Substantial Variation In Administrative Spending And Profit Across State Insurance Markets, 2023.

Area of Science:

• Health Economics
• Health Services Research
• Public Health Policy

Background:

• The US healthcare system incurs substantial annual spending on health insurance administration.
• Significant variations in administrative costs and profits across different insurance markets exist but are not well understood.
• Understanding these cost drivers is crucial for healthcare reform and efficiency improvements.

Purpose of the Study:

• To estimate state-level administrative spending and profits for all health insurance plans in 2023.
• To compare administrative costs and profits across three key market segments: fully insured commercial, Medicaid, and self-funded commercial coverage.
• To identify potential savings by reducing administrative spending to cross-state medians.

Main Methods:

• Utilized state-level regulatory filings to gather data on administrative spending and profits.
• Analyzed data for three distinct market segments: fully insured commercial, Medicaid, and self-funded commercial coverage.
• Calculated median per-person, per-year administrative spending and profits for each segment across states.

Main Results:

• Median administrative spending was $599/person/year for fully insured coverage and $285/person/year for self-funded coverage.
• Medicaid administrative spending was highest, reaching $772/person/year in states with managed care.
• Significant state-level variations in spending and profits were observed across all segments.

Conclusions:

• Reducing administrative spending and profits in states with above-median costs to the median could yield substantial savings.
• Estimated potential savings of approximately $6 billion (fully insured), $9 billion (Medicaid), and $4 billion (self-funded).
• Highlights the need for greater transparency and efficiency in health insurance administration to control healthcare costs.