Bureaucratic Waste Plagues U.S. Healthcare

Friday, August 22nd 2003

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Thirty-one cents of every dollar spent on healthcare in the United States pays for administrative costs--nearly double the rate in Canada, according to a new comparison study that reveals colossal bureaucratic waste in the American system.

Researchers who prepared the study reported on Wednesday that the United States wastes more money on health bureaucracy than it would cost to provide healthcare to the tens of millions of uninsured Americans.

Americans spend $752 more per person per year than Canadians on medical administrative costs alone, according to the study by investigators from Harvard University in Boston and the Canadian Institute for Health Information that was published in the August 21st issue The New England Journal of Medicine.

The team, led by Dr. Steffie Woolhandler of Harvard, said a large sum of money might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style, single-payer healthcare system.

"The difference in the costs of healthcare administration between the United States and Canada is clearly large and growing," the researchers report, questioning whether the $294.3 billion spent each year on U.S. healthcare administration is money well spent.

Dr. Woolhandler and co-author Dr. David Himmelstein, also of Harvard and a founder of Physicians for a National Health Program, added that if the United States adopted a Canadian-style system, the savings would likely pay for coverage for the more than 41 million Americans without health insurance.

The study found overhead costs for U.S. insurance companies--mostly for underwriting and advertising--ate up 11.7 cents of every healthcare dollar, compared with 1.3 cents for Canada's government-run system and 3.6 cents for the U.S. Medicare system for the elderly.

Among Canada's private insurance companies, the overhead costs were even higher: 13.2 cents per dollar.

The study found that after certain exclusions, administration accounted for 31 percent of healthcare expenditures in the United States and 16.7 percent in Canada.

The estimates do not include the advertising costs of drug companies or hospitals, healthcare industry profits, or the value of patients' time spent on paperwork.

But in an NEJM editorial, Dr. Henry Aaron of the Brookings Institution in Washington, said the administrative costs in the United States may be 24% lower than the estimates of Woolhandler et al.

He said the excess spending on healthcare administration in 1999 is probably closer to $159 billion, not $209 billion cited in the study.

Aaron added that it is still not clear that the United States would save money if it converted to the Canadian system.

While Dr. Aaron characterizes the U.S. healthcare system as "an administrative monstrosity," he said the latest comparisons "clearly exaggerate" the differences between the North American neighbors.

N Engl J Med 2003:348:768-775,801-803

 

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