Yesterday, I
diaried on the reasons that private insurers incur greater administrative costs than Medicare. In a nutshell, it's because they spend administrative effort to reduce patient care expenditures. Even ignoring profit, reducing money spent on patient care can be worth it if the savings exceeds the administrative effort to get it. Often that includes a big underwriting effort - deciding whom to cover in the first place.
What isn't observed as often is the administrative costs borne by health care providers themselves: physicians and hospitals.
My own practice is almost entirely patient paid. The sorts of procedures my partners and I do aren't covered by most insurance. Even in our practice, though, there are administrative costs related to collection and financing. I talked to our admin people today and they tell me it runs about eight percent. That's quite low.
A
thorough study of the California insurance market, used to advocate the
California Single Payer Health Care Bill, suggests that the average administrative cost for physicians is closer to twelve percent, and that hospitals take nearly another nine percent. All of these numbers are normalized to
total health care spending rather than to premium revenue or some other figure.
At the federal level, the implication is remarkable: Referencing pages 16 and 30 of the study I linked above, I get the following results for system-wide cost savings, accepting the study's results for single-payer savings as representative of what might be achieved nationwide if California is representative of the nation as a whole.
Table of administrative cost savings
| Billions | | Percent of total |
| Now | Single Payer | Now | Single Payer |
Insurers | 127.6 | 39.2 | 7.6% | 2.3% |
Physicians | 200.5 | 140.4 | 11.9% | 8.4% |
Hospitals | 149.5 | 116.7 | 8.9% | 6.9% |
Savings | | 181.4 | | 10.8% |
My conclusion is that under a single payer system, administrative cost savings alone could account for about $4,500 per uninsured American - nearly enough to provide universal coverage.