Payers and providers of health care in the U.S. spend nearly half a trillion dollars each year on billing and insurance costs, half of which is excessive, according to a new study from the Center for American Progress (CAP). The CAP report noted that the U.S. spends 8.3 percent of total health expenditures on administrative costs annually, totaling $496 billion. This is far more than other high-income countries—more than twice as much in most cases. For example, Canada, the United Kingdom, and Australia all have annual administrative spending of 3 percent or less for health care. The study suggests that a key element of health care administration, billing and insurance-related costs (BIR), has a large role in creating a complex, wasteful health care system. Related: Cost to create a medical bill? $99k per year per doctor "Anyone interacting with the U.S. health care system is bound to encounter examples of unnecessary administrative complexity—from filling out duplicative intake forms to transferring medical records between providers to sorting out insurance bills," the report said. "This administrative complexity, with its associated high costs, is often cited as one reason the United States spends double the amount per capita on health care compared with other high-income countries even though utilization rates are similar."

Excessive costs

Although estimating the exact amount of administrative costs is difficult, the CAP study drew from a 2010 report by the National Academy of Medicine (NAM). That study said that for billing and insurance-related costs (BIR), U.S. spending amounted to 13 percent for physician care; 8.5 percent for hospital care; 10 percent for other providers; 12.3 percent for private insurance; and 3.5 percent for public program spending, including Medicare and Medicaid. In addition, that study found that an estimated 66 percent of BIR costs for private insurers and 50 percent of BIR costs among providers is considered excess spending. The NAM study concluded that that the U.S. spends about twice as much as necessary on BIR costs. But even that figure may not completely take into account the amount of time and money spent by patients navigating a fragmented and confusing system, the report said. "The administrative complexity of the U.S. system also burdens patients, whether they are deciphering bewildering bills or shuttling records between providers," the study said. "Three-quarters of consumers report being confused by medical bills and explanations of benefits."

A burden for providers, and payers

Because the U.S. health system differs so much from those in other high-income countries, it's difficult to compare the effect of administrative costs on payers. However, there are countries with multi-payer systems, even though private insurance plans tend to be much more heavily regulated than in the U.S. The study said that for multi-payer countries, administrative expenditures account for 4.8 percent of total health care expenditures in Germany, 3.9 percent in the Netherlands, 3.8 percent in Switzerland, and 1.6 percent in Japan. The report also noted the burden that BIR causes for providers. The authors referred to a study from California, which found that administrative costs represented about one-quarter of physician revenue and one-fifth of hospital revenue. It further found that BIR costs accounted for roughly half of administrative expenditures for physician and hospital services covered by private insurance. The study concludes by saying a structural overhaul of how U.S. health care is financed and priced would go a long way in addressing excessive administrative costs in this country. "Other nations enjoy world-class health care systems while spending a fraction of what the United States does on governance, billing, and insurance," the study said. "Simplifying the payment system should be an essential part of future health reform and would make the U.S. system work better for taxpayers and patients alike." Read more: 

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