Billing and insurance-related administrative costs in United States’ health care: synthesis of micro-costing evidence

The United States’ multiple-payer health care system requires substantial effort and costs for administration, with billing and insurance-related (BIR) activities comprising a large but incompletely characterized proportion. A number of studies have quantified BIR costs for specific health care sectors, using micro-costing techniques. However, variation in the types of payers, providers, and BIR activities across studies complicates estimation of system-wide costs. Using a consistent and comprehensive definition of BIR (including both public and private payers, all providers, and all types of BIR activities), we synthesized and updated available micro-costing evidence in order to estimate total and added BIR costs for the U.S. health care system in 2012.

We reviewed BIR micro-costing studies across healthcare sectors. For physician practices, hospitals, and insurers, we estimated the % BIR using existing research and publicly reported data, re-calculated to a standard and comprehensive definition of BIR where necessary. We found no data on % BIR in other health services or supplies settings, so extrapolated from known sectors. We calculated total BIR costs in each sector as the product of 2012 U.S. national health expenditures and the percentage of revenue used for BIR. We estimated “added” BIR costs by comparing total BIR costs in each sector to those observed in existing, simplified financing systems (Canada’s single payer system for providers, and U.S. Medicare for insurers). Due to uncertainty in inputs, we performed sensitivity analyses.

BIR costs in the U.S. health care system totaled approximately $471 ($330 – $597) billion in 2012. This includes $70 ($54 – $76) billion in physician practices, $74 ($58 – $94) billion in hospitals, an estimated $94 ($47 – $141) billion in settings providing other health services and supplies, $198 ($154 – $233) billion in private insurers, and $35 ($17 – $52) billion in public insurers. Compared to simplified financing, $375 ($254 – $507) billion, or 80%, represents the added BIR costs of the current multi-payer system.

A simplified financing system in the U.S. could result in cost savings exceeding $350 billion annually, nearly 15% of health care spending.