posted 9-1-2003

Studies Compare Canadian Healthcare Costs to U.S.

BOSTON – The gap between US and Canadian spending on healthcare administration has grown to $752 per capita, according to the New England Journal of Medicine, reporting August 21 on the findings of researchers at Harvard Medical School and the Canadian Institute for Health Information.

"A decade ago, the administrative costs of healthcare in the United States greatly exceeded those in Canada. We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to healthcare have decreased administrative costs," NEJM editors wrote. "A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style healthcare system," journal editors concluded.

Healthcare bureaucracy cost Americans $294.3 billion in 1999. The $1,059 per capita spent on healthcare administration was more than three times the $307 per capita in paperwork costs under Canada's national health insurance system. Cutting US health bureaucracy costs to the Canadian level would have saved $209 billion in 1999.

"Hundreds of billions are squandered each year on healthcare bureaucracy, more than enough to cover all of the uninsured, pay for full drug coverage for seniors, and upgrade coverage for the tens of millions who are underinsured," said Dr. Steffie Woolhandler, co-founder of Physicians for a National Health Program and lead author of the studies. "Americans spend almost twice as much per capita on healthcare as Canadians, who have universal coverage and live two years longer. The administrative savings of national health insurance make universal coverage affordable."

The authors analyzed the administrative costs of health insurers, employers' health benefit programs, hospitals, nursing homes, home care agencies, physicians and other practitioners in the US and Canada. They used data from regulatory agencies and surveys of doctors, and analyzed Census data and detailed cost reports filed by tens of thousands of health institutions in both nations.

The authors found that bureaucracy accounted for at least 31 percent of total US health spending in 1999 vs. 16.7 percent in Canada. They also found that administration has grown far faster in the US than in Canada. Between 1969 and 1999, administrative and clerical personnel in the US grew from 18.2 percent to 27.3 percent of the health work force. In contrast, the administrative/clerical share of Canada's health labor force rose modestly, from 16 percent in 1971 to 19.1 percent in 1996. These labor force figures exclude the 1.65 million employees at US insurance companies and agencies, as well as the small number of private insurance employees in Canada.

Overhead in Canada's provincial insurance plans, which provide most coverage, averaged 1.3 percent vs. 11.7 percent for private insurers in the US and 3.6 percent for US Medicare. Bureaucratic costs were also far higher for US doctors and hospitals than for their Canadian counterparts.

Harvard/Public Citizen Report Finds National Health Insurance would Save Enough to Cover All Uninsured

In a second report co-authored with Dr. Sidney Wolfe, director of The Health Research Group, a branch of consumer advocacy organization Public Citizen, researchers adjusted the data to reflect estimates of 2003 spending. Analysis revealed that health bureaucracy now consumes at least $399.4 billion annually and that national health insurance could save about $286 billion in administrative costs. This is equivalent to $6,940 for each of the 41.2 million people uninsured in 2001 (the most recent figure available for the uninsured). In addition to providing health coverage for the uninsured, these savings could provide drug coverage for the nation’s seniors.

The researchers found wide variation among states in the potential administrative savings available per uninsured resident. Texas, with 4.96 million uninsured—nearly one in four Texans—could make available $3,925 per uninsured resident if a national health plan were implemented. Massachusetts, which has very high per capita health administrative spending and a relatively low rate of uninsured, could make available $16,453 per uninsured person.

The high US administrative costs can be attributed to three factors, according to the co-authors. First, private insurers have high overhead in both nations but play a much bigger role in the United States than in Canada. Second, doctors and hospitals in the United States must deal with hundreds of different insurance plans—at least 755 in Seattle alone—each with different coverage and payment rules and referral networks that must be tracked. In Canada, doctors bill a single insurance plan, using a single simple form, and hospitals receive a lump sum budget.

"Only national health insurance can squeeze the bureaucratic waste out of healthcare and use the money to give patients the care they need," said Dr. David Himmelstein, cofounder of Physicians for a National Health Program and lead author of the studies. "Republicans are pushing to move seniors into HMOs, whose overhead is three times higher than Medicare’s. National health insurance could cover everyone without any increase in costs."

Added Wolfe, "These data should awaken governors and legislators to a fiscally sound and humane way to deal with ballooning budget deficits. Instead of cutting Medicaid and other vital services, officials could expand services by freeing up the $286 billion a year wasted on administrative expenses. In the current economic climate, with unemployment rising, we can ill afford massive waste in health care. Radical surgery to cure our failing health insurance system is sorely needed."

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The Harvard study was conducted with grant support from The Robert Wood Johnson Foundation. The Foundation does not endorse the analyses or findings of this report or those of any other independent research projects for which it provides financial support.

Drs. Stefffie Woolhandler and David Himmelstein, Harvard authors of the study, are both Associate Professors of Medicine at Harvard Medical School and co-founders of Physicians for a National Health Program, a 10,000 member organization that advocates for Canadian-style national health insurance in the United States.

ABILITY Magazine does not endorse the analyses or findings of these reports or those of any other independent research projects on which it reports.