Where are American Taxpayer’s Spending Their Health Care Dollars?

Those of my readers that live in the United States are well aware of the high cost of health care in America.  One of the high costs of health care is not one that consumers of American health services generally give consideration to; the high cost of administering health services in the United States. A recently released study by David U. Himmelstein MD, Terry Campbell and Steffi Woohandler MD breaks down the major components of health care administration in the United States and their costs on a per capita basis and then compares these costs to Canada and its universal health care/single-payer system.

Here is a bar graph comparing the health care administration costs in 2017 for five of its major components with the United States in blue and Canada in orange:

As you can easily see, the per capita costs for administering America's health care system are far higher than Canada's.  In fact health care administration costs in the United States account for 34.2 percent of national health care expenditures (or $812 billion in 2017) compared to only 17 percent for Canada.  This means that more than one-third of all spending on health care in the United States is consumed by administrative costs and not on treating patients.  Not only are American health care administration costs high, but America's per capita health care administration costs have risen by 3.2 percentage points since 1999 with 2.4 percent of that increase being accounted for by the growth in private insurer's overhead costs thanks to its expanded responsibility for the administration of both Medicare and Medicaid plans.

Back in 2014, Dr. Himmelstein also compared administrative costs for hospitals in eight advanced nations; the United States, Canada, France, Germany, the Netherlands, England, Scotland and Wales. He found the following:

Not only did the United States have, by a wide margin, the highest per capita total hospital expenditures among the eight nations, hospital administration costs as a percentage of total hospital costs were also the highest at 25.32 percent compared to only 12.42 percent for Canada and 19.79 percent for the Netherlands, the second-highest nation in the group.  To put this into concrete numbers, United States hospital administration costs rose from $97.816 billion in 2000 to $215.369 billion in 2011.  As I noted above, this means that a significant portion of hospital costs in the United States are not going to improve patient care, rather, they are going to feed the administrative "monster" that is consuming hundreds of billions of health care dollars every year.  In addition, American hospital administrative costs increased significantly over the decade from 2000 to 2011 from 1.0 percent of GDP to 1.4 percent of GDP.

Let's close with this quote from Dr. Himmelstein:

We can afford universal coverage with a single payer plan, not just universal coverage but first dollar coverage for everybody in our country if we adopted a single-payer Medicare for all approach.  If you’re going to cover everybody without getting those savings you’re going to have to spend more or you’re going to have to have big co-payments and deductibles that deter people from getting the care that they actually need.”

It is obvious from this study that, until administrative costs are controlled, American consumers of health care will continue to suffer from a health care system that is by no means world-leading….except when it comes to paying high administrative costs.  Unfortunately, Washington seems incapable of understanding the problem or coming up with a concrete solution to the problem.  But, then again, when you see this from the anti-Medicare For All lobby (aka the benign-sounding Partnership for America's Health Care Future), why should we be surprised:

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