Category Archives: Administrative Costs

The Fundamental Problem at the Heart of American Health Insurance

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Administrative waste, denials, and deadly incentives — the U.S. model shows what happens when profit rules.

The United States is the only country where a health insurance executive has been gunned down in the street. But that’s not the only thing that’s unique about American health insurance.

Almost all of our peer countries – advanced, free-market democracies — have health insurance companies. In some cases (Germany, Switzerland, Japan), private health insurance is the chief way to pay for medical care. In others (such as Great Britain), private insurance works as a supplement to government-run health care systems. But there’s a fundamental difference between health insurance elsewhere and the U.S. system. 

In all the other advanced democracies, basic health insurance is not for profit; the insurers are essentially charities. They exist not to pay large sums to executives and investors, but rather to keep the population healthy by assuring that everyone can get medical care when it’s needed. 

America’s health insurance giants are profit-making businesses. Indeed, in the insurers’ quarterly earnings reports to investors, the standard industry term for any sums spent paying people’s medical bills is “medical loss.” They view paying your doctor bill as a loss that subtracts from the dividends they owe their stockholders. 

When I studied health care systems around the world, I asked economists and doctors and health ministers why they want health insurance to be a nonprofit endeavor. Everyone gave essentially the same answer:

There’s a fundamental contradiction between insuring a nation’s health and making a profit on health insurance.

Health insurance exists to help people get the preventive care and treatment they need by paying their medical bills. But the way to make a profit on health insurance is to avoid paying medical bills. Accordingly, the U.S. insurance giants have devised ingenious methods for evading payment — schemes like high deductibles, narrow networks of approved doctors, limited lists of permitted drugs, and pre-authorization requirements, so that the insurance adjuster, not your doctor, determines what treatment you get. 

Other countries don’t allow those gimmicks. In America, the patient pays twice — first the insurance premium, and then the bill that the insurer declines to pay. That’s why Americans hate health insurance companies — as reflected in the tasteless barrage of angry social media commentary aimed at the victim, not the perpetrator, of the sidewalk shooting in 2024  of UnitedHealthcare’s CEO Brian Thompson in New York City. 

Another unique aspect of U.S.-style health insurance is the huge amount of money our big insurers waste on administrative costs. Any insurance plan has administrative expenses; you’ve got to collect the premiums, review the patients’ claims, and get the payments out to doctors and hospitals.

In other countries, the administrative costs are limited to about 5% of premium income; that is, insurers use 95% of all the money they take in to pay medical bills. But the U.S. insurance giants routinely report administrative costs in the range of 15% to 20%.

When the first drafts of the Affordable Care Act (“Obamacare”) were floated on Capitol Hill in 2009, the statutory language called for limiting insurers’ admin costs to 12% of premium income. Then the insurance lobby went to work. The final text of that law allows them to spend up to 20% of their income on salaries, marketing, dividends, and other stuff that doesn’t pay anybody’s hospital bill. 

There is one American insurance system, however, that is as thrifty as foreign health insurance plans. Medicare, the federal government’s insurance program for seniors and the disabled, reports administrative costs in the range of 3% — about one-fifth as much as the big private insurers fritter away. And Medicare’s administrators — federal bureaucrats — are paid less than a tenth as much as the executives running the far less efficient private insurance firms. 

Americans generally believe that the profit-driven private sector is more efficient and innovative than government. In many cases, that’s true. I wouldn’t want some government agency designing my cell phone or my hiking boots.

But when it comes to health insurance, all the evidence shows that nonprofit and government-run plans provide better coverage at lower cost than the private plans from America’s health insurance giants.

If we were to make basic health insurance a nonprofit endeavor, as it is everywhere else, or put everybody on a public plan like Medicare, the U.S. would save billions and improve our access to life-saving care. Then Americans might stop celebrating on social media when an insurance executive is killed. 

Prior authorization found to reduce healthcare spending efficiently

Posted on by • Posted in Administrative Burden, Administrative Costs, Medicare Part D, National Bureau of Economic Research, Physician, Prior Authorization • Leave a comment

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A working paper published this week by the National Bureau of Economic Research found that prior authorization requirements reduced drug spending far more than they increased physicians’ administrative costs. 

Using a random assignment of plans within Medicare Part D’s low-income subsidy program, the study determined that a prior authorization requirement decreased a drug’s utilization by just over 25 percent, with around half of denied beneficiaries opting for a comparable alternative and the other half receiving no drug at all. This generated $96 in per-beneficiary-per-year savings, which the authors estimate to be around 10 times greater than the administrative costs incurred.  

