Health care administrative costs: Canada vs. USA

Healthfacts, Oct, 2003

There's a prevailing assumption that any government-run enterprise is financially inefficient and most private companies are not. It was a recurring theme during the public debates when the Clinton Administration attempted to introduce universal health care coverage. The belief held sway in that era, despite the existence of a 1991 government-initiated survey showing that the administrative costs of Medicare were 3%, as opposed to 25% for private insurance companies.

In the same year, Steffie Woolhandler, MD, MPH, and David U. Himmelstein, MD, reported in The New England Journal of Medicine that people in the U.S. spent about $450 per capita on health care administration in 1987, as compared with Canadians who spent one third as much. (Canada has a national health insurance system that covers virtually everyone.) Now Dr. Woolhandler and Dr. Himmelstein have joined forces with Terry Campbell, MHA, of the Canadian Institute for Health Information, Ottawa, to conduct a comparison study of the costs of health care administration in the U.S. and Canada. They wanted to see whether the introduction of computers, managed care, and more businesslike approaches to health care delivery have decreased the administrative costs in the U.S. The results, published recently in The New England Journal of Medicine (August 21), were not encouraging. In 1999, health administration costs in the USA were $1,059 per capita, as compared with $304 per capita in Canada. As for individual doctors, their administrative costs were far lower in Canada.

Steffie Woolhandler, MD, MPH, and colleagues concluded, "The gap between U.S. and Canadian spending on health care administration has grown to $755 per capita. A large sum might be saved in the U.S. if administrative costs could be trimmed by implementing a Canadian-style health care system."

Interestingly, Dr. Woolhander and colleagues wrote that their estimates actually understate the overhead costs of both nations because they excluded the marketing costs of pharmaceutical firms, the value of patients' time spent on filling out medical forms, and most of the cost of advertising by providers, health care industry profits, and lobbying and political contributions. They note that their analysis also omits the costs of collecting taxes to fund health care and the administrative overhead of such businesses as retail pharmacies and ambulance companies.