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Administrative Healthcare costs in the U.S. are way higher than Canada’s and here’s why

Even though, United States is equipped with cutting edge technology and qualified doctors, the health care cost is extremely high – to be precise, 5 times higher than Canada’s health care administrative costs. Where it’s $550 in Canada, it’s $2500 in U.S.

According to a study published in Annals of Internal Medicine on Monday, the administrative costs in the U.S. are approximately 34% of the entire expenditure on health care. In comparison, for Canada, the percentage is almost half.

Over the last 20 years, the costs have skyrocketed, primarily because of the increase in overhead of private insurers.  Based on 2017 data, a group of researchers concluded that if U.S. had matched the administrative costs of Canada, it would’ve managed to save $600 billion per annum.

According to Dr. David Himmelstein, professor at the CUNY School of Public Health at Hunter College, “The difference [in administrative costs] between Canada and the U.S. is enough to not only cover all the uninsured but also to eliminate all the copayments and deductibles, and to amp up home care for the elderly and disabled, and frankly to have money left over.”

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The research shows that per capita spending on healthcare in U.S. is five times for than the expenditure in Canada. In 2017, the costs were approximately $812 billion, making it around $2497 per capita. On the contrary, the costs in the neighboring country was $551 per head.

According to Abigail Abrams, a politics writer for TIME, “Insurers’ overhead, the largest category, totalled $275.4 billion in the U.S. in 2017, or 7.9% of all national health expenditures, compared with $5.36 billion in Canada, or 2.8% of national health expenditures. The American number included $45 billion in government spending to administer health care programs and $229.5 billion in private insurers’ overhead and profits, which covers employer plans and managed care plans funded by Medicare and Medicaid.”

One of the significant reasons behind the cost difference is the use of ‘disparate system of private providers and insurers’, by the United States. Most developed countries use ‘single-payer systems’, which are more effective in keeping the costs and expenses in check.

Centre for American Progress, a report published in April 2019, gives pointers for how to reduce the administrative costs, without shifting to the ‘single-payer system’. However, according to Himmelstein, the shift is still the optimal solution to the problem at hand. He talked about his study, saying, “We could streamline the bureaucracy to some extent with other approaches, but you can’t get nearly the magnitude of savings that we could get with a single payer. If the Medicare public option includes the Medicare Advantage plans, it’s actually conceivable that the public option would increase the bureaucratic costs.”

Himmelstein used the 2017 data while conducting the study, but 2018 numbers have come out and have shown a higher insurance overhead than the previous years. He said, “We can afford universal coverage with a single payer plan, not just universal coverage but first dollar coverage for everybody in our country if we adopted a single-payer Medicare for all approach. If you’re going to cover everybody without getting those savings you’re going to have to spend more or you’re going to have to have big co-payments and deductibles that deter people from getting the care that they actually need.”


Mariyam Tanveer

Recently graduated from LUMS, I now work as Researcher and a Freelance Writer on Ask Health News

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