Nobody Can Follow the Money: Why healthcare administration costs a trillion dollars

Root Causes is our policy analysis series, grounded in rigorous, nonpartisan research, and written by Rachel Bouzis, the Trust’s Director of Policy & Learning. Each installment examines the systems, data, and decisions that shape the health and well-being of Natrona County residents by going beyond the headlines to understand why things are the way they are, and what it means for the people who live here. We believe an informed community is a healthier one.

A Corolla’s worth of coverage

Employer-sponsored insurance remains the dominant source of health insurance for Americans, covering 54.6% of the nation in 2024. For the average family of four, it costs about as much as a brand-new Toyota Corolla every year¹. In 2025, annual family premiums were just shy of $27,000 with workers paying an average of $6,850 from their paychecks. This does not include out-of-pocket deductibles² (it never does). In 2027, these costs are expected to jump 8.2% per employee, the biggest increase since 2003³. It seems unlikely that the Corolla will keep pace.

These increases are explained(?) by soaring spending across healthcare, and especially in hospitals.⁴ Since 2000, hospital prices have risen at triple the rate of inflation. Despite this, profit margins for both industries are surprisingly low. Insurers reported just a 2.2% profit margin in 2023⁵, which equates to about $25 billion. Hospital profits are harder to pin down, since opaque reporting and billing make it difficult to know what hospitals truly earn. MedPAC puts their all-payer operating margin at 5.1%⁶ in fiscal 2023, but according to health economist Vivian Ho on the Relentless Health Value podcast, operating profits across hospitals could total as much as $205 billion⁷. Combined at the high end, these margins could wipe out the medical debt of every single American ($220 billion⁸) and leave $10 billion for a very nice holiday party.

The view from Wyoming

This is an admittedly sweeping simplification. Rural hospitals are particularly susceptible to financial strain and closures, and Wyoming’s low patient volume and high fixed costs make sustainability especially challenging (I wrote about those difficulties and how free market principles don’t apply to healthcare here). On the insurance side, 11,000 Wyoming residents found themselves uninsured when Mountain Health Co-Op left the state in 2025 due to disproportionately high costs⁹. It’s extremely difficult and expensive to deliver healthcare today. But that 81% of Wyoming voters consider the cost of healthcare an extremely or very serious problem¹⁰ doesn’t compute with these figures.

A trillion-dollar paperwork problem

There’s a lot of blame to go around for where we find ourselves today. This USA Today story succinctly captures seven major culprits behind the mind-numbing $5.3 trillion industry¹¹. Though each is worthy of its own Root Causes installment, let’s dive into the one I find most enraging: administrative costs.

At the most basic level, administrative costs are nonclinical; they add no direct value to healthcare delivery. Of course, not all of them are unnecessary. Healthcare needs IT, HR, and management like every other industry. What is unusual is that healthcare administration costs around $1 trillion every year by some estimates¹². Opaque billing and reporting practices make true spending impossible to determine, but researchers attribute 15 to 30 percent of all medical spending to this nonpatient-related category. Even at the lower end of these estimates, the US spends twice as much on administrative costs as it does on caring for cardiovascular disease and three times what it spends on cancer care¹³. At least half of administrative spending is wasteful¹⁴.

Administration is broken into two categories. Billing and insurance-related (BIR) costs are what providers, hospitals, and insurers spend to review, approve, deny, and collect medical bills. Non-billing and insurance-related costs capture more traditional expenses like IT, HR, accounting, and management. BIR accounts for more than 80% of administrative expenses¹⁵.

BIR is a labyrinth of the most treacherous order. In the U.S., there are about 1,000 insurance companies that sell nearly 318,000 different plans¹⁶. Each plan has its own stipulations on covered services, payment documentation, prior authorization, and networks. Now multiply this by every service you receive during a single visit, thanks to unbundled billing. A surgical procedure, for example, generates separate charges for the operating room, the anesthesiologist, the surgeon, the recovery room, medications, and every follow-up visit. Perhaps there’s a discount on facility fees if your procedure is performed in the parking lot?

Naturally, much of this process is analog. Medical computer systems don’t work with outside entities like insurers, so they rely heavily on phone calls and fax machines (yes–fax machines). Providers report spending the time equivalent of 100,000 full-time nurses every year to respond to prior authorizations alone¹⁷.

