Idea of the Day: We Need to Reduce Health Care Administrative Costs

June 11, 2012

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Administrative costs in the U.S. health care system consume an estimated $361 billion annually—14 percent of all health care expenditures in our nation. At least half of this spending is estimated to be wasteful. In an era of government budget deficits and rising health care costs, the case for reducing the administrative complexity of health care is compelling. Successful efforts can result in significant financial savings while simultaneously improving system performance indicators and the quality of patient care.

Indeed, stakeholders throughout the U.S. health care system—including health insurance companies, hospitals, physician organizations, labor unions, the pharmaceutical industry, and federal, state, and local governments—all recognize the importance of reducing administrative costs. In recent years, public and private groups have launched a variety of efforts to reduce administrative expenses, many of which, like the Health Insurance Portability and Accountability Act, laid critical groundwork for current initiatives passed under the Affordable Care Act and for future efforts. Yet more remains to be done to lower rising costs.

Administrative costs for private health insurance plans, for example, rose by 117 percent from 2001 to 2010. During this same period, total national health expenditures rose by 74 percent.

In their new paper, "Paper Cuts: Reducing Health Care Administrative Costs," Elizabeth Wikler, Peter Basch, and David M. Cutler outline the nature of administrative costs affecting both health care payers and providers, and consider ways to contain these costs.

For more on this topic, please see:

• Paper Cuts: Reducing Health Care Administrative Costs by Elizabeth Wikler, Peter Basch, and David M. Cutler