How much do private insurance companies spend on overhead and profit?
Private insurance overhead and profit, on average, fluctuates between 12% and 14% nationally. This figure is somewhat lower than the 16-20% at many of the big insurers because it includes self-insured plans of many big employers that have overhead of about 6-7%. On the other hand, overhead in the individual market is often substantially higher than 20%, and in some cases above 30%. The estimate that total administrative costs consume 31% of U.S. health spending is from research by Drs. David Himmelstein and Steffie Woolhandler and published in the New England Journal of Medicine in 2003. The figure would undoubtedly be higher today. Insurance overhead accounts for a minority of the overhead. Much more occurs in physicians’ offices, hospitals, and nursing homes – driven by our current fragmented payment system. The fact that insurance overhead per se accounts for a minority of the bureaucratic waste in the system explains why implementing a public option plan would not achieve most of t
