Simplifying Administration of Health Insurance

Publication Date:

Publisher:

Author(s): M. Merlis

Research Area: Health

Type: White Paper

Abstract:

This article begins with a review of ways to define or classify administrative health care system costs and an estimation of the size of these costs. This is followed by a discussion of current efforts to reduce administrative costs, many of which have focused on standardizing and simplifying transactions among insurers, providers and employers. Finally, the article considers how various health care reform proposals, whether or not directly targeted at administrative costs, might reduce or add to the complexity of the current system.



Key Findings:



Despite years of effort to simplify the administration of insurance, little is known about whether any of the major actors in health care-insurers, providers, or employers-have actually seen any savings.



Policy-makers will need to determine what role government should play in pursuing simplification. The government can push for simplification in three ways:



Government can act as a regulator and mandate change, as in the case of HIPAA. However, that effort built on years of private efforts, and can be seen to some extent as codifying rather than innovating.
Government can use its role as the largest purchaser of health services and promote change by deciding what it wants to buy. It has the greatest leverage with providers, but the growth of Medicare Advantage and Medicaid managed care gives it considerable influence on health plans as well.
Government may need to finance change to provide the capital and training needed to move hundreds of thousands of smaller providers beyond the realm of paper and typewriters.
The value added by the managed care industry consists of the very features that make insurance complicated. The variations are what differentiate one plan from another, so competition and uniformity may be conflicting goals.