What will Lowering Administrative Costs Achieve?

2007 data collected by the National Health Statistics Group revealed the United States spent $155.7 billion on the administration of both public and private insurance programs. These costs encompass the costs of claim processing, underwriting, marketing, profits, and other administrative costs. The Public programs spent 48% ($59.5 billion) and the Private programs spent 62% (96.2 billion). Extrapolating from information provided by the Commonwealth Fund Commission in 2005 comparing the US administrative costs to that of our international counterparts, we appear to be running about 3% above what might be considered "best of class" on an international level. Hence, using 2007 figures, we can possibly save $4-5 billion in administrative costs through better consolidation efficiencies, simplier benefit designs, and lowering profit expectations. In an economic space occupying approximately $2.6 trillion of annual expenditures, this is chump change!

Proponents of lowering costs through consolidation of the insurance industry and moving toward a single payer model quickly point to the benefit of lowering administrative costs at the provider level, arguably higher because of the inefficiencies of working with multiple payers and multiple benefit designs. I simply could not find any good information on this piece of the puzzle. That said, these savings would lower the medical spend in the insurance industry which has not been the primary point of attack in the current National debate.

The United States is either blessed or cursed with a vast array of choice regarding who administers insurance benefits and how benefits are designed. For many years companies have increasingly moved toward self-funded benefit platforms in an effort to have more control of benefit design, offer the same benefit across state lines for all employees, and to avoid some of the mandatory benefits that are passed to fully-insured benefit platforms by government regulators. At the end of the day, the private employer focus has been to find ways to lower cost and make this major expense line more predictable from year to year. There is clearly an administrative cost to work with employers in finding the best fit and helping to educate the workforce as to the options available. While imperfect and frought with inefficiency and waste, it is not clear to this blogger that moving toward a single payer model or a single benefit design will achieve much toward lowering administrative spend in the insurance industry, and likely will increase the medical spend. For employers, the collaboration that occurs and is costed out in the administrative spend seems small compared to the likly increase in costs of a "one size fit's all" insurance program for the US.

Thoughts?