Study: US Health-care Bureaucracy Out-of-Control

August 21, 2003 ( - If you need any more proof that health-care spending in the United States has gotten out of control, a study says there is no need to look any further than north of the border.

Americans spend $752 more per person per year than Canadians on medical administrative costs alone. Broken down even further, 31% of every dollar spent on health care in the United States pays administrative costs – nearly double the rate in Canada where it is only 16.7%, according to the study by investigators from Harvard University and the Canadian Institute for Health Information, reported by the Boston Herald.

Additionally, the study found the overhead cost for US insurance companies consumed 11.7% of every health-care dollar, compared to only 1.3% for Canada’s government-run system and 4% for the US Medicare system for the elderly.

Although, among Canada’s private insurance companies, the overhead costs were even higher: 13.2%.

“The difference in the costs of health care administration between the United States and Canada is clearly large and growing,” co-authors David Himmelstein and TK Woolhandler said, questioning whether the $294.3 billion spent each year on US health-care administration – $1,059 per capita – is money well spent.

Instead the duo points to the health-care establishment in Canada, saying that should the US implement a similar system , the savings would likely pay for coverage for the more than 41 million Americans without health insurance.

Critics Counter

Henry Aaron, a health care economist from the Brookings Institution wrote in an editorial in the New England Journal of Medicine, that the study is flawed on the basis that is difficult to identify and estimate administrative costs accurately at a single point in time in a single country, nevermind trying all of that times two. Aaron does not dispute the fact that the bureaucracy has grown out of control, saying the US health care system is an “administrative monstrosity.” However, Aaron hypothesizes that Himmelstein’s study overestimates the difference between the two countries. He said it’s probably closer to $159 billion than the $209 billion in Himmelstein’s study.

Further, Aaron said it is not clear that the comparison is meaningful. “The differences certainly do not tell whether administrative savings from adopting a single-payer, no-cost-sharing system would cover the added service costs that would result from such a system,” he said. He continued by saying that since it is unlikely the US would adopt a health-care system that excludes private industry and has no co-payments, it would be more useful to look at how the existing system could be improved.