Health Care Bureaucracy Wastes Billions
Savings From Cutting Costs Would Cover Uninsured
Jeffery Vinson

While congressional negotiators haggle over how to provide a drug benefit to seniors on Medicare, a new report shows that cutting bureaucratic waste in the U.S. health care system by implementing a governmentrun, single payer program would free up enough money to provide health coverage to uninsured Americans as well as drug coverage for seniors.

The U.S. health care bureaucracy consumes at least $399.4 billion annually in administrative costs, but national health insurance could save about $286 billion in these costs equivalent to $6,940 for each of the 41.2 million Americans who were uninsured as of 2001, according to a report published in August by Public Citizen and Harvard Medical School researchers. The report builds upon the findings of another study, the most comprehensive analysis to date of health administration spending, that compared U.S. health care costs in 1999 to Canada’s.

“These enormous sums could be used to provide health care for the more than 41 million uninsured people in the U.S., and drug coverage for seniors,” said Dr. Sidney Wolfe, director of Public Citizen’s Health Research Group and coauthor of the updated report, which also included savings estimates for each state. “These data should awaken governors and legislators to a fiscally sound and humane way to deal with ballooning budget deficits. Instead of cutting Medicaid and other vital services, officials could expand services by freeing up the $286 billion a year wasted on administrative expenses.”

Profit Driven System Increases U.S. Costs

Researchers at Harvard Medical School and the Canadian Institute for Health Information found that, in 1999, the $1,059 per capita spent on health care administration was more than three times the $307 per capita in paperwork costs under Canada’s national health insurance system. Cutting U.S. health bureaucracy costs to the Canadian level would have saved $209 billion in 1999.

Authors of the “Costs of Health Care Administration” study, which

was published in The New England Journal of Medicine in August, analyzed 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. They used data from regulatory agencies and surveys of doctors, and analyzed census data and detailed cost reports filed by thousands of health institutions in both nations.

They found that bureaucracy accounted for at least 31 percent of the total U.S. health spending in 1999 compared to 16.7 percent in Canada. Moreover, the study showed that administration has grown much faster in the United States than in Canada.

Three factors contribute to higher U.S. administrative costs, the researchers found. Private insurers have high overhead in both countries but play a much bigger role in the United States. Also, the United States has a fragmented payment system that drives up administrative costs. Doctors and hospitals deal with hundreds of different insurance plans (at least 755 in Seattle alone), each with different coverage and payment rules. By contrast, Canadian doctors bill a single insurance plan, using a single simple form, and hospitals receive a lump sum budget similar to how a fire department is paid in the United States. Finally, the drive among U.S. hospitals and insurers to make health care a profitable business venture has expanded bureaucracy.

“Only national health insurance can squeeze the bureaucratic waste out of the health care system and use the money to give patients the care they need,” said Dr. David Himmelstein, an associate professor of medicine at Harvard and coauthor of Public Citizen’s report. He and Dr. Steffie Woolhandler are cofounders of Physicians for a

National Health Program, a 10,000member organization that advocates a Canadianstyle national health insurance for the United States. They are also coauthors of the U.S.Canada health care costs comparison study.

National Health Insurance Would Aid Struggling States

Among the states, Public Citizen found that poyential savings available per uninsured resident vary widely. Texas, with 4.96 ,million uninsured (nearly one in four Texans), could make available $3,925 per uninsured resident in saved administrative costs by implementing national health insurance. Massachusetts, which has high per capita health administrative spending and a relatively low rate of uninsured residents, could make available $16,453 per uninsured person.

Meanwhile, the nation’s governors are desperate to save money for their struggling states.

The United States already spends enough money to provide every American with superb medical care 42 percent more than in Switzerland, which has the world’s second most expensive health care system, and 83 percent more than in Canada.

In essence, Wolfe said, national health insurance would pay for itself through administrative savings. Sen. John Kerry (DMass.) and other presidential candidates who have proposed some patchwork reform, assert that they could cut administration through computerization. But Wolfe said such assertions are not credible. Most health insurance claims are already computerized.

“In the current economic climate we can ill afford massive waste in health care,” Wolfe said. “Radical surgery to cure our failing health insurance system is sorely needed.”