Enter the middlemen

As a result, administrative and financial brokers have exploded in recent years. This crowd of middlemen includes revenue cycle management (RCM) companies that bill on behalf of hospitals, clearinghouses that route those claims to insurers, third-party administrators that run employers’ health plans, pharmacy benefit managers that decide which drugs get covered and at what price, and prior authorization vendors that approve or deny care before it happens. As far as I can tell, their most notable contribution is exacerbating the problems they were presumably created to solve. In 2024, the RCM market alone was valued above $172 billion and is projected to grow an additional 10% by 2030¹⁸.

Georgetown’s Center on Health Insurance Reforms artfully captures how most of us think billing works:

This is the reality:

Follow any line on this graphic, and you’ll find someone getting paid. But following the lines is impossible. Each dot charges its own fee, and many are owned by a single parent company, so the same company profits on both sides of your bill.

One company, every side of the bill

Say you have UnitedHealthcare insurance and see a doctor at an Optum-owned clinic. Both are owned by UnitedHealth Group (UHG). Your visit can be billed using Optum’s revenue cycle services, then sent through Change Healthcare, a clearinghouse UnitedHealth bought in 2022 that routes claims between doctors and insurers nationwide. Then UnitedHealthcare pays the claim at a favorable price; according to a 2025 study that UnitedHealthcare disputes, it pays Optum doctors 17% more than outside providers¹⁹. If you leave with a prescription, it may be managed by Optum Rx, UnitedHealth’s pharmacy benefit manager. The same company profits from that single visit at nearly every step. If this feels farfetched, consider that when Change Healthcare was hacked in February 2024, claims and payments across the country, including Medicare, stalled for about a month, and some providers were still waiting to be paid seven months later²⁰.

What we can’t see

Even experts can’t say whether middlemen’s fees count as administrative costs or get buried in higher payments to providers. Health care costs are deliberately and dangerously opaque. Recent federal and state laws have pried open rate negotiations and standard charge disclosures, but these are mere peeks behind the curtain. Thanks to compliance gaps, data complexity and weak enforcement, patients will go on paying enormous sums for care they can’t refuse and bills they can’t decipher. Until that changes, families will keep buying a new Corolla’s worth of coverage every year, and our hospital bills will remain head-scratching and jaw-dropping. Too bad dental insurance is separate.

Sources

1. The Struggle to Afford Employer-Sponsored Health Insurance (ESI) in 2024: A 50-State Review ↩
2. Annual Family Premiums for Employer Coverage Rise 6% in 2025, Nearing $27,000, with Workers Paying $6,850 Toward Premiums Out of Their Paychecks ↩
3. Survey: Health benefit costs expected to jump 8.2% in 2027, the biggest increase since 2003 ↩
4. Health Care Spending and Insurance Premiums Among the Privately Insured ↩
5. U.S. Health Insurance Industry Analysis Report ↩
6. MedPAC March 2025 report to the Congress, Chapter 3: Hospital inpatient and outpatient services ↩
7. What Is Rising Faster, Insurance Premiums or Hospital Prices? With Vivian Ho ↩
8. The Burden of Medical Debt in the United States ↩
9. Mountain Health Co-Op, One Of State’s Few Major Insurers, Pulling Out Of Wyoming ↩
10. What Wyoming voters say about health care ↩
11. National Health Care Spending Increased 7.2 Percent in 2024 As Utilization Remained Elevated ↩
12. Active steps to reduce administrative spending associated with financial transactions in US health care ↩
13. The Role of Administrative Waste in Excess US Health Spending ↩
14. Ibid ↩
15. Billing and Insurance-Related Administrative Costs: A Cross-National Analysis ↩
16. Addressing Medical Affordability Without Compromising Care ↩
17. Perception of prior authorization burden and solutions ↩
18. The Complex Web of Health Care Financial Interests and Their Implications for Ever Higher Spending: An Expert Perspective ↩
19. UnitedHealthcare Pays Optum Providers More Than Non-Optum Providers ↩
20. Nebraska AG’s Lawsuit Against Change Healthcare Survives Motion to Dismiss ↩