Background A decade ago, the administrative costs of healthcare in the United States greatly exceeded those in Canada.We investigated whether the ascendancy of computerization, managedcare, and the adoption of more businesslike approaches to healthcare have decreased administrative costs.
Methods For the United States and Canada, we calculated theadministrative costs of health insurers, employers' health benefitprograms, hospitals, practitioners' offices, nursing homes,and home care agencies in 1999. We analyzed published data,surveys of physicians, employment data, and detailed cost reportsfiled by hospitals, nursing homes, and home care agencies. Incalculating the administrative share of health care spending,we excluded retail pharmacy sales and a few other categoriesfor which data on administrative costs were unavailable. Weused census surveys to explore trends over time in administrativeemployment in health care settings. Costs are reported in U.S.dollars.
Results In 1999, health administration costs totaled at least$294.3 billion in the United States, or $1,059 per capita, ascompared with $307 per capita in Canada. After exclusions, administrationaccounted for 31.0 percent of health care expenditures in theUnited States and 16.7 percent of health care expenditures inCanada. Canada's national health insurance program had overheadof 1.3 percent; the overhead among Canada's private insurerswas higher than that in the United States (13.2 percent vs.11.7 percent). Providers' administrative costs were far lowerin Canada.
Between 1969 and 1999, the share of the U.S. health care laborforce accounted for by administrative workers grew from 18.2percent to 27.3 percent. In Canada, it grew from 16.0 percentin 1971 to 19.1 percent in 1996. (Both nations' figures excludeinsurance-industry personnel.)
Conclusions The gap between U.S. and Canadian spending on healthcare administration has grown to $752 per capita. A large summight be saved in the United States if administrative costscould be trimmed by implementing a Canadian-style health caresystem.
Source Information
From the Department of Medicine, Cambridge Hospital and Harvard Medical School, Cambridge, Mass. (S.W., D.U.H.); and the Canadian Institute for Health Information, Ottawa, Ont., Canada (T.C.).
Address reprint requests to Dr. Himmelstein at 1493 Cambridge St., Cambridge, MA 02139.
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