203961 Administrative health care costs and executive compensation

Wednesday, November 11, 2009: 9:10 AM

Peggy Gallup, PhD, MPH , Department of Public Health, Southern Connecticut State University, New Haven, CT
Brian Vitelli, DVM , Department of Public Health, Southern Connecticut State University, New Haven, CT
Melissa Downey, PT , Department of Public Health, Southern Connecticut State University, New Haven, CT
Of the $2.2 trillion dollars spent on health care in 2007, 7% goes to administrative costs, amounting to the considerable sum of $155.7 billion dollars. America's unique reliance on the private sector to manage the finances of health care certainly contributes to this excessive spending.

The 13 largest health care insurance and managed care organizations had profits of $12 billion in 2007. We looked at executive compensation in the insurance industry and found that total compensation for 26 executives for 13 companies was almost $152 million. That amounts to one percent of administrative costs for just 26 people.

The magnitude of $152 million can be understood in terms of how much health care it could buy. The Kaiser Family Foundation estimates that per capita health care costs were $7,461, so the compensation for 26 people equals health care costs for 20,455 people. In the private market, where the average employer based insurance premium is $4,479, the $152 million could buy insurance for 33,890.

Applying the free market ideology to health care does not lead to market efficiency. A recent national survey by the Kaiser Family Foundation and the Harvard School of Public Health found that most Americans support limiting insurance companies' administrative expense and their profits. Americans are reluctant to support health care reform when it is presented as socialized medicine, but a single payer system could be supported if we can show that it keeps the private health care we love reducing the high costs of private sector insurance.

Learning Objectives:
Describe the role of private financing of health care in contributing to administrative costs. Define the concept of a single-payer health care system in the United States. Discuss how public support for a single-payer system can be increased by explaining how private insurance companiesí costs contribute to the high cost of health care.

Presenting author's disclosure statement:

Qualified on the content I am responsible for because: I am a professor of public health at southern Connecticut State University, with an MPH and PhD in public health. This project was done as part of an advanced graduate health policy class.
Any relevant financial relationships? No

I agree to comply with the American Public Health Association Conflict of Interest and Commercial Support Guidelines, and to disclose to the participants any off-label or experimental uses of a commercial product or service discussed in my presentation.

See more of: Health Care Reform II
See more of: Health Administration