The Center for American Progress recently reported that the United States spends 8.3% of health expenditure on administrative costs or an estimated $1.1 trillion, $.5 trillion of which is excess. This compares with spending in other highly developed countries such as Canada, the United Kingdom and Australia with 3% or less of their expenditures for healthcare.
One example of the inefficiencies is the cost to keep provider directories up-to-date. A recent study of 1,240 physicians determined that the costs in time and money were an average of $1,000 per practice per month or nearly $3 billion annually for the administrative task of updating the health plan information for their average of 20 contracts. And still as much as half of this information may be inaccurate.
Another study by researchers from Duke University and Harvard Business School determined that the average medical office pays $99,000 or more managing bills for one single doctor’s office in a large medical center. The study excludes contracting costs since the medical center physicians used a centralized billing service – the cost of an independent physician would be significantly higher.
It’s no wonder that direct primary care, which significantly cuts administrative costs, is rising in popularity. Under these arrangements, the patient pays a fixed monthly fee, which might be less than $100, for access to healthcare. Importantly, direct primary care providers recommend that members also purchase catastrophic coverage. Direct primary care may very well be an important solution in tackling rising healthcare costs. It simplifies and demystifies patient access and substantially reduces administrative costs.
A short-term solution to make this work would be to allow direct primary care arrangements alongside Health Savings Accounts (HSAs) with required appropriate catastrophic care. In this way, the large claimants that will inevitably arise will be appropriately funded and not fall to the uninsured taxpayer pools.
Established insurers should prepare to enter this game, or they may be left behind.