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Angie Drobnic Holan
By Angie Drobnic Holan October 30, 2009

Insurance companies do not get a third of all national health spending

Rep. Patrick Kennedy gave a strong defense of Democratic plans for health reform on the House floor, attacking Republican opponents as defenders of insurance companies.

"The other side talks about the health care reform bill costing a lot of money," Kennedy said. "Right now, consumers in America are spending millions and millions of dollars paying that to the insurance companies. One-third of the health care dollar goes to no such thing as health care; it goes to the insurance companies. That's why the Democratic proposal restricts the amount of money that insurance companies can spend on bureaucracy."

The idea that insurance companies get a third of all health spending in the country struck us as suspicious. And sure enough, our research showed that Kennedy was mixing up his statistics.

To start with, every health insurance company is different, and there are different ways to count administrative expenses. Generally speaking, the most efficient insurers cover large groups of employees, while the least efficient sell policies to individuals.

Nevertheless, the Centers for Medicare and Medicaid Services, a federal agency, publishes national health expenditure data, which include a breakdown of "The Nation's Health Dollar." The most recent data for 2007 show that private insurers get a little less than 7 percent of the nation's health care spending.

The 7 percent number also includes some of the administrative costs of government health insurance programs and charity programs, but the center said most of that is for private insurers.

We reviewed another study done by the nonpartisan Congressional Budget Office. It looked at administrative costs from a different angle, trying to focus on what percentage of health insurance premiums went to patient costs. Keep in mind, spending on private health insurance premiums is less than all national health care spending, which includes government spending for Medicare and Medicaid, and other expenditures.

The CBO included a bunch of things under administrative costs: marketing; claims processing; managing contracts with doctors and hospitals; quality assurance; regulatory compliance; information technology expenses; general overhead; profits and taxes. It found that the percentage of premiums going to all these activities was 12 percent.

We asked Kennedy's office about his statement, and staffers said Kennedy meant to say that he was talking about administrative expenses throughout the health care system. They sent us a study from the New England Journal of Medicine that examined administrative costs for doctors, hospitals, nursing homes, home care agencies and employers who provide insurance. The study found total administrative costs for all those groups accounted for 31 percent of health care expenditures in the United States.

Still, that's not anywhere close to what Kennedy said. He said that "One-third of the health care dollar goes to no such thing as health care; it goes to the insurance companies." The actual number is about 7 percent. We rate Kennedy's statement False.

Our Sources

Congressional Record, remarks of Rep. Patrick Kennedy , Oct. 27, 2009

Centers for Medicare and Medicaid Services, National Health Expenditure Data , 2007

Centers for Medicare and Medicaid Services, The Nation’s Health Dollar, Calendar Year 2007: Where it Went

Centers for Medicare and Medicaid Services, National Health Expenditures Accounts: Definitions, Sources, and Methods, 2007

Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, Chapter 3: Factors Affecting Insurance Premiums , December 2008

The New England Journal of Medicine, Costs of Health Care Administration in the United States and Canada , Aug. 31, 2003

Ezra Klein, Administrative Costs in Health Care: A Primer , July 7, 2009

 

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Insurance companies do not get a third of all national health spending

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