HEALTHCARE
January 15, 2020

The Paperwork Driving Healthcare Costs

Americans know they pay way more for healthcare than Canadians do, but they may be surprised to learn what's driving up the costs.

Paperwork and other administrative costs are now eating up even more health care dollars than they did 20 years ago. They account for over 34 percent of all health care costs, $2,479 for every man, woman and child in the country.

These figures are from a recently published analysis of nearly 20 years of health care spending in the United States and Canada. The authors attribute the increase primarily to private insurers' increasing involvement in Medicare and Medicaid.

Healthcare bureaucracy — paperwork and the time, money and salaries spent chasing down medical payments and dealing with insurance companies — cost the United States $812 billion dollars in 2017.

One of the attractions of a single-payer health care system, such as Canada's or the proposed Medicare for All, is that the paperwork and bureaucracy costs associated with chasing the money would shrink dramatically.

The findings of the new study bear this argument out. Researchers found that healthcare bureaucracy — paperwork and the time, money and salaries spent chasing down medical payments and dealing with insurance companies — cost the United States $812 billion dollars in 2017. Administrative costs in Canada were less than one-quarter as high (per person), and the authors calculate that if the United States switched to a single-payer system similar to the Canadian system such as Medicare for All, it would save roughly $600 billion per year.

But it's not the cost so much as what it's paying for.

“Americans spend twice as much per person as Canadians on health care. But, instead of buying better care, that extra spending buys us sky-high profits and useless paperwork,” said lead author, David Himmelstein, in a statement. “Before their single-payer reform, Canadians died younger than Americans, and their infant mortality rate was higher than ours. Now Canadians live three years longer and their infant mortality rate is 22 percent lower than ours.”

Health care bureaucracy starts with people paying for insurance company overhead and salaries. Doctors, hospitals and clinics in the U.S. also spend far more on administration than they do in many other countries due to the complexity of billing multiple payers and dealing with the many bureaucratic hurdles that insurers impose — chasing the money.

“Reforms like a public option that leave private insurers in place can't deliver big administrative savings.”

In Canada, the approach is different. Not only is there no private health insurance, hospitals are given lump-sum budgets, much the way fire departments are funded in the United States. What if the U.S. followed suit?

“Medicare for All could save more than $600 billion each year on bureaucracy, and repurpose that money to cover America's 30 million uninsured and eliminate copayments and deductibles for everyone,” explained Steffi Woodhandler, a primary care physician, as well as a distinguished professor at Hunter College and lecturer in Harvard Medical School. “Reforms like a public option that leave private insurers in place can't deliver big administrative savings.”

Like Dr. Woodhandler, David Himmelstein is a researcher who also treats patients. He's an internist in New York's South Bronx as well as a distinguished professor at the City University of New York's Hunter College. Both doctors get to see the consequences of health care policy, good and bad, on a daily basis.

They're also among the many physicians who have concluded that the country needs to switch to a single-payer health care system. Physicians for a National Health Program (PNHP) is devoted to the establishment of a universal, comprehensive single-payer national health program in the United States. It has more than 20,000 members and chapters across the U.S.

An article detailing the study findings appears in Annals of Internal Medicine.

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