Administrative costs in selected industrialized countries - Special Report

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

Policies to restrain the growth in health expenditures have involved computerization of billing and records, use of "smart" cards, and auditing of administrative expenses, all of which are aimed at reducing the relative weight of administrative costs. In France, the sickness insurance bodies (Caisses Primaires d'Assurance Maladie) reduced their number of employees by 5 percent from 1980 to 1990, a decade during which expenditures increased by 1.3 percentage points of GDP. Through attrition, a further reduction of 15-20 percent of health administration employment is expected during the 1990s.(1) This is not a unique illustration of the streamlining of administrative procedures observable in Europe.

Per capita measures

Broadly similar levels in the share of health expenditures attributable to paperwork, management, monitoring, and regulation mask huge differences in the actual dollar expenditures. This is because of differences in the wealth of nations, and thus their ability to pay for health care, and because of differences in the propensity to consume medical care. Table 2 compares the per capita spending for health administration converted to U.S. dollars using purchasing power parities (PPPs).(2) [TABULAR DATA 2 OMITTED]

The United States, with the highest income per capita in the OECD (Table 2, leftmost column) and with health expenditures exceeding the nearest country's per capita by approximately $800 (measured in PPPs), spends approximately $150 per person for health administration. In Germany, where GDP per capita stands at 84 percent of the U.S. level and health expenditures per capita at 58 percent of the American level, recorded administrative outlays of $102 per person equal 68 percent of the comparable U.S. level. In the Netherlands, GDP per capita stands at 72 percent of the American level, health expenditures at 50 percent, and administrative outlays are 45 percent of those in the United States.

The public expenditure estimate for the United States in the rightmost column of Table 2 is not based on the total population but rather on the elderly, the needy, veterans, and other small segments of the population. If the levels shown in Table 2 are plausible, Germany, the Netherlands, and the United States would be in a league of their own. These data confirm that countries with segmented sources of insurance pay for their flexibility through higher administrative costs. Compare, for example, Canada, with its GDP per capita equal to 87 percent of the U.S. level, health expenditures at 69 percent, and recorded administrative outlays at 15 percent of U.S. levels. As hinted above, this correlation would appear stronger still if the French data reflected true costs. It is perhaps useful to note that the reforms initiated in the late 1980s and early 1990s in Germany, the Netherlands, France, and the United Kingdom explicitly address administrative efficiency.

The nature of the various regulatory instruments adopted by these countries reflects the strong intercountry differences in their administrative expenditures.