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Administrative costs. http://www.kff.org/insurance/7031/ti2004-6-11.cfmExhibit 6.11: Private Health Insurance Administrative Costs per Person Covered, 1986-2003
The cost per enrollee for private health insurance expenses not related to direct care services (such as administrative costs and profits) continued to rise, from $85 in 1986 to $421 in 2003. The most rapid growth occurred in the 4-year period from 1987 to 1990, when these administrative costs rose 125%. For the six-year period from 1998 to 2003, administrative costs per enrollee nearly doubled (+95%).
Notes: These data show the net cost of private health insurance per private enrollee (including Blue Cross/Blue Shield, commercial insurance, HMOs, and self-insured plans), as calculated by the Centers for Medicare and Medicaid Services. Net cost of insurance is the difference between premiums earned and benefits incurred, and includes insurers’ costs of paying bills, advertising, sales commissions, and other administrative costs; net additions/subtractions from reserves; rate credits and dividends; premium taxes; and profits or losses. Private enrollment is estimated by CMS using the National Health Insurance Survey and the Current Population Survey. In terms of what the insurance industry costs health care providers in administrative expenses: http://www.pnhp.org/publications/nejmadmin.pdf background
A decade ago, the administrative costs of health care in the United States greatly exceeded those in Canada. We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to health care have decreased administrative costs.
methods
For the United States and Canada, we calculated the administrative costs of health insurers, employers’ health benefit programs, hospitals, practitioners’ offices, nursing homes, and home care agencies in 1999. We analyzed published data, surveys of physicians, employment data, and detailed cost reports filed by hospitals, nursing homes, and home care agencies. In calculating the administrative share of health care spending, we excluded retail pharmacy sales and a few other categories for which data on administrative costs were unavailable. We used census surveys to explore trends over time in administrative employment in health care settings. Costs are reported in U.S. dollars.
results
In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance program had overhead of 1.3 percent; the overhead among Canada’s private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers’ administrative costs were far lower in Canada. Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations’ figures exclude insurance-industry personnel.)
conclusions
The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system.
... insurance overhead
In 1999 U.S. private insurers retained $46.9 billion of the $401.2 billion they collected in premiums. Their average overhead (11.7 percent) exceeded that of Medicare (3.6 percent) and Medicaid (6.8 percent). Overall, public and private insurance overhead totaled $72.0 billion — 5.9 percent of the total health care expenditures in the United States, or $259 per capita).
The overhead costs of Canada’s provincial insurance plans totaled $311 million (1.3 percent) of the $23.5 billion they spent for physicians and hospital services. An additional $17 million was spent to administer federal government health plans. The overhead of Canadian private insurers averaged 13.2 percent of the $8.4 billion spent for private coverage. Overall, insurance overhead accounted for 1.9 percent of Canadian health care spending, or $47 per capita. Slightly out of date, but somehow I doubt the picture has improved.
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