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U.S. Nearly Twice as Wasteful as Canada

By Gene Emery Reuters
Detroit Free Press
August 21, 2003

BOSTON -- Thirty-one cents of every dollar spent on health care in the United States pays administrative costs -- nearly double the rate in Canada, according to a new comparison that sees colossal bureaucratic waste in the U.S. system.

Researchers who prepared the comparison said Wednesday that the United States wastes more money on health bureaucracy than it would cost to provide health care to the tens of millions of uninsured Americans.

Americans spend $752 more per person per year than Canadians on medical administrative costs, according to the study by investigators from Harvard University and the Canadian Institute for Health Information that was published in this week's New England Journal of Medicine.

The team, led by Steffie Woolhandler of Harvard, said a large sum of money might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style, single-payer health care system.

"The difference in the costs of health care administration between the United States and Canada is clearly large and growing," the researchers said, questioning whether the $294.3 billion spent each year on U.S. health care administration is money well spent.

Woolhandler and coauthor David Himmelstein, also of Harvard and a founder of Physicians for a National Health Program, added that if the United States adopted a Canadian-style system, the savings would likely pay for coverage for the more than 41 million Americans without health insurance.

The study found overhead costs for U.S. insurance companies -- mostly for underwriting and advertising -- ate up 11.7 cents of every health care dollar, compared to 1.3 cents for Canada's government-run system and 3.6 cents for the U.S. Medicare system for elderly people.

The study found that after certain exclusions, administration accounted for 31 percent of health care expenditures in the United States and 16.7 percent in Canada.

The estimates do not include the advertising costs of drug companies or hospitals, health care industry profits, or the value of patients' time spent on paperwork.

But in an editorial in the journal, Henry Aaron of the Brookings Institution in Washington said the administrative costs in the United States may be 24 percent lower than the Woolhandler estimate. He said the excess spending on health care administration in 1999 was probably closer to $159 billion, not $209 billion cited in the study.

Aaron said the latest comparisons "clearly exaggerate" the differences between the North American neighbors.

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