Origin of the statistic "Private insurance diverts 40% of collected premiums"

Author: Samuel Metz 

Date: 12/06/2012

 


Private insurance diverts 40% of collected premiums away from health care and into administrative costs. Where does this “40%” figure come from?

The basis is an article by Woolhandler and Himmelstein in the New England Journal of Medicine, a highly respected peer-reviewed medical journal:

Woolhandler S, Himmelstein DU. Costs of health care administration in the United States and Canada. New Engl J Med 2003; 349:768-772, Online at: http://www.nejm.org/doi/full/10.1056/NEJMsa022033

 

My 40% figure takes data from this 2003 article (using data from 1999) and adjusts for additional data from the 2010 census and from the Centers for Medicare and Medicaid Services.

                         Total insurance industry overhead in 2010         = $356 billion   [a]

          …divided by insurance company premiums in 2010        = $875 billion   [d]

…equals insurance industry overhead as % of premiums        = 40.7%


Here is how the above numbers were derived.


[a] Calculating total insurance industry overhead in 2010

                               2010 population (from US Census)              = 309 million

 …multiply by 1999 per capita overhead (from article)              = $1,151            [b]

…equals total insurance company overhead in 2010             = $356 billion


[b] Calculating 1999 overhead per capita

     1999 total insurance overhead per capita (from article)         = $320 billion

    …divided by 1999 population (calculated from article)         = 278 million     [c]

                              …equals insurance overhead per capita         = $1,151


[c] Calculating 1999 population

                                              1999 overhead (from article)         = $294 billion

…divided by 1999 total insurance overhead (from article)        = $1,059

                                                   …equals 1999 population         = 278 million


[d] Premiums paid to insurance companies

See Table 3, National Health Expenditure Data, Centers for Medicare & Medicaid Services on line at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/tables.pdf.




 

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