Health insurers spend heavily on overhead, study reports

WASHINGTON Private health insurance companies spend an average of37.2 cents on administrative costs for every dollar's worth of healthcare coverage, a study released Thursday says.

Paper work, advertising, commissions and overhead expenses aresoaking up more and more of the premiums paid by individuals andemployers, according to the report by Citizen Action, a private groupfunded by foundation grants and 3 million members.

The 37.2 cents figure comes from data that insurance companiesgive to state regulators and is the average for 1990, the last yearstatistics were available. It compares with 30.7 cents on the dollarin 1981 and 33.5 cents in 1988.

The Health Insurance Association of America, a trade associationrepresenting private insurers, disputed the figure, sayingadministrative costs were 14.2 percent of total private healthpremiums in 1990.

Citizen Action's vice president, Robert Brandon, said he stoodby his numbers as an accurate analysis of state documents.

Brandon's organization is pushing for a national health caresystem like Canada's. "The Canadians spend 0.9 cents for everydollar in benefits," Brandon said.

The problem in the United States stems from a "hodgepodge"system in which 1,500 private health insurance companies are sellingcoverage, he said.

A single-payer system would be much more efficient, he said.Medicare, for example, spends only 2.1 cents to deliver each dollar'sworth of coverage, he said.

The Citizen Action study did not include Blue Cross-Blue Shieldcompanies, health maintenance organizations or companies that areself-insured.

The Health Insurance Association said the exclusions are a keyfailing of the study. The health plans funded directly by employers,for example, tend to be large, with relatively low administrativecosts, the trade association said.

The association said health insurance plans must be judged forwhat they provides individuals, not simply on costs.