Economic Report of the President 1994 - The American Presidency ...

tion results in high administrative expenses. In 1991 over 6 percentof all health care expenditures went for administrative expenses.This exceeds total spending on all public health service programs.Standardizing benefits and billing procedures and increasing theautomation of bill payment could produce substantial administrativesavings. Grouping small firms and individuals into larger purchasingpools would have the same effect. As Chart 4-3 shows, theadministrative load charged by commercial insurers for smallgroups (1 to 4 employees) averages about 40 percent of claimspaid—in contrast to only about 5V2 percent for large groups (over10,000 employees).Chart 4-3 Administrative Expenses of Commercial Insurers as Percent of Claims PaidAdministrative expenses are much higher in proportion to claims paid for small groups than forlarge groups.Percent504040.035.03030.025.02018.016.010mi•Iilllli5-9 10-19 20-49 50-99 100-499Group size500-2,4995.510.000+Source. Hay/Huggins Company, Inc.CREATING A MORE EFFICIENT MARKET ANDCONTAINING COSTSThe third problem with the current health care system is that itappears to be far from efficient. As already noted, the UnitedStates spends a larger share of its GDP on health care than anyother industrialized nation. If Americans valued medical care more140