Health insurance paperwork wastes $375 billion

And you thought your bills were out of control.

The United States health-care system wastes an estimated $375 billion annually in billing and insurance-related paperwork that could be saved if the nation moved from a "multipayer" health coverage system to a "single-payer" system run by the government, a new study says.

That dollar figure, tied to getting people, insurance companies and governments to pay for health-care services provided, equals almost 15 percent of total national health-care spending.

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"We all sort of suspected there was quite a big number, but when we came down to the actual figure it was certainly revealing," said Aliya Jiwani, health policy researcher and lead author of the report, which was published by the journal BMC Health Services Research.

Jiwani said that while "the administrative costs have been an issue" in the health-care world for years, "the fixes that have been put in place have only aggravated the issue."

In fact, the paper notes that "administrative costs as a percentage of total care health care spending more than doubled from 1980 to 2010."

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The authors of the paper write that the savings from eliminating trillions of dollars in administrative waste over the years "could cover all of the uninsured" people currently in the U.S. if a single-payer system were adopted. They estimate the cost of covering all of the roughly 40 million Americans still lacking health insurance would be equal to just about half of the $375 billion in projected savings.

The balance of those savings, they write, could "upgrade coverage for the tens of millions who are under-insured."

While the paper identified a very big number of wasted dollars, it remains a big question of whether that could lead to a single-payer system anytime soon.

Congress has not seriously considered a single-payer system for the entire nation, such as one that could take the form of Medicare, the federally run program that covers Americans age 65 and over. Vermont recently scrapped its plan to move to the entire state to a single-payer system because the estimated costs were too high.

And the Affordable Care Act remains relatively unpopular in national opinion polls even as it offers federal subsidies, or tax credits, to help people sign up in private individual insurance plans sold on government-run exchanges.

Ed Haislmaier, a senior research fellow of health policy studies at the conservative Heritage Foundation, said "there's a whole lot of reasons" not to move to a single-payer model.

"Basically, you're allocating health-care resources based on politics and not necessarily on needs, and that ends up introducing all kinds of inequities and inefficiencies into the system," Haislmaier said. "The thinking is you want to provide a system that provides better values. ... You're not going to achieve that through government administration, you're only going to achieve that through a competitive private model" in which superior providers are given more customers and consumers get lower prices, he said.

However, the authors of the paper say switching to a single-payer model contains a potentially large financial incentive by shedding much of the administrative costs of the current system.

Those costs stem from the complexity of the system's billing and insurance apparatus, in which health services are paid for by employer-sponsored insurance plans, individual private insurance plans and government-run programs such as Medicare and Medicaid. Individuals also foot part of the bills in the form of deductibles and other cost-sharing.

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"In the U.S. multipayer system, insurers' coverage, billing and eligibility requirements often vary greatly, requiring providers to incur added administrative cost," the paper said.

The paper calculates that billing and insurance-related costs, or BIR, totaled $471 billion in 2012.

That total includes a whopping $198 billion in BIR costs from private insurance companies, and more than $70 billion apiece from hospitals and physician practices. The "other health services and suppliers" sector spent $94 billion in BIR costs, and public insurers spent $35 billion, the paper said.

Of the total of $471 billion in BIR, an estimated $375 billion—or 80 percent—is "additional spending" that would be eliminated by "a simplified financing system" such as single-payer, the report said.

Paper co-author Dr. David Himmelstein said "you could save vast amounts if you just rationalize the health insurance system and eliminate the waste that we have."

"We have a variety of other nationals that run their systems without the enormous complexity. ... We know that it can done," said Himmelstein, a practicing physician who teaches at Hunter College in New York and co-founded the Physicians for a National Health Program, which advocates for a single-payer system.

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The paper comes at a time of continued debate over the ACA, whose goals include reducing the rate of health-care inflation. While that rate has slowed in recent years, health-care spending is still growing faster than wages. And recent research has shown that even as insurance premiums have been growing at slower rates in employer-sponsored plans, people in those plans have been bearing a greater share of the costs of such insurance.

Himmelstein said that by relying on private insurance to deliver health coverage to millions of people, the ACA has not alleviated the problem of inefficient administrative costs that stem from a multipayer system.

And, he said, "it's layering on a whole new layer of bureaucracy with these exchanges." Himmelstein pointed to research that estimates that the government-run exchanges, or marketplaces, have added "about 2 to 3 percent of insurance overheard to the cost" of plans.

Despite the fact that Himmelstein is convinced of the wisdom of switching to a single-payer system, he also said "I don't think we'll see it in the next two years," that is, before the next presidential election.

But Himmelstein said that a return to high rates of health-care inflation, and the continued difficulty many have paying their medical bills even with insurance, could generate wider support for the idea.

"I think we're going to see a resurgence of debate about what we're going to do," he said. "There's not a huge trick to fixing this."

However, the Heritage Foundation's Haislmaier said that even if one accepts the estimates of savings in the paper, "the savings do not come anywhere near what you'd have to come up with for effectively nationalizing the system."

"You would still, as a practical matter, and this is a problem that Vermont ran into, tax people substantially," Haislmaier said. "At the end of the day, as a practical matter, I don't see them having the ability to sell the necessary tax increases."

Haislmaier also noted that not all administrative billing and insurance-related costs are bad.

"Some are good," he said, pointing to how such mechanisms in the private sector can ensure that procedures are warranted before they're paid for.

In contrast, Haislmaier said, the government-run Medicare and Medicaid systems had less administrative costs because they also have a policy of "pay first and chase later," which leads to billions of dollars in fraud.

"There's a significant cost to not having the right administrative controls," he said.