Study finds Medicare to be efficient U.S. spends less than private companies.

April 22, 1992|By Chicago Tribune

WASHINGTON -- The U.S. government spends far less to administer Medicare, its largest health insurance program, than commercial health insurance companies spend overseeing private health insurance policies, a new study shows.

Commercial health insurance companies spent 37.2 cents for administration, marketing and overhead in 1990 for every dollar they paid in benefits, according to a study released yesterday by Citizen Action, a self-described public interest group. That compares with only 2.1 cents per dollar spent by Medicare and 0.9 cents spent by the Canadian health system, a government-run program for universal health care.

The biggest chunk of the administrative costs went to salaries, sales commissions and employee benefits, according to the study. Rent and advertising also accounted for much of the commercial insurers' overhead.

Between 1981 and 1990, the study said, administrative spending by commercial insurance companies increased by 122 percent while benefits increased 83 percent. Administrative costs were even greater for individual insurance plans: Commercial insurance companies spent 68.2 cents to deliver a dollar of benefits in 1990 to policyholders who were not part of a group plan, the study said.

According to the study, if the private insurance companies had been as efficient as Medicare, American businesses and consumers would have saved about $120 billion between 1981 and 1990.

"The efficiency of the commercial health insurance industry has declined over the last decade," the report added. In 1981, it cost commercial health insurers 30.7 cents for every dollar paid out in benefits.

The Health Insurance Association of America, which represents private insurance companies, took issue both with Citizen Action's figures and with the group's claim that high administrative costs are inherently bad.

According to HIAA, the government's Health Care Financing Administration found that administrative costs for all insurers, including Blue Cross and Blue Shield and self-insured companies, amounted to an average of 13 percent of claims paid over the last 10 years. The Citizen Action report excluded Blue Cross and self-insurers.

While 13 percent is still higher than Medicare's overhead rate, HIAA's Don White noted that a large amount of the private insurers' administrative costs are incurred in tracking down fraudulent claims and unnecessary procedures.

A spokesman for the Prudential Insurance Company of America, the largest private health insurer in the United States, said the company saves more than it spends on administration. Citizen Action found that Prudential spends 17.2 cents for every dollar it pays in claims.

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