Elizabeth Edwards On High Administrative Costs

On Monday, during a discussion about health care policy, CAPAF Senior Fellow Elizabeth Edwards underscored the burden of administrative costs on the health system:

I ran into a woman who had worked in a hospital in Vancouver and she had moved to Boston. I met her in one of the New Hampshire primaries. And she said she worked in the accounting office in the hospital, and went to a hospital in Boston to get a job. Same number of beds in the hospitals. She got a job. She had worked in an accounting office with 6 people, she now worked in an accounting office with 600 people. Your health insurance dollars are being used to pay those 600 people. It is not an efficient use of our money.

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Reducing administrative costs should be an important part of any serious cost-containment strategy. Unfortunately, Sen. John McCain’s reliance on the individual market would bolster the health bureaucracy and further grow the size of accounting offices.

That’s because marketing, medical underwriting, rescission, and increased paperwork for individuals leads insurance companies in the individual market to spend 29 percent of premium dollars on administrative costs, more than double the average amount in the group market.

As McCain adviser and individual market-proponent Douglas Holtz-Eakin admitted, employer based coverage “is way better” than a comparable plan in the individual market because the latter charges more for identical coverage. In fact, according to a study published in Health Affairs, higher administrative costs, along with other factors, increase the cost of an individual plan by an estimated $2,000.

So McCain’s push to get more Americans into the individual market, will have you paying more for less. As Peter Harbage points out, “shifting coverage from the group coverage market to the individual insurance market could generate as much as $20 billion in new administrative costs—which represents an increase of more than 20 percent in 2007 dollars.”