One Reason U.S. Healthcare is So Expensive – Too Many Insurance Companies

A single-payor system of healthcare insurance such as Canada uses has tremendous efficiency advantages.  Contrary to how many U.S. politicians and media types describe it, Canada does not have a government-run healthcare system.  What Canada has is a government-run and government-funded healthcare insurance system.  Doctors and hospitals still compete with each other.  They still operate and manage their own practices and businesses just like in the U.S.  What they don’t do is employ large numbers of people just to shuffle paper and fill out myriad different forms for myriad different sets of rules by insurers.  They have a single system. It works.

How well does the system work?  Well a study published in Health Affairs reports that the average Canadian doctor spends nearly $61,000 less on administrative paperwork than their American counterparts.  That’s a savings of over $27 billion.  Sometimes the free market comes with a very hefty bureaucratic surcharge.  From the study announcement:

 U.S. physicians spend nearly $61,000 more than their Canadian counterparts each year on administrative expenses related to health insurance, according to a new study by researchers at Cornell University and the University of Toronto.

The study, published in the August issue of the journal Health Affairs, found that per-physician costs in the U.S. averaged $82,975 annually, while Ontario-based physicians averaged $22,205 – primarily because Canada’s single-payer health care system is simpler.

Canadian physicians follow a single set of rules, but U.S. doctors grapple with different sets of regulations, procedures and forms mandated by each health insurance plan or payer. The bureaucratic burden falls heavily on U.S. nurses and medical practice staff, who spend 20.6 hours per physician per week on administrative duties; their Canadian counterparts spend only 2.5 hours.

“The magnitude of that difference is what is interesting,” said co-author Sean Nicholson, Cornell professor of policy analysis and management in the College of Human Ecology. “It’s the nurse time and the clerical time, rather than physician time, that’s different. That’s driving the increased costs.”

The authors offer ideas U.S. policymakers and health insurers could use to streamline inefficiencies and reduce administrative costs. Chief among them: standardize transactions and conduct them electronically. Physical mail, faxes and telephone calls can slow practices down, according to Nicholson. The result is an additional $27 billion spent every year in the U.S. when compared to the costs incurred by physicians in Canada

Hat tip to Brad Delong for finding this.

2 thoughts on “One Reason U.S. Healthcare is So Expensive – Too Many Insurance Companies

  1. Also from politifact

    “There’s a 1.5 percent to 2 percent overhead in Medicare,” Boxer said during an interview with MSNBC’s Chris Matthews on May 24, 2011. “The insurance companies have a 20 percent to 30 percent overhead.”
    However, the administrative burden for private plans get more complicated the deeper you dig. There are large variations between different types of insurance plans. The data cited by CBO found that administrative costs were about 7 percent for employers with at least 1,000 employees, but 26 percent for firms with 25 or fewer employees. Meanwhile, in the individual insurance market — that is, plans secured by individuals on their own, rather than through an employer — the rate was nearly 30 percent, CBO said.

    These costs are in addition to the costs that you have talked about.

    • This is also why ObamaCare will be extremely profitable for the insurance companies, and will also impoverish the American small business, the middle class and the poor.

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