The True Costs of “Administrative Sludge” for Companies & Employees

The True Costs of “Administrative Sludge” for Companies & Employees

January 20, 2021

When employees have to spend time “jumping through hoops” with their healthcare administrator, everyone pays, according to new research from Stanford University.

The casualties are time, productivity, and employee satisfaction.

Researchers estimated that the direct cost of time employees spend on administrative health issues to be a whopping $21.57 billion. Fifty-three percent of that time was at work, with an average of 32.57 minutes per call.

In addition, the relatively long conversations may impact the satisfaction level of employees with their benefits package.

“People who spent more time on the phone with their health insurer were less satisfied with their current workplace, less engaged, more likely to report significant stress, more likely to have missed a day or more of work, and more likely to feel burned out at work,” the research team, headed by Jeffrey Pfeffer, wrote.

The Stanford team suggested that one solution is for companies to choose benefits administrators in part on their ability to minimize the time workers have to spend dealing with them, because that time impacts both direct and indirect costs and may burden the internal human resource staff as well.”

- Spencer Olson, BHS Partner & Benefit Specialist

The researchers noted that one way to audit the “administrative sludge” would be to ask benefit administrators to report on metrics around administrative burden to employees. Employee surveys could also be developed to shed light on how much time workers are spending on insurance issues, and how responsive the insurer or benefits administrators are being to employee questions and issues.

The phenomenon of health care “administrative sludge” also factors into national statistics on health care inefficiency.

According to a study from the Center for American Progress, payers, and providers of health care in the U.S. spend nearly half a trillion dollars each year on billing and insurance costs.

This phenomenon has led many companies to explore new benefit delivery options, such as BHS’s partnership with MetroCare, which reduces administrative overlap through direct billing management.

In total, the U.S. spends 8.3 percent of its health expenditures on administrative costs - $496 billion – which is more than twice as much as other western Countries such as Canada, the UK and Australia.

The Journal of American Medical Association reported that up to 25% of health care spending in the U.S. is “wasteful.” Of the $760 billion per year cited in that study, $265.6 billion was attributed to administration.