Single payer activists brandish new data on administrative waste

Advocates of a radical reform solution are pointing to new evidence of the burdens of private sector administrative bureaucracy.

Healthcare billing and insurance administration cost the U.S. economy some $470 billion in 2012, according to a study in BMC Health Services Research.

That $470 billion accounts for more than 15 percent of the nation's total $2.9 trillion in healthcare expenditures, and 80 percent of it is "waste due to the inefficiency of the nation's complex, multi-payer way of financing care," according to researchers Aliya Jiwani, James Kahn, David Himmelstein and Steffie Woolhandler, the latter two Harvard Medical School lecturers and co-founders of Physicians for a National Health Program.

Using a definition of "billing and insurance-related costs," the researchers found that physician practices spent about $70 billion in 2012 on administration, hospitals $74 billion and other providers about $94 billion.

Private insurers devoted some $198 billion to the administration of health plans, while Medicare and Medicaid spent only $35 million -- a lower cost structure that the researchers describe as a benefit of the government's scale.

"Were the U.S. to adopt a simplified health care financing system, either along the lines of Canada's system or our Medicare program, 80 percent of those itemized expenditures would disappear," said Jiwani, the study's lead author and a doctoral researcher at George Washington University.

James Kahn, MD, an epidemiology and policy professor at the University of California San Francisco and one of the researchers, added that money spent on "unnecessary bureaucratic tasks" would be of better use going toward patient care. 

"The potential savings of adopting a single-payer system is striking: at least $375 billion annually," Kahn continued. "Such a system would enjoy powerful economies of scale, sharply reduce the burdens of claims processing, and obviate the need for marketing, advertising and underwriting expenses. Our nation's patients, our physicians, and the U.S. economy all stand to gain from such a shift."

Health insurance industry advocates have challenged those numbers. The trade group America's Health Insurance Plans has argued that commercial insurance administration is on a par with Medicare, pointing to a Bloomberg BNA analysis that found Medicare's administrative costs at about the same ratio as large group health plans. Single payer skeptics also argue that Medicare, to the detriment of patients and taxpayers, reimburses for an enormous array of services, procedures and drugs, including some unsupported by evidence.

At the same time, even if the BMC Health Services Research estimates on private health insurance administration are within half of the real figures, they represent huge sums of money -- and huge burdens of time on small scale providers like independent primary care practices, who complain of onerous and sometimes arbitrary prior authorization processes.

Indeed, many health insurers have embarked on ambitious claims automation endeavors, and payer-provider collaborations are working on both prior authorizations and payment streamlining. "We're breaking down the assumption that we don't want to pay claims and only want to deny," as April Barber, Blue Shield of California's senior provider relations manager, said of its Partnership in Operations Excellence and Transparency program.