The deteriorating administrative efficiency of the U.S. health care system

Abstract

Background and methods: In 1983 the proportion of health care expenditures consumed by administration in the United States was 60 percent higher than in Canada and 97 percent higher than in Britain. To assess the effects of recent health policy initiatives on the administrative efficiency of health care, we examined four components of administrative costs in the United States and Canada for 1987: insurance overhead, hospital administration, nursing home administration, and physicians' billing and overhead expenses. Most data were provided by the two nations' federal health and statistics agencies, supplemented by state and provincial data and published sources. Because data on physicians' billing costs were limited, we estimated a range for these costs by two methods that rely on different sources of data. All figures are reported in 1987 U.S. dollars.

Results: In 1987 health care administration cost between $96.8 billion and $120.4 billion in the United States, amounting to 19.3 to 24.1 percent of total spending on health care, or $400 to $497 per capita. In Canada, between 8.4 and 11.1 percent of health care spending ($117 to $156 per capita) was devoted to administration. Administrative costs in the United States increased 37 percent in real dollars between 1983 and 1987, whereas in Canada they declined. The proportion of health care spending consumed by administration is now at least 117 percent higher in the United States than in Canada and accounts for about half the total difference in health care spending between the two nations. If health care administration in the United States had been as efficient as in Canada, $69.0 billion to $83.2 billion would have been saved in 1987.

Conclusions: The administrative structure of the U.S. health care system is increasingly inefficient as compared with that of Canada's national health program. Recent health policies with the avowed goal of improving the efficiency of care have imposed substantial new bureaucratic costs and burdens.