Hike in Medical Bureaucracy Costs Cited : Medicine: Researchers say a government-run system like Canada’s would save enough money to cover all 34.4 million Americans who are uninsured.
Efforts to rein in rising health care costs in the United States over the past decade have sent bureaucratic expenses skyward, according to two researchers who say that administrative overhead swallows up nearly one quarter of all U.S. health spending.
The researchers from Harvard Medical School found that administrative health care costs rose 37% between 1983 and 1987. In 1987, they put the cost of administration at between $96.8 billion and $120.4 billion, or $400 to $497 per person--more than three times the rate in Canada.
In an article published today in the New England Journal of Medicine, the group concluded that reducing U.S. overhead to Canadian levels would save more than enough money to cover the care of all 34.4 million Americans who are currently uninsured.
“A cynic . . . might wonder whether the cost-containment experts cost more than they contain,” the researchers wrote. “One is reminded of the Chinese proverb, ‘There is no use going to bed early to save candles if the result is twins.’ ”
The researchers, Dr. Steffie Woolhandler and Dr. David U. Himmelstein, argue that administrative inefficiencies are an unavoidable part of the U.S. system, thanks to what they say are 1,500 different insurance programs currently operating.
The researchers suggest that the United States should switch to a government-run insurance system such as Canada’s, in which all citizens are enrolled, all medically necessary services are covered, there are no co-payments or deductibles, and the government pays the bill.
“The multiplicity of insurers not only raises overhead, it also buries hospitals and doctors in paperwork,” Woolhandler said. “. . . What we really need to do is get the private insurance industry out of the health care business.”
That notion did not sit well on Wednesday with private insurers.
The Health Insurance Assn. of America, a Washington, D.C.-based trade association representing about 300 health insurance companies, criticized the researchers’ methods and blamed spiraling health care costs on medical, not administrative, expenses.
In a prepared statement, the association said “numerous indefensible assumptions” underlie the researchers’ conclusions, “and the blind faith of the committed ideologue is required in order to believe that the figures represent anything close to reality.”
“Clearly the greatest waste of health care dollars is in payment for medical and surgical procedures that are not necessary or, in some cases, harmful,” the association said. “. . . Eliminating this care would have amounted to savings of more than $70 billion in 1989.”
Woolhandler and Himmelstein, an assistant professor of medicine and an associate professor of medicine respectively, set out to measure the effects of recent cost-containment initiatives on the administrative efficiency of the health care system.
Those cost-containment initiatives, which proliferated in the mid- and late-1980s as regulators and insurers tried to hold down rising expenses, include such policies as the use of deductibles and co-payments and strict oversight of treatment and billing.
The researchers used federal and state statistics on insurance overhead and hospital and nursing home administration, as well as educated estimates of physicians’ billing and overhead expenses in the United States and Canada between 1983 and 1987.
The researchers found that U.S. health care administration costs in 1987 amounted to 19.3% to 24.1% of total spending on health care--in contrast to Canada, where, they concluded, 8.4% to 11.1% of health care spending went to administration.
While administrative costs rose 37% between 1983 and 1987 in the United States, they dropped in Canada, the researchers said. If the U.S. system had been as efficient as Canada’s, $69 billion to $83.2 billion could have been saved in 1987, the researchers concluded.
The insurance group challenged the researchers’ estimates of U.S. hospital costs because they were based on figures from California, where, the association argued, administrative costs are relatively high and unrepresentative of the nation at large.
The insurers also questioned the figures used to estimate physicians’ administrative expenses, saying that the Canadian estimates were based on 14-year-old data from Quebec, “the province with the lowest physician fees.”
In addition, the association said, administrative costs of private insurers and government-run programs are not directly comparable, since government accounting systems tend to ignore certain indirect costs “that are always recorded in the private sector.”
Finally, the insurers’ group said the researchers used a currency exchange rate that exaggerated the difference between U.S. and Canadian costs. And the group contended that U.S. insurance overhead has remained relatively stable at about 4% of total health care spending.
