Costs of Health Care Administration in the United States and Canada

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Abstract:

Background
A decade ago, the administrative costs of health care 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 health care have decreased
administrative costs.
Methods
For the United States and Canada, we calculated the administrative costs of health insurers,
employers’ health benefit programs, hospitals, practitioners’ offices, nursing
homes, and home care agencies in 1999. We analyzed published data, surveys of physicians,
employment data, and detailed cost reports filed by hospitals, nursing homes,
and home care agencies. In calculating the administrative share of health care spending,
we excluded retail pharmacy sales and a few other categories for which data on administrative
costs were unavailable. We used census surveys to explore trends over time in
administrative employment 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, as compared with $307 per capita in Canada. After exclusions, administration
accounted for 31.0 percent of health care expenditures in the United States
and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance
program had overhead of 1.3 percent; the overhead among Canada’s private insurers
was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers’
administrative costs were far lower in Canada.
Between 1969 and 1999, the share of the U.S. health care labor force accounted for
by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew
from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations’ figures exclude insurance-
industry personnel.)
Conclusions
The gap between U.S. and Canadian spending on health care administration has grown
to $752 per capita. A large sum might be saved in the United States if administrative costs
could be trimmed by implementing a Canadian-style health care system.

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