Reference Materials
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line at (link no longer valid)
