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Analysis

AHIP Seeks 'Context' For Report Detailing Bloated Administrative Costs

By John Commins  
   January 08, 2020

A study compared administrative costs for healthcare in Canada and the United States and found a spending gap that is 'large and widening.'

America's Health Insurance Plans is taking issue with a study this week that blames the bloated administrative costs of healthcare on "the inefficiencies of the U.S. private insurance-based, multipayer system."

The study, published Monday in Annals of Internal Medicine, compared administrative costs among payers and providers for healthcare in Canada and the United States and found a spending gap that is "large and widening."

In 2017, U.S. insurers and providers spent $812 billion on administration, amounting to $2497 per capita, which represents 34.2% of national health expenditures. Canada, which has a single-payer health system, spent $551 per capita, representing 17% of national health expenditures.

A further breakdown showed that U.S. payers spent $844 on overhead, versus $146 for Canada; $933 for hospital administration, versus $196 in Canada; $255 versus $123 for nursing home, home care, and hospice administration; and $465 versus $87 for physicians' insurance-related costs.

Of the 3.2–percentage point increase in administration's share of U.S. health expenditures since 1999, 2.4 percentage points was due to growth in private insurers' overhead, mostly because of high overhead in their Medicare and Medicaid managed-care plans, the study found.

"The prices that U.S. medical providers charge incorporate a hidden surcharge to cover their costly administrative burden," the study authors said.

By midday Monday, AHIP issued a statement to "provide some important context to this report," and noted that more than 80% of premium dollars goes toward the costs of care. 

"Study after study continues to demonstrate the value of innovative solutions brought by the free market. In head-to-head comparisons, the free market continues to be more efficient that government-run systems," AHIP said.

They cited a MedPAC report which showed that Medicare Advantage plans deliver benefits at 88% of the cost of traditional Medicare, including administrative costs.

"Additionally, health insurance providers are investing in chronic disease management programs and improving payment and delivery models to ensure patients get the right care and have coverage that supports their needs," AHIP said. "Studies show provider network arrangements – that meet or exceed standards for safety, quality, and performance – help reduce premiums and promote more affordable coverage options for consumers."

AHIP also cited a Center for American Progress study which found that "the lowest possible level of administrative spending for the U.S. health care system is not necessarily the optimal level of spending." That's because innovations such as bundled payments require significant upfront investment to develop.

AHIP also cited an article in JAMA which estimated that 25% of waste in the healthcare system could be reduced through investments in interventions that are considered part of administrative costs, such as addressing fraud and abuse and improving patient safety.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

In 2017, U.S. insurers and providers spent $812 billion on administration, amounting to $2497 per capita, which represents 34.2% of national health expenditures.

Canada, which has a single-payer health system, spent $551 per capita, representing 17% of national health expenditures.

AHIP says the study doesn't consider the heavy upfront administrative costs for innovation, such as bundled payments.


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