US healthcare paperwork costs $812 billion

Healthcare administrative and bureaucracy costs in the U.S. reached $812 billion in 2017––a whopping four times higher than Canada, according to a new study published by Harvard researchers in the Annals of Internal Medicine. And Medicare for all could be the way to achieve huge savings.

In fact, bringing down U.S. paperwork costs to Canada’s levels would save more than $600 billion. In 2017, the cost of healthcare bureaucracy was 3.42% of total expenditures for doctor visits, hospitals, long-term care and health insurance.

“The care delivery systems––doctors and hospitals––are closely similar in the US and Canada, but their payment systems are markedly different,” authors David U. Himmelstein, MD––an internist in the South Bronx, a professor at CUNY's Hunter College and lecturer in Medicine at Harvard––and Steffie Woolhandler, MD, MPH––a professor of public health and health policy in the CUNY School of Public Health at Hunter College, adjunct clinical professor at Albert Einstein College of Medicine, and lecturer in medicine at Harvard Medical School––told Health Exec. “Hence, the comparison to Canada provides convincing evidence that a change in the way we pay for care would likely result in vast savings on paperwork and bureaucracy.”

The researchers examined health administration costs since 1999 and analyzed thousands of accounting reports filed to regulators by hospitals and other healthcare providers as well as census data.

Part of its success is Canada’s single-payer system, which significantly cut down on administrative costs and was implemented in 1962. Per capita health administration costs in the U.S. were more than four times higher than in Canada––$2,479 per person vs. $551. In the U.S., Americans spend $844 per person on insurers’ overhead compared to just $146 in Canada in 2017.

Hospital billing, which is complex in the U.S., cost significantly more as well––$933 per person in the U.S. vs. $196 in Canada. Canadian hospitals are financed through lump sum global budgets instead of fee-for-service in the U.S. And switching to global budgets could potentially work in the U.S., too.

“Paying hospital lump sum global budgets would work well in the U.S.,” Himmelstein and Woolhandler told Health Exec. “It would relieve hospitals of virtually all of the current burden of billing-related paperwork and documentation, saving a great deal of money.  Moreover, lifting the paperwork burden from doctors and nurses would lessen the burnout that is currently epidemic.”

In the U.S., however, healthcare administrative costs have risen. The share of U.S. health spending rose 3.2 percentage points from 1999 to 2017, from 31% to 34.2%, largely as a result of private insurance having a bigger role in federal programs like Medicaid and Medicare. From 2017 to 2018, private insurance overhead rose rapidly––13.2%.

“The biggest part of the increase is attributable to the increasing role of private managed care plans in administering the Medicare and Medicaid programs,” Himmelstein and Woolhandler said. “For instance, the overhead of private Medicare Advantage plans that now enroll about one third of Medicare enrollees averages at least 12%, vs. the 2% overhead of traditional Medicare. Hence, as more enrollees switch to Medicare Advantage, overhead rises sharply.”

Medicare and Medicaid make up more than half of private insurers’ revenues, according to the study. And private Medicare Advantage plans use 12% of funds just for their overhead, compared to traditional Medicare’s 2%. That difference comes out to $1,155 per enrollee annually. MA plans currently cover about one-third of all Medicare enrollees and are expected to cover a greater share in the future.

To cut these costs, implementing a single-payer system, or Medicare for all, in the U.S. is the way to go, according to Himmelstein, who has served as an unpaid policy advisor for Senator Bernie Sanders (I-VT) and written research-related manuscripts with Senator Elizabeth Warren (D-MA). Both Sanders and Warren are two Democratic presidential candidates who support and promote Medicare for all plans as part of their platform.

“A single payer Medicare for All reform is the only way to realize most of the potential administrative savings we identified,” Himmelstein and Woolhandler told Health Exec. “Short of that, eliminating the Medicare Advantage program and Medicaid managed care plans would achieve some savings.”