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Administrative Costs in Market-Driven U.S. Health Care System Far Higher Than in Canada’s Single-Payer System, New Research Shows

Aug. 20, 2003

Administrative Costs in Market-Driven U.S. Health Care System Far Higher Than in Canada’s Single-Payer System, New Research Shows


With National Health Insurance, United States Could Cover the Uninsured

WASHINGTON, D.C. – Bureaucracy in the health care system accounts for about a third of total U.S. health care spending – a sum so great that if the United States were to have a national health insurance program, the administrative savings alone would be enough to provide health care coverage for all the uninsured in this country, according to two new studies.

The studies illustrate the failure of the private, fragmented and business-oriented U.S. health care system to control administrative costs, as compared to Canada’s single-payer system. One of the studies, in seeking to answer whether the ascendancy of computerization, managed care and more businesslike approaches to health care have decreased administrative costs, answers the question with a resounding “no.”


The second study provides a state-by-state breakdown of savings each state could achieve if the United States adopted a national health insurance program.

“Hundreds of billions are squandered each year on health care bureaucracy, more than enough to cover all of the uninsured, pay for full drug coverage for seniors, and upgrade coverage for the tens of millions who are under-insured,” said Dr. Steffie Woolhandler, co-founder of Physicians for a National Health Program and lead author of the studies. “Americans spend almost twice as much per capita on health care as Canadians, who have universal coverage and live two years longer. The administrative savings of national health insurance make universal coverage affordable.”


New England Journal of Medicine Study Shows U.S. Health Care Paperwork

Cost $294.3 Billion in 1999, Far More Than in Canada

The first study, which is to be published Thursday in The New England Journal of Medicine, finds that health care bureaucracy cost U.S. residents $294.3 billion 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, researchers found. [The study was conducted with grant support from the Robert Wood Johnson Foundation. The Foundation does not endorse the analyses or findings of this report or those of any other independent research projects for which it provides financial support.] The study, the most comprehensive analysis to date of health administration spending, was conducted by researchers at Harvard Medical School and the Canadian Institute for Health Information, Canada’s quasi-official health statistics agency. The authors 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 tens of thousands of health institutions in both nations.

The authors found that bureaucracy accounted for at least 31 percent of total U.S. health spending in 1999 compared to 16.7 percent in Canada. They also found that administration has grown far faster in the United States than in Canada. Between 1969 and 1999, administrative and clerical personnel in the United States grew from 18.2 percent to 27.3 percent of the health work force. In Canada, those personnel grew from 16 percent in 1971 to 19.1 percent in 1996.


Harvard/Public Citizen Report Finds National Health Insurance Would Save $286 Billion on Administration in 2003 – Enough to Cover All Uninsured and Seniors’ Drug Costs

The researchers also released a second report co-authored with Dr. Sidney Wolfe, director of Public Citizen’s Health Research Group. This report, based on data adjusted to reflect estimates of 2003 spending, found that health bureaucracy now consumes at least $399.4 billion annually and that national health insurance could save about $286 billion in administrative costs. This is equivalent to $6,940 for each of the 41.2 million people uninsured in 2001 (the most recent figure available for the uninsured). In addition to providing health coverage for the uninsured, these savings could provide drug coverage for the nation’s seniors.

The researchers found wide variation among states in the potential administrative savings available per uninsured resident. Texas, with 4.96 million uninsured (nearly one in four Texans), could make available $3,925 per uninsured resident if a national health plan were implemented. Massachusetts, which has very high per capita health administrative spending and a relatively low rate of uninsured, could make available $16,453 per uninsured person.


The high U.S. administrative costs can be attributed to three factors. First, private insurers have high overhead in both nations but play a much bigger role in the United States than in Canada. Second, doctors and hospitals in the United States must deal with hundreds of different insurance plans (at least 755 in Seattle alone), each with different coverage and payment rules and referral networks that must be tracked. In Canada, doctors bill a single insurance plan, using a single simple form, and hospitals receive a lump sum budget.

“Only national health insurance can squeeze the bureaucratic waste out of health care and use the money to give patients the care they need,” said Dr. David Himmelstein, co-founder of Physicians for a National Health Program and lead author of the studies. “Republicans are pushing to move seniors into HMOs, whose overhead is three times higher than Medicare’s. National health insurance could cover everyone without any increase in costs.”

Added Wolfe, “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. In the current economic climate, with unemployment rising, we can ill afford massive waste in health care. Radical surgery to cure our failing health insurance system is sorely needed.”


To read statements from Drs. Wolfe and Himmelstein, click here.

To read the Public Citizen/Harvard report, click here.