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How Health Care Reform Can Lower the Costs of Insurance Administration

The United States leads all industrialized countries in the share of national health care expenditures devoted to insurance administration. The U.S. share is over 30 percent greater than Germany’s and more than three times that of Japan. This issue brief examines the sources of administrative costs and describes how a private–public approach to health care reform—with the central feature of a national insurance exchange (largely replacing the present individual and small-group markets)—could substantially lower such costs. In three variations on that approach, estimated administrative costs would fall from 12.7 percent of claims to an average of 9.4 percent. Savings—as much as $265 billion over 2010–2020—would be realized through less marketing and underwriting, reduced costs of claims administration, less time spent negotiating provider payment rates, and fewer or standardized commissions to insurance brokers.

Publication Details

Publication Date: July 16, 2009

S. R. Collins, R. Nuzum, S. Rustgi, S. Mika, C. Schoen, and K. Davis, How Health Care Reform Can Lower the Costs of Insurance Administration, The Commonwealth Fund, July 2009.


Sara Collins
Vice President, Health Care Coverage and Access, The Commonwealth Fund
Rachel Nuzum
Vice President, Federal and State Health Policy, The Commonwealth Fund
Senior Scholar in Residence, New York Academy of Medicine
Professor Emerita in the Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health