$375 billion wasted on billing and insurance paperwork

BMC Health Services Research
Online November 13, 2014
Billing and insurance-related administrative costs in United States'
health care: synthesis of micro-costing evidence
By Aliya Jiwani, David Himmelstein, Steffie Woolhandler and James G Kahn

Abstract

Background: The United States' multiple-payer health care system
requires substantial effort and costs for administration, with billing
and insurance-related (BIR) activities comprising a large but
incompletely characterized proportion. A number of studies have
quantified BIR costs for specific health care sectors, using
micro-costing techniques. However, variation in the types of payers,
providers, and BIR activities across studies complicates estimation of
system-wide costs. Using a consistent and comprehensive definition of
BIR (including both public and private payers, all providers, and all
types of BIR activities), we synthesized and updated available
micro-costing evidence in order to estimate total and added BIR costs
for the U.S. health care system in 2012.

Methods: We reviewed BIR micro-costing studies across healthcare
sectors. For physician practices, hospitals, and insurers, we estimated
the % BIR using existing research and publicly reported data,
re-calculated to a standard and comprehensive definition of BIR where
necessary. We found no data on % BIR in other health services or
supplies settings, so extrapolated from known sectors. We calculated
total BIR costs in each sector as the product of 2012 U.S. national
health expenditures and the percentage of revenue used for BIR. We
estimated "added" BIR costs by comparing total BIR costs in each sector
to those observed in existing, simplified financing systems (Canada's
single payer system for providers, and U.S. Medicare for insurers). Due
to uncertainty in inputs, we performed sensitivity analyses.

Results: BIR costs in the U.S. health care system totaled approximately
$471 ($330 – $597) billion in 2012. This includes $70 ($54 – $76)
billion in physician practices, $74 ($58 – $94) billion in hospitals, an
estimated $94 ($47 – $141) billion in settings providing other health
services and supplies, $198 ($154 – $233) billion in private insurers,
and $35 ($17 – $52) billion in public insurers. Compared to simplified
financing, $375 ($254 – $507) billion, or 80%, represents the added BIR
costs of the current multi-payer system.

Conclusions: A simplified financing system in the U.S. could result in
cost savings exceeding $350 billion annually, nearly 15% of health care
spending.

From the Discussion

Eliminating added BIR costs of $375 billion per year (14.7% of US health
care spending) would provide resources to extend and improve insurance
coverage, within current expenditure levels. Since uninsured individuals
have utilization of about 50% of insured individuals, the current 15%
uninsured could be covered with roughly half of the $375 billion.
Remaining savings could be applied to improved coverage for those
already insured.

http://www.biomedcentral.com/content/pdf/s12913-014-0556-7.pdf

PNHP release: $375 billion wasted on billing and health
insurance-related paperwork annually: study
http://www.pnhp.org/news/2015/january/375-billion-wasted-on-billing-and-health-insurance-related-paperwork-annually-stud

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Comment by Don McCanne

Previous studies have demonstrated the waste of billing and
insurance-related functions in health care in United States. This study
refines and unifies the estimates of these costs and shows how much
could be recovered if we were to switch to a simplified financing system
such as Canada's single payer system for providers, and U.S. Medicare
for insurers. The $375 billion recovered would be enough to cover the
uninsured and bring the coverage for the underinsured up to standard.

The PDF of the full study is available through open access at the
biomedcentral link above. It should be filed under landmark articles in
every health policy library.