Administrative costs in selected industrialized countries - Special Report

Health Care Financing Review, Summer, 1992 by Jean-Pierre Poullier

Introduction

Outside the United States, the cost of health care administration--of planning, regulating, and evaluating health systems--is hardly an area of academic research or public debate, except at the periphery of studies of the strengths and weaknesses of alternative financing and delivery approaches. The dearth of good evaluative studies of administrative costs in Europe and Japan exemplifies this lower level of interest in this issue. Much of the debate on administrative cost can best be labeled as "measurement without theory," and available measures of expenditure for health administration are full of opportunities for misunderstanding in the levels they exhibit.

Neglected accountability

Health accounting in general, aside from international comparisons, has long been underdeveloped. In the mid-1970s, only a handful of countries published reasonably comprehensive, consistent, and systematic accounts of health spending, despite the fact that this spending was even then becoming one of the largest expenditures in the industrialized countries. Health expenditures have since increased on average by more than one-third in relative terms. Health accounting has dramatically improved in many countries but, in 1992, there are still unconsolidated accounts of health systems in many industrialized nations. Accounts monitoring the level of resources consumed by health providers across countries are for practical purposes only accessible through an international source (Organization for Economic Cooperation and Development, 1985, 1987, 1991, 1992b; Schieber and Poullier, 1989). Access to quantitative descriptions of the health systems of other countries may not suffice, as each system is the product of cultural and socioeconomic forces. Individual country monographs could fill several bookshelves, although studies that simultaneously study a large number of countries are relatively rare. Interested readers may wish to turn to Schieber, Poullier, and Greenwald (1991) and Organization for Economic Cooperation and Development (1987).

In the statistical jungle to be traversed to produce these comparative accounts, outlays specifically for administration receive scarcely more attention than in analytical studies. An objective reason behind this neglect is probably the absence of an accepted definition of expenditures for health administration.

At the international level, the operational concept employed is that of the national health accounts (NHA) of the United States. Through NHA articles published yearly, the Health Care Financing Review has become the vehicle by which American accounting procedures have influenced much of the comparative international developmental effort in health measurement.

In the U.S. NHA, administration is the "net cost of health insurance," i.e., administration of private and public programs, plus net additions to loss reserves, and net underwriting gains or losses of private insurers. Private administration comprises sales, underwriting, enrollment and policy service, claim adjudication, utilization review, actuarial functions, legal support services, investment functions, corporate overhead, and risk charges (adapted from Waldo, 1992). Public administration comprises planning, regulation, monitoring, and evaluation, as well as implementation and managerial costs of Federal, State, and local government programs, principally Medicare, Medicaid, and various Public Health Service activities. Outlays for administration do not include the administrative costs of providers, opportunity costs of paperwork for consumers, unallocable administrative costs such as general governmental functions and general revenue tax collection. Also not included under administration are costs of government research on health expenditures. For example, at the beginning of 1992, the Congressional Budget Office, three out of the U.S. General Accounting Office's four divisions, the Office of Management and Budget, the National Science Foundation, and numerous private health institutions not primarily dedicated to health were involved in substantive health research programs.

Complicating the clear delineation of the boundaries of health administration even more, many programs that have a beneficial impact on health originate in the areas of consumer protection, education, environmental protection, housing, transportation, public safety, etc. Furthermore, in many countries, the funding and provision of health services are intertwined with those of other social welfare and security programs, making it effectively impossible to separately allocate health administration costs.

The prevailing concepts of health administration in other industrialized countries, although influenced by the American concept, reflect the large array of services supplied by government agencies at all levels, by private insurers, and by charities and non-profit institutions. Services provided include the general administration functions cited (planning, monitoring, evaluation), the issuance of insurance contracts, some revenue collection, and claims reimbursement. Hospital and private practice billing are not included under general administration but are considered a cost of doing business. Research and development, as well as capital investment in construction and equipment or supplies are not included. Queuing and other non-monetary costs that may result from particular financing and delivery arrangements are also not included. Thus, concepts of health costs may more accurately reflect each country's ideal framework rather than a fully operational definition.