Health Care Bureaucracy Wastes
Savings From Cutting Costs Would Cover Uninsured
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
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
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
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
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
“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