Commercial insurers unable to control administrative costs
BlueCross BlueShield Association News Release February 21, 2003 New BCBSA Report Shows Health Insurer Administrative Costs Rising Slower Than Premiums
Health plan administrative costs contribute to rising premium costs, but not as much as you might think. A new report from Milliman USA (Milliman), commissioned by the Blue Cross and Blue Shield Association (BCBSA), shows that administrative costs for America's health insurers are growing, but at a rate slower than the growth of premiums overall.
Milliman studied national health insurance administrative cost trends from 1998 to 2002 and found that while premiums for commercial business increased by an average of 7.4 percent annually, administrative costs grew at a much slower average rate of 4.6 percent annually. The report shows that in 2001, an average of 85.7 percent of commercial premiums went to pay medical claims with 11.6 percent going to administrative costs and 2.7 percent going to profits. In comparison, an average of 86.5 percent of commercial premiums among Blue Cross and Blue Shield Plans went to medical claims in 2001, with 11 percent going to administrative costs and 2.5 percent going to profits.
"This report clearly demonstrates that the majority of premium dollars are being spent on healthcare services - as they should be," said Scott P. Serota, BCBSA president and CEO.
"To keep healthcare affordable, we must know more than just how much we are spending. We need to know how well we are investing our healthcare dollars," Serota said. "This research, like BCBSA's previous research on healthcare cost-drivers, helps all of us - insurers, hospitals, physicians, employers, drug companies, consumers and government - find ways to eliminate unnecessary costs and improve quality. That's the only way we as a nation are going to be able to keep healthcare affordable."
For the press release: http://bcbshealthissues.com/relatives/20445.pdf?PROACTIVE_ID=cecfcbcec8c9c7c
Comment: BCBSA attempts to put a positive spin on these numbers by showing that medical claims grew more than administrative costs, but by the deceptive method of expressing them as a lower percentage increase compared to the higher percentage increase in actual health care costs. At a time when the health plans are under scrutiny for perpetuating excessive administrative waste, they wish to show that they are controlling administrative costs. But they aren't. Administrative costs grew at a rate of 4.6% annually, in excess of the rate of inflation. In fact, the very nature of the middleman business model of health plans makes it impossible for them to ever control these administrative costs.
The 14.3% of commercial premium dollars that is being burned up in administrative costs and profits is only a small part of the problem. The administrative burden of our fragmented system of multiple private plans, public programs and no programs at all further increases the diversion of funds from patient care to wasted public and especially private administrative excesses. And this does not include the impact of the flawed system of allocating our resources, a system in which some entities and regions receive 30% more funds without any improvement in health care outcomes.
A single, integrated system of funding health care would dramatically reduce these administrative excesses, and would provide a basis for more rational allocation of our resources. Bruce Bodaken, Chairman, President and CEO of Blue Shield of California, recently called for universal coverage, but his model only expands on the current flawed system, perpetuating inequities and waste.
Instead of turning to Milliman for advice on how the egregious administrative waste can be hidden, we should move ahead with change that will minimize the waste, and utilize those resources more effectively, assuring affordable access to comprehensive care for everyone. Unfortunately but understandably, the BlueCross BlueShield Association apparently does not want to lead that charge.