In the United States, a legion of administrative health care workers and health insurance employees who play no direct role in providing patient care costs every American man, woman and child an average of $2,497 per year.
Across the border in Canada, where a single-payer system has been in place since 1962, the cost of administering health care is just $551 per person — less than a quarter as much.
That spending mismatch, tallied in a study published this week in the Annals of Internal Medicine, could challenge some assumptions about the relative efficiency of public and private health care programs. It could also become a hot political talking point on the American campaign trail as presidential candidates debate the pros and cons of government-funded universal health insurance.
Progressive contenders for the Democratic nomination, including Sen. Bernie Sanders of Vermont and Sen. Elizabeth Warren of Massachusetts, are calling for a “Medicare for All” system. More centrist candidates, including former Vice President Joe Biden and former South Bend, Ind., Mayor Pete Buttigieg, have questioned the wisdom of turning the government into the nation’s sole health insurer.
It’s been decades since Canada transitioned from a U.S.-style system of private health care insurance to a government-run single-payer system. Canadians today do not gnash their teeth about co-payments or deductibles. They do not struggle to make sense of hospital bills. And they do not fear losing their health care coverage.
To be sure, wait times for specialist care and some diagnostic imaging are often criticized as too long. But a 2007 study by Canada’s health authority and the U.S. Centers for Disease Control and Prevention found the overall health of Americans and Canadians to be roughly similar.
Some Canadians purchase private supplemental insurance, whose cost is regulated. Outpatient medications are not included in the government plan, but aside from that, coverage of “medically necessary services” is assured from cradle to grave.
The cost of administering this system amounts to 17% of Canada’s national expenditures on health.
In the United States, twice as much — 34% — goes to the salaries, marketing budgets and computers of health care administrators in hospitals, nursing homes and private practices. It goes to executive pay packages which, for five major health care insurers, reach close to $20 million or more a year. And it goes to the rising profits demanded by shareholders.
Administering the U.S. network of public and private health care programs costs $812 billion each year. And in 2018, 27.9 million Americans remained uninsured, mostly because they could not afford to enroll in the programs available to them.
“The U.S.-Canada disparity in administration is clearly large and growing,” the study authors wrote. “Discussions of health reform in the United States should consider whether $812 billion devoted annually to health administration is money well spent.”
The new figures are based on an analysis of public documents filed by U.S. insurance companies, hospitals, nursing homes, home-care and hospice agencies, and physicians’ offices. Researchers from Hunter College, Harvard Medical School and the University of Ottawa compared those to administrative costs across the Canadian health care sector, as detailed by the Canadian Institute for Health Information and a trade association that represents Canada’s private insurers.
Compared to 1999, when the researchers last compared U.S. and Canadian health care spending, the costs of administering health care insurance have grown in both countries. But the increase has been much steeper in the United States, where a growing number of public insurance programs have increased their reliance on commercial insurers to manage government programs such as Medicare and Medicaid.
As a result, overhead charges by private insurers surged more than any other category of expenditure, the researchers found.
In U.S. states that have retained full control over their Medicaid programs, the growth of administrative costs was negligible, they reported. (The same was true for Canada’s health insurance program.) But in states that shifted most of their Medicaid recipients into private managed care, administrative costs were twice as high.
America’s Health Insurance Plans, a group representing private health insurance companies, said administrative practices shouldn’t be blamed for escalating the cost of care in the United States.
“Study after study continues to demonstrate the value of innovative solutions brought by the free market,” AHIP said in a statement. “In head-to-head comparisons, the free market continues to be more efficient than government-run systems.”
AHIP cited a recent report by the Medicare Payment Advisory Commission, an independent body that advises Congress. The report showed that Medicare Advantage plans — which are privately administered — deliver benefits at 88% of the cost of traditional Medicare.
Even so, the study authors concluded that if the U.S. health care system could trim its administrative bloat to bring it in line with Canada’s, Americans could save $628 billion a year while getting the same health care.
“The United States is currently wasting at least $600 billion on health care paperwork —money that could be saved by going to a simple ‘Medicare for All’ system,” said senior author Dr. Stephanie Woolhandler, a health policy researcher at Hunter College and longtime advocate of single-payer systems.
That sum would be more than enough to extend coverage to the nation’s uninsured, she said.