“Jun Maekawa’s ‘One Third Cube’,” Jorge Jaramillo

January 6, 2020; Time Magazine and Modern Healthcare

“Americans are accustomed to battling bureaucracy to access their health care,” writes Abigail Abrams in Time Magazine. But what may be less known is that administrative costs now make up about 34 percent of total health care expenditures in the United States.

That’s right—one in every three healthcare dollars goes to administration, according to a study published earlier this month in the Annals of Internal Medicine. The study is authored by David U. Himmelstein, MD, and Steffie Woolhandler, MD, MPH—both from Hunter College in New York City—and Terry Campbell, MHA, the executive director of research operations and strategies at the University of Ottawa.

Himmelstein and Woolhandler are also longtime advocates of single-payer insurance, better known these days as “Medicare for All.” But you don’t have to be a Medicare for All advocate to recognize the drag that administrative costs have placed on the nation’s healthcare system.

Of course, the fact that US health care is much more expensive than health care in other nations is not news. Last February, NPQ’s Martin Levine noted that US per capita healthcare spending was $9,403, double “the average spending of 10 other high-income countries.” Quite contrary to the common media line that the US “cannot afford” Medicare for All, the real question may instead be whether the US can afford not to have Medicare for All or some related system.

The new study does not change the number Levine cites, but it does dive much more deeply into clearing up one of the reasons why that gap is so large—namely, the much higher level of administrative cost required to manage the nation’s competing, often for-profit, healthcare insurance companies.

All told, since US healthcare, according to the Kaiser Family Foundation, costs $5,398 per capita more than Canadian healthcare, the $1,946 per capita (in 2017) administrative cost gap is responsible for about 36 percent of that total differential. In short, if the US were to cut its administrative spending to match Canadian levels, the country would save more than $600 billion a year.

Overall, Abrams notes, the US “now spends nearly five times more per person on health care administration than Canada does.” More specifically, “administrative costs came out to $812 billion in 2017, or $2,497 per person in the US. compared with $551 per person in Canada, according to the Annals study.”

Insurers’ overhead, the largest category, totaled $275.4 billion in the US in 2017, or 7.9 percent of all national health expenditures, compared with $5.36 billion in Canada, or 2.8 percent of national health expenditures. The US number includes $45 billion in government administration and $229.5 billion in private insurers’ overhead and profits.

Of course, there is one benefit of bloated administration—employment. A half-century ago, before Canada had fully implemented single-payer insurance, Rachel Cohrs in Modern Healthcare notes a “similar share of workers were employed in healthcare administration in the United States and Canada.” As of 2017, however, healthcare administration employed 129.7 people per 10,000 in the US, compared with 88.9 people in Canada.

So, if US numbers came in line with Canadian norms, US unemployment might rise 0.4 percent—not a small number. On the other hand, with another $600 billion in our pockets, workers displaced from healthcare administration layoffs might well be able to find themselves much more rewarding alternative employment.—Steve Dubb