: Exploring Recent Trends, Methods, and Data sources in the Net Cost and Administration of Health Insurance in the National Health Expenditure Accounts

Tuesday, June 14, 2016: 3:20 PM
Colloquium Room (Huntsman Hall)

Author(s): Micah Hartman

Discussant: Abe Dunn

Research Objective:   We present an overview of the latest trends, definitions, sources, and methods used to estimate expenditures for the net cost and administration of health insurance within the framework of the NHEA, the official health care spending estimates of the United States.  These estimates are provided for all applicable NHEA payer categories annually over time, from 1960 to 2014. 

Study Design:  Using national accounting methods, we estimate the net cost and administrative expenditures of public and private health insurance and create an input cost index that is used to deflate these expenditures.  For public health insurance and other third party payers and programs (such as Medicare, Medicaid, and workers compensation), we utilize government program administration data as well as net cost data reported by private health insurance companies that administer managed care plans.  For private health insurance, we utilize numerous data sources including AM Best’s reporting of National Association of Insurance Commissioner (NAIC) data, AHRQ’s Medical Expenditure Panel Survey (MEPS)-Insurance Component (IC), and the Department Of Labor 5500 form.  These data sources are used to create net cost of insurance estimates for four categories of insurance 1) self-insured, 2) fully-insured group, 3) direct purchase or non-group, and 4) the medical portion of property and casualty insurance.  

Population Studied:  All public and private health insurance and third party payers and programs in the United States that provide health care benefits coverage to approximately 283 million people in 2014. 

Principle Finding:  In 2014, spending for government administration and the net cost of insurance reached $234.8 billion and accounted for 8 percent of total national health care spending.    Government administration accounted for 17.1 percent or $40.2 billion and the net cost accounted for the remaining 82.9 percent or $194.6 billion.  Administrative costs for the Medicaid program were the largest within the total government administration category, at $22.6 billion, while the net cost of private health insurance was the largest within the net cost of insurance category, at $122.2 billion.  The majority of spending within government administration and the net cost of insurance went towards non-labor costs for items such as commissions and professional contracted services.   

Conclusions: Administrative costs and the net cost of health insurance vary significantly depending upon the payer or program.  For some payers, these costs account for a relatively large share of total spending, for example the net cost and administrative costs for workers compensation accounted for 32 percent of spending in 2014.  However, other payers devote a much smaller share of total spending to administrative costs and the net cost of insurance, for example the administrative costs of the Veteran’s Administration were less than 1 percent of total spending. Comprehensive and mutually exclusive estimates of program administration and the net costs of insurance, such as those presented in the National Health Expenditure Accounts, are critical for understanding and comparing trends in health care spending across payers.