (which was completed before release of
these latest government figures), may understate true administrative
costs.
The authors of the International Journal of Health Services study
attributed the high U.S. administrative costs to three factors. First,
private insurers have high overhead in both nations but play a much
bigger role in the United States.
Second, The United States' fragmented
payment system drives up administrative costs for doctors and hospitals,
who must deal with hundreds of different insurance plans (for example,
at least 755 in Seattle alone), each with different coverage and payment
rules, referral networks, etc.
In Canada, doctors bill a single
insurance plan, using a single simple form, and hospitals receive a lump
sum budget, much as a fire department is paid in the United States.
Finally, the increasing business orientation of U.S. hospitals and
insurers has expanded bureaucracy.
The Medicare drug bill that Congress passed last month will only
increase bureaucratic spending because it will funnel large amounts of
public money through private insurance plans with high overhead.
"The recent Medicare bill means a huge increase in administrative waste
and a big payoff for the AARP," said study author Dr. David Himmelstein,
an associate professor of medicine at Harvard and former staff physician
at Public Citizen's Health Research Group.
"At present, Medicare's
overhead is less than 4 percent. But all of the new Medicare money *
$400 billion - will flow through private insurance plans whose overhead
averages 12 percent. So insurance companies will gain $36 billion from
this bill. And the AARP stands to make billions from the 4 percent cut
it receives from the policies sold to its members."
Dr. Steffie Woolhandler, a study author, associate professor of
medicine at Harvard and a founder of Physicians for a National Health
Program, said that. "Hundreds of billions are squandered each year on
health care bureaucracy, more than enough to cover all of the uninsured,
pay for full drug coverage for seniors and upgrade coverage for the tens
of millions who are underinsured. U.S. consumers spend almost twice as
much per capita on health care as Canadians who have universal coverage
and live two years longer. The administrative savings of national
health insurance make universal coverage affordable."
Dr. Himmelstein described the real-world meaning of the difference in
administration between the United States and Canada by comparing
hospitals in the two nations. Several years ago, he visited Toronto
General Hospital, a 900-bed tertiary care center that offered an
extensive array of high-tech procedures, and searched for the billing
office. It was hard to find, though; it consisted of a handful of
people in the basement whose main job was to send bills to U.S. patients
who had come across the border. Canadian hospitals do not bill
individual patients for their care and so have no need to keep track of
who receives each Band-Aid or an aspirin.
"A Canadian hospital negotiates its annual budget with the provincial
health plan and receives a single check each month to cover virtually
all of its expenses," Himmelstein said. "It need not fight with hundreds
of insurance plans about whether each day in the hospital was necessary,
and each pill justified. The result is massive savings on hospital
billing and bureaucracy."
National Health Plan Could Save Billions in Paperwork: Study...