The Gist: Physician groups have long despised prior authorization processes, listing it as their most burdensome regulatory issue. While studies like this are useful for demonstrating the returns from these processes and putting the tradeoffs in perspective, they fail to account for who is bearing the burden of the time spent, and who captures the cost savings: physicians bear the administrative costs, and payers capture the returns. Not to mention that worried patients, anxious to receive treatment, are often put in the position of “quarterbacking” a convoluted and bureaucratic appeals process. 

Ongoing work should focus on streamlining authorizations, to lessen the impact on physicians’ time and satisfaction, and make navigating the process simpler for patients. An increasing array of technology options aims to solve this problem though automation, but the challenge remains for payers and providers to come together to deliver on that potential.

Hospitals living paycheck to paycheck, unable to make long-term investments

Posted on by • Posted in Administrative Complexity, Administrative Costs, Administrative Workload, Health System, Hospital, Hospital Industry, Leadership Excellence, Resilient Teams, Smarter Technology, Talent Acquisition Strategy, Talent Competition, Talent Identification, Talent Imperative, Talent Management, Talent Pipelines, Workforce Challenges, Workforce Crisis, Workforce Executives, Workforce Providers • Leave a comment
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Healthcare added almost 45,000 jobs in November, but many hospitals and health systems will continue to struggle to meet staffing needs, retain top executives and providers, and foster long-term pipelines for talent, Ted Chien, president and CEO of independent consulting firm SullivanCotter, wrote in a Dec. 15 article for Nasdaq.

Hospitals and health systems are living “paycheck to paycheck” and unable to make long-term investments at the height of the current workforce crisis, Mr. Chien said.

The challenge boils down to a healthcare delivery problem, not a demand problem. 

Baby Boomers are the greatest source of care demand on the healthcare system, but are unable to contribute to the provider workforce in the numbers needed to achieve balance, according to Mr. Chien. To compound that issue, burnout is a major factor why “too many” frontline workers have left or plan to exit healthcare, he said. 

Last year, an estimated 333,942 healthcare providers dropped out of the workforce, including about 53,000 nurse practitioners, which has led hospitals to spend more on contract labor and feeling more pressure to consolidate, according to an October report published by Definitive Healthcare.

Long term, a continued lack of healthcare workers would force hospitals to operate in a heightened crisis mode, according to Mr. Chien, depriving non-critical patients of sufficient health prevention and demanding too much of providers who are already overly taxed. 

Mr. Chien highlighted three key areas to tackle the workforce crisis: smarter technology, resilient teams and excellent leadership. 

Technologies that alleviate providers’ administrative burdens will be critical to reduce burnout and keep caregivers focused on patient care, while smarter tech can also forge pipelines for future providers by streamlining clinical experience operations and aligning student placements with existing opportunities.

Building resilient teams begins with competitive pay and robust benefit packages, which fosters trust and demonstrates that a hospital values its staff, according to Mr. Chen. Supporting career growth, including upskilling and redeploying staff when appropriate, empowers employees.

Lastly, capable executive leadership teams, under intense scrutiny from industry stakeholders, must clearly outline their hospital or health system’s strategy and provide the change needed to support their staff. Lack of trust in leaders drives staff out of healthcare, so it is crucial to recruit and retain “modern, strategic thinkers with depth of experience who are prepared to lead,” Mr. Chien wrote. 

Click here to read the full article.

U.S. health care costs a lot, and not just in money

Posted on by • Posted in Administrative Complexity, Administrative Costs, Barriors to Entry, Deferred Healthcare, Health Equity, Health Inequity, Health Insurance Coverage Adequacy, Health Policy • Leave a comment
U.S. health care costs a lot, and not just in money
Administrative Burden | RSF

Health spending in the United States is highest in the world, driven in part by administrative complexity. To date, studies examining the administrative costs of American health care have primarily focused on clinicians and organizations—rarely on patients.

A new study in Health Services Research finds administrative complexity in the U.S. health care system has consequences for access to care that are on par with those of financial barriers like copays and deductibles. In other words, we pay for health care in two ways: in money and in the hassle of dealing with a complex, confusing, and error-riddled system. Both are barriers to access. The study was led by Michael Anne Kyle, and coauthor, Austin Frakt.

