2 charts that show our health care administrative costs are really high

A new report from the Center for American Progress dives into one of the key things that sets our health care system apart from those of other countries: our exceptionally high administrative costs. And it makes a case that in order to bring down those costs, you actually don’t need to go all the way to single-payer.

”A structural overhaul of how health care is financed and priced that includes key features of other countries’ systems — whether one payer or many — would go a long way toward eliminating excess administrative costs,” co-authors Emily Gee and Topher Spiro argue.

First, let’s look at the numbers. As you can see in this chart, the United States has administrative costs that are well above those of pretty much every other developed country.

You can also break down the numbers by administrative costs associated with different types of medical visits. You can see that the average inpatient surgery includes just over $200 in administrative work.

It’s not hard to understand why the American health care system has higher administrative costs. We have a highly fragmented health insurance market where each insurer sets different prices for thousands of different medical procedures. The result is a massive infrastructure to process American medical claims that exists in health insurance plans and doctor offices all across the country.

The thing that’s a bit harder to figure out is the right amount of administrative costs for our country, and how to get there. You’ll note in the top figure that even countries with universal coverage vary pretty significantly in what they spend on administrative costs. France is spending, for example, 10 times as much as Norway on administrative costs, and Germany twice as much as Japan.

Some administrative costs will always make sense. At the end of the day, you’re going to need someone to run a health insurance system — to mail out insurance cards, contract with doctors, and run programs that attempt to root out fraud, for example.

But what’s the right number to aim for? That’s a bit harder to pin down. “Not all administrative spending is equal,” Gee says. “There are certain cases where we might actually be underinvesting in administrative costs, places where more administrative spending could bring down overall costs.”

The other big question this report raises: What’s the best way to lower administrative spending in the United States?

Supporters of a single-payer system like Canada’s would argue the answer is simple: You move to a system where the government provides health coverage to all citizens. When there is just one health plan, you won’t have disparate prices for the same procedure. You will probably have some unemployed billing specialists on your hands, as their jobs would no longer be needed.

But Gee and Spiro make a different case. They argue that you don’t need to go as far as a single-payer system — that with some kind of all-payer rate setting, you could achieve significant savings on administrative spending. In other words, if you have multiple health insurers all paying the same price, that does a lot of the legwork in cutting administrative costs. (It should come as no surprise that the most recent health policy proposal from CAP, where Gee and Spiro work, endorses a multi-payer system that wouldn’t transition all Americans to one government plan.)

”Uniform rate setting is a key feature of a system that would have lower administrative costs,” Spiro says. “That could be in the context of a single-payer system or a regulated, multi-payer system.”

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