The cost of health insurance administration in California: Estimates for insurers, physicians, and hospitals

Administrative costs account for 25 percent of health care spending, but little is known about the portion attributable to billing and insurance-related (BIR) functions. We estimated BIR for hospital and physician care in California. Data for physician practices came from a mail survey and interviews; for hospitals, from regulatory reporting; and for private insurers, from a consulting company. Private insurers spend 9.9 percent of revenue on administration and 8 percent on BIR. Physician offices spend 27 percent and 14 percent, and hospitals, 21 percent and 7-11 percent, respectively. Overall, BIR represents 20-22 percent of privately insured spending in California acute care settings.