By NextBestFitAbout $1 trillion a year in administrative cost
Roughly a quarter of spending is administration: billing, claims, coding, credentialing, prior authorization, and plan management across thousands of payers and plans.
Evidence
- About $950B a year in administration; about $265B could be removed with existing interventions.
- Administrative complexity wastes about $266B a year.
- Hospitals spent about $43B trying to collect payment from insurers.Sources: American Hospital Association (2025)
Who's affected
- Doctors, nurses, and other clinicians: Time goes to billing and insurer rules instead of patients.
- People with employer coverage: Premiums pay for the administration.
- Taxpayers and public budgets: Public programs pay for it too.
- Health insurers, brokers, and their shareholders: Insurers, billing firms, and clearinghouses earn from the complexity.
- Insurance and billing workers: Their jobs exist because of the complexity.
Under your mix of paths
- Many payers with different rules
- Fee-for-service billing
- Means testing
Related costs
Open questions
- How many payers and payment rules should there be?
Caused or worsened by these paths
This problem only matters if one of these paths is chosen.
Moving groups in stages requires the old and new systems to operate in parallel.
Reserving funding for fraud detection, audits, and prosecutors adds administrative cost.
Splitting claims processing among regional administrators adds overhead.
Per-case payments for additional procedures require more billing.
Adding service fees to per-patient payments requires more billing.
Having states administer enrollment and provider relations duplicates administration.
Solution paths (2)
Open a path for what it fixes, what it creates or worsens, who gains and who loses, precedents, and how it connects to other paths. See all paths as a decision tree.
One claims format, one set of codes and rules, real-time payment.
- +About $1 trillion a year in administrative cost
- −Requires new or changing information systems
- −Cyberattacks can halt payments and care
Require all insurers to use identical forms, codes, prior-auth rules, and credentialing.
- +About $1 trillion a year in administrative cost
- +Clinician burnout from paperwork and EHR work
- +Losing the choice of health plan and insurer competition
- −Faces political, industry, or legal opposition
Also addressed by paths for other problems
Providers deal with one claims system and one set of rules instead of hundreds.
Multiple insurers remain, so administrative savings are smaller than under a single payer.
Keeping many payers limits administrative savings.
Continuous eligibility reduces enrollment paperwork for states and families.
Residence-based coverage removes Medicaid redetermination paperwork for states and families.
Removing cost sharing eliminates billing at the point of care.
A standard rate with universal provider access removes separate credentialing with many payers.
Eliminating or closely capping cost sharing removes hospital work on collections and bad debt.
Removing out-of-network billing eliminates the federal dispute-resolution system and its cost.
Removing most prior authorization produces substantial administrative savings for clinics and insurers.
A public administrator reduces provider-side administrative work through a shared set of rules.
Negotiating administrative costs within hospital budgets directly controls administrative spending.
Simplifying billing and documentation rules reduces the need for billing staff.
Annual hospital budgets replace per-service billing and require very little hospital billing.
Reducing billing overhead cuts the paperwork clinicians must handle.
Moving everyone to the new system together avoids operating parallel coverage systems.
Payer tallies and tax-return settlement remove visit-level billing and debt collection from providers while retaining a central charge ledger.
Eliminating copays for covered services removes the billing apparatus for those charges.
Publishing data without attaching bonuses requires less administration.