Healthcare administrative costs will tally nearly $500B this year
- U.S. payers and providers will spend $496 billion on billing and insurance-related administrative costs in 2019, according to a new Center for American Progress analysis. The costs, which can be passed on to the consumer through higher insurance premiums, include the overhead for payers and provider costs for claims submission and reconciliation and payment processing.
- The left-leaning group arrived at its total by applying the National Academy of Medicine's 2010 percentages of such costs to CMS projections of national health expenditures. The tally includes $158 billion in private insurance overhead, $56 billion for public insurance program administration and $282 billion for provider costs.
- The Center for American Progress recommended addressing waste and unnecessary spend through tactics like simplifying the billing and payment process, global budgeting and uniform rate-setting. However, the report noted policies reforming administrative costs alone won't bring U.S. spending in line with other countries.
The 2010 NAM report found the U.S. spends roughly double more than necessary on these costs — an administrative excess tallying $248 billion annually, according to CAP calculations. The U.S. continues to spend roughly twice as much as other high-income countries on medical care.
Administrative burden is a root cause of physician burnout, driven by a slew of factors including rampant consolidation changing practice structure and routines, increasing prevalence and complexity of EHRs and legislative changes and regulations.
The report rounded up research on how administrative costs can add up for providers in terms of cost and time. One study showed that hospitals direct about a quarter of their spending toward administrative tasks.
Another found that emergency departments had the highest admin spend, with 25% of revenue going toward billing costs. Inpatient visits were the lowest at 8%. An inpatient stay, however, took more time to process at an average of 73 minutes versus 32 minutes for an ER visit and 13 minutes for primary care.
Legislation is another arena to lower administrative costs, CAP said, noting that Medicare for all and other universal healthcare plans would decrease the spend through a combination of rate regulation, global budgeting or simplifying the number of payers.
"Each of these financing changes deserves consideration — even in the absence of major systemwise reform," according to the report.
The Trump administration's deregulatory approach seeks to lower costs related to regulations, which it contends will improve the efficiency and costs throughout the healthcare system.
The CAP study notes however that countries that more tightly regulate healthcare tend to have lower admin and healthcare costs generally.
And the study notes that even with high administration costs, higher prices in the U.S. play a greater role in total healthcare spending topping most other countries, quoting a famous study that concluded: "It's the prices, stupid."
- Center for American Progress Excess Administrative Costs Burden the U.S. Health Care System
- Healthcare Dive Labor, administrative costs drive US healthcare spending far beyond other nations
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