Posted on Jan 11, 2020, 7 p.m.
In 2017 the cost of healthcare paperwork was $812 in America, that’s 4 times more per capita than in Canada. This study published in the Annals of Internal Medicine links rise of bureaucracy at 34.2% of health spending to surging overhead of private insurers, and suggests that cutting American administrative costs to that equivalent to Canadian levels would have saved over $600 billion in 2017 alone.
The $812 billion spent in 2017 on bureaucracy represented more than one third of total expenditures for doctor visits, hospitals, long term care, and health insurance. The researchers estimate the cutting the over priced American administrative costs to match levels in Canada would have easily saved over $600 billion, according to the paper entitled: “Health Care Administrative Costs in the United States and Canada, 2017.”
Per capita health administration costs were $2,479 in America vs only $551 per person in Canada which implemented a single payer Medicare for all system back in 1962. Americans spent $844 per person on insurers’ overhead while in Canada that amount was only $146, and American doctors, hospitals and health providers spent more on administration due to the complexity entailed in billing multiple payers and dealing with all the bureaucratic hurdles imposed by insurers resulting in American hospital administration costs of $933 per capita vs $196 Canadian. Canadian hospitals are also financed through lump sum global budgets rather than being fee for service similar to how American fire departments are funded. Additionally American physicians’ billing costs were also higher being $465 per capita vs only $87 in Canada.
This analysis conducted by researchers from Harvard Medical School, the City University of New York, and the University of Ottawa, and is the first comprehensive study of health administration costs since 1999; and the same authors also carried out the study in 1999 by analyzing thousands of accounting reports filed by hospitals and other healthcare providers filed with regulators as well as census data on employment and wages in the health sector, along with additional data from surveys of physicians and governments reports.
Administration share of overall American health spending was found to have increased by 3.2% between 1999 to 2017 going from 31% to 43.2%, which was due to the expanding role private insurers have assumed in tax funded programs such as Medicare and Medicaid. Private managed care plans now enroll over one third of Medicare recipients and the majority of those on Medicaid; this now accounts for 52% of private insurers’ revenues. The increasing involvement has been driving overhead increases in those public programs; private Medicare Advantage plans take 12% more of premiums for their overhead with traditional Medicare overhead being only 2% representing a difference of at least $1,155 per enrollee annually.
It was noted that the estimates most likely have understated administrative costs and growth since 1999, the 1999 study included administrative spending for some items such as dental care of which there was no data available for 2017. Private insurance has also increased since study completions by 13.2% between 2017-2018 according to the official health spending figures released in December.
"Medicare for All could save more than $600 billion each year on bureaucracy, and repurpose that money to cover America's 30 million uninsured and eliminate copayments and deductibles for everyone," said study senior author Dr. Steffie Woolhandler, a distinguished professor at the City University of New York (CUNY) at Hunter College and lecturer in Medicine at Harvard Medical School. "Reforms like a public option that leave private insurers in place can't deliver big administrative savings," Dr. Woolhandler added. "As a result, public option reform would cost much more and cover much less than Medicare for All."
"Americans spend twice as much per person as Canadians on health care. But instead of buying better care, that extra spending buys us sky-high profits and useless paperwork. Before their single-payer reform, Canadians died younger than Americans, and their infant mortality rate was higher than ours. Now Canadians live three years longer and their infant mortality rate is 22% lower than ours. Under Medicare for All, Americans could cut out the red tape and afford a Rolls Royce version of Canada's system,” adds study lead Dr. David Himmelstein, who is a distinguished professor at CUNY's Hunter College and lecturer in Medicine at Harvard.
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