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Study Reveals High U.S. Healthcare Administrative Costs Could Be Slashed by Adopting Canadian Model

Healthcare Administration (Representation)

A recent study has highlighted the stark difference in administrative costs between the U.S. and Canadian healthcare systems, revealing that the U.S. spent more than $800 billion on administration in 2017. This expenditure translates to nearly $2,500 per person, a figure over four times higher than Canada’s per-capita administrative costs.

Published in the Annals of Internal Medicine, the study shows that over one-third of all U.S. healthcare costs were due to insurance company overhead and provider billing efforts, compared to about 17% in Canada. According to lead author Dr. David Himmelstein, a distinguished professor of public health at the City University of New York and a lecturer at Harvard Medical School, these costs are largely unnecessary and could be redirected towards actual care if the U.S. adopted a ‘Medicare for All’ approach.

“The average American is paying more than $2,000 a year for useless bureaucracy,” Himmelstein stated, emphasizing that this money could be better spent on healthcare services.

To determine the administrative cost disparity, Himmelstein and his team analyzed Medicare filings from hospitals and nursing homes in the U.S., using survey and census data to estimate costs for physicians. Canadian data was sourced from the Canadian Institute for Health Information and an insurance trade association.

The study found significant differences in per-capita health administration costs for 2017:

  • Insurer overhead: $844 in the U.S. vs. $146 in Canada
  • Hospital administration: $933 in the U.S. vs. $196 in Canada
  • Nursing home, home care, and hospice administration: $255 in the U.S. vs. $123 in Canada
  • Physicians’ insurance-related costs: $465 in the U.S. vs. $87 in Canada

The researchers also noted a 3.2% increase in U.S. administrative costs since 1999, primarily due to the expansion of Medicare and Medicaid managed-care plans. Private Medicare Advantage plans, which now cover about a third of Medicare enrollees, have overhead costs six times higher than traditional Medicare (12.3% vs. 2%).

Dr. Albert Wu, an internist and professor at the Johns Hopkins School of Public Health, praised the study as the first comprehensive analysis of administrative costs in the U.S. and Canada in nearly 20 years. Wu pointed out that the U.S. healthcare system’s inefficiency and wastefulness have driven up costs.

Jamie Daw, an assistant professor at Columbia University’s Mailman School of Public Health, emphasized the potential savings, noting that reducing U.S. administrative costs to Canadian levels could save $628 billion annually. This amount could cover all Medicaid spending or nearly all out-of-pocket and prescription drug expenses for Americans.

The study attributes the high administrative costs in the U.S. to the complex and adversarial relationship between insurance companies and healthcare providers. The need for extensive documentation to justify treatment and coding practices, such as upcoding, has led to increased paperwork and longer physician notes, further driving up administrative expenses.

This comprehensive analysis underscores the potential benefits of adopting a more efficient healthcare system modeled after Canada’s single-payer approach, suggesting that significant cost savings and improved allocation of resources could be achieved.

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