Main Findings

  • Nearly three-quarters (73%) of people surveyed reported doing at least one health care-related administrative task in the past 12 months. Such administrative tasks include: appointment scheduling; obtaining information from an insurer or provider; obtaining prior authorizations; resolving insurance or provider billing issues; and resolving premium problems.
  • Administrative tasks often impose barriers to care: Nearly one-quarter (24.4%) of survey respondents reported delaying or foregoing needed care due to administrative tasks.
  • This estimate of administrative barriers to access to care is similar to those of financial barriers to access: a 2019 Kaiser Family Foundation survey, found that 26% of insured adults 18-64 said that they or a family member had postponed or put off needed care in the past 12 months due to cost.
  • Administrative burden has consequential implications for equity. The study finds administrative burden falls disproportionately on people with high medical needs (disability) and that existing racial and socioeconomic inequities are associated with greater administrative burden.

Methods

To measure the size and consequences of patients’ administrative roles, we used data from the nationally representative March 2019 Health Reform Monitoring Survey of insured, nonelderly adults (18-64) to assess the annual prevalence of five common types of administrative tasks patients perform: (1) appointment scheduling; (2) obtaining information from an insurer or provider; (3) obtaining prior authorizations; (4) resolving insurance or provider billing issues; (5) and resolving insurance premium problems. The study examined the association of these tasks with two important measures of their burden: delayed and forgone care.

Conclusions

High administrative complexity is a central feature of the U.S. health care system. Largely overlooked, patients frequently do administrative work that can create burdens resulting in delayed or foregone care. The prevalence of delayed or foregone care due to administrative tasks is comparable to similar estimates of cost-related barriers to care. Administrative complexity is endemic to all post-industrial health systems, but there may be opportunity to design administrative tools with greater care to avoid exacerbating or reinforcing inequities.

Reducing Administrative Costs in US Health Care: Assessing Single Payer and Its Alternatives

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Reducing Administrative Costs in US Health Care: Assessing Single Payer and Its Alternatives

Administrative costs in the US healthcare system are known to be higher than those in any other country, even than other countries with private health insurance systems. There also is widespread agreement the excessive US costs generate little, if any, value, and that they impose a tremendous burden on physicians. With administrative costs even for primary care services approaching $100,000 per year per physician, there is a growing recognition that reducing healthcare-related administrative costs is a policy priority.

Despite the longstanding concerns about these escalating costs, there is little understanding of what generates them and how we can reduce them. To the degree there has been any academic inquiry into administrative costs imposed on US providers, it has compared them to the much lower costs in other countries with nationalized systems. These comparisons are unflattering to the US system and are designed to encourage wholesale healthcare reform.

Our paper published in Health Services Research begins at the retail level, focusing on the specific administrative costs inflicted by our payment system on providers. We examine the complex contractual arrangements between insurers and physicians and measure the efforts that physicians must endure to get paid.  It then offers a simulation model to estimate how certain policy reforms would result in nationwide administrative savings.

Currently, each health plan and each physician or physician group (and each hospital) negotiates over a contract for services on a periodic basis. Our analysis examines three separate costs that result from this type of market structure: architectural costs (the enormous number of contracts that are generated annually to provide services to patients), contractual complexity (the difficulty of following all of the requirements of each agreement to receive payment), and compliance costs (the costs of not following the rules in submitting a bill).

Based on this framework, we ask two questions: First, what if physicians entered into simpler contracts with insurers? And second, what if physicians (who accept patients with many kinds of insurance) agreed to a single boilerplate contract with all insurers rather than individualized contracts with each insurer? Put more simply, what if contracts were simpler and standardized?

Our simulation predicts that simplifying contracts would reduce billing costs by nearly 50%, standardizing contracts would reduce those costs by about 30%, and both simplifying and standardizing contracts would reduce those costs by over 60% percent.

We then used the model to estimate administrative cost savings from a single payer “Medicare-for-All” model. Consistent with claims made by advocates for nationalized health insurance, we estimate that a Medicare-for-All plan would reduce administrative costs between 33-53%, largely by standardizing contracts. But these cost savings are less than those generated from standardizing and simplifying contracts within our current system of private health insurance because we modeled that a Medicare-For-All plan would retain Medicare’s complex payment models and have increased compliance costs compared to private payers.

We think this is good news. Though we find that a single-payer system will reduce certain administrative costs, we also find that reforms to our current multi-payer system could generate at least as great a reduction.

There might be benefits to pursuing national health reform, but we can reduce burdensome administrative costs through much simple and less disruptive paths.  The even better news from this study is that we can now have a more precise understanding of where administrative costs arise in our health system, and we have the means to evaluate the effects of other kinds of reforms. Understanding is the prerequisite to reforming.