Canadian versus USA health care

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The administrative structure of the U.S. health care system consumes a large share of health spending. In 1999, administrative spending consumed at least 31.0 percent of health spending, according to a report in today's New England Journal of Medicine. In contrast, administrative costs in Canada, which has had a national health program since 1971, are about 16.7% of health spending.

In 1969 administrative personnel accounted for 18.2% of the health care work force in the U.S. By 1999 administration's share had risen to 27.3% of total employees - a 50% increase. This figure excludes the 926,000 employees in life/health insurance firms, and 724,000 employed in insurance brokerages. Overall, at least 31.0% of health spending was devoted to administration in the U.S. in 1999.

In contrast, administration's share of health employment in Canada (where a national health program has been in place since 1971) grew only 17% between 1971 and 1986, and has remained virtually unchanged since 1986. In 1996 administrative workers accounted for 19.1% of health employees vs. 27.3% in the late 1990s in the U.S. (both of these figure exclude health insurance company workers, who are far more numerous in the U.S. Administration consumed 16.7% of Canadian health spending
In 2003 bureaucracy will consume at least $399.4 billion ($1,389 per capita) out of total health expenditures of $1,660.5 billion ($5,775 per capita). This estimate is based on the conservative assumption that administrative overhead represents the same share of health spending on hospital care, nursing home care, physicians' services, home care, employers' costs to administer health benefits and insurance overhead now as in 1999 (ie. that administrative costs have not continued to rise). It excludes the administrative costs of health sectors for which administrative cost data were unavailable (e.g. drug stores, ambulance companies, and medical equipment suppliers).

Streamlining administration to Canadian levels would save $286.0 billion in administrative costs in 2003, $982 per capita (see Methodology section for details of calculations
The huge gap in administrative costs between the U.S. and Canada arises from their differing mechanisms of paying for health care. While Canada has a single insurance plan, or "single-payer", in each province that pays the bills for everyone, the U.S. has a complex and fragmented payment structure built around thousands of different insurance plans, each with its own regulations on coverage, eligibility, and documentation.

The participation of private insurers raises administrative costs. The small private insurance sectors in Australia, Canada, Germany, and the Netherlands all have high overheads: 15.8%, 13.2%, 20.4% and 10.4% respectively, far higher than the 1% to 4% overhead of public insurance programs. Functions essential to private insurance but absent in public programs - e.g. underwriting, marketing, and corporate services - account for about two-thirds of private insurers' overhead. In addition, private insurers have incentives to erect administrative hurdles - by complicating and stalling payment they can hold premiums longer, boosting their interest income. Such hurdles also discourage some patients and providers from pursuing claims.

A fragmented payment structure is intrinsically more expensive than a single payer system. For insurers, it means the duplication of claims processing facilities and reduced insured-group size, which increases overhead.

Fragmentation also raises costs for providers who deal with multitudes of different insurance plans - at least 755 in Seattle alone. This means providers must determine each patient's insurance coverage and eligibility for a particular service, and keep track of varying co-payments, referral networks, approval requirements and formularies. In contrast, Canadian physicians send virtually all bills to a single insurer using a simple billing form or computer program, and may refer patients to any colleague or hospital.

The multiplicity of insurers also precludes paying hospitals on a lump sum, or global-budgeted basis as in Canada. Global budgets eliminate most billing, and simplify internal accounting since costs and charges need not be attributed to individual patients and insurers.

Most Canadians and Americans report being in good to excellent health, according to a new survey of health that compares health status and access to health care services between the two nations. However, Canadians with the lowest incomes were less likely to be in fair or poor health and less likely to have reported severe mobility limitations than their American counterparts.
Overall, the vast majority in both countries-88% of Canadians and 85% of Americans-reported that they were in good, very good or excellent health in 2003.
However, the health status of Americans was slightly more polarized. More Americans reported being at either end of the health status spectrum, that is, they were more inclined to report either excellent health, or fair or poor health
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