Over the past decade, administrative costs in the U.S. health care system have climbed sharply, reshaping how money moves through the system. National health spending now tops $5 trillion, but a growing chunk goes to bureaucracy rather than actual care. This leaves medical providers with thinner margins, contributes heavily to physician burnout, and creates barriers for patients. Health insurers have expanded their administrative operations, including more prior authorizations and reviews, which critics say pad overhead and executive rewards while pulling resources away from frontline service.

The surge in administrative costs

Administrative expenses account for roughly 15 to 30 percent of total U.S. health care spending, hundreds of billions of dollars annually. Hospital administrative costs grew 87 percent from 2011 to 2023, outpacing direct patient care spending growth of about 75 percent. One estimate put total administrative spending at around $950 billion in 2019.

Much of this stems from the fragmented payer-provider relationship: claims processing, utilization management (like prior authorizations), compliance, and billing. These layers add real friction and cost that don’t directly benefit patients or providers.

Shrinking reimbursements for providers

While admin costs rise, payments to physicians, particularly under Medicare, have eroded in real terms. Adjusted for inflation in practice costs, Medicare physician payments have declined by about 29 to 33 percent since 2001. Recent years brought additional cuts or flat updates that failed to match rising expenses for staffing, supplies, and technology.

Private insurers often negotiate rates that don’t fully offset the added administrative burden providers face. The result is squeezed margins for practices, even as overall system spending grows.

The human cost: physician burnout and dissatisfaction

Physicians and staff spend an average of 13 hours per week on prior authorizations alone, handling dozens of requests. AMA surveys show 89 percent of doctors say prior authorization contributes to burnout, while 93 percent report it delays patient care.

This isn’t sustainable. High burnout leads to reduced hours, early retirements, or clinicians leaving practice entirely. It hurts providers’ well-being and risks worsening access to care, especially in underserved areas.

Insurance companies’ role in the equation

Insurers handle a large share of the system’s complexity. Their administrative costs and profits draw scrutiny as premiums continue rising. While medical loss ratio rules aim to steer most premium dollars toward care, significant portions still go to operations, marketing, and shareholder returns. CEO compensation at major plans often reaches millions annually.

Prior authorization and utilization review are positioned as cost controls, but they shift burdens onto providers (through staff time and appeals) and patients (through delays). In a system where admin costs far exceed those in peer countries, the incentives often feel misaligned with efficient, patient-centered care.

Evidence-based solutions: reducing burden and increasing relief

Fixing this requires targeted reforms that cut waste without compromising quality. Several practical steps stand out:

• Streamline administration: Standardize and reduce low-value prior authorizations, create billing clearinghouses, harmonize quality reporting, and improve data interoperability. Estimates suggest these kinds of changes could save tens of billions annually.
• Tie reimbursements to real costs: Link Medicare (and encourage private payer) updates more closely to practice expense inflation, such as through the Medicare Economic Index. This would help stabilize practices and reduce financial pressure on providers.
• Expand tax relief for health care expenses: Build on existing precedents like tax-free tips and overtime by making health care costs more tax-free for working Americans. This could include fully deducting insurance premiums (above-the-line where possible), allowing 100 percent deductibility for out-of-pocket medical expenses (with reasonable upper limits to focus benefits on working families and prevent high-income gaming), and broadening relief for health care-related costs.

Current tax rules already allow itemized deductions for medical expenses exceeding 7.5 percent of adjusted gross income, and self-employed individuals can deduct premiums. Expanding this, similar to recent “no taxes on health care” legislative ideas, would deliver direct, immediate relief to families struggling with premiums and bills. It puts more money back in patients’ pockets, potentially improving affordability and access without adding new bureaucracy.

These changes focus on working people who feel the pinch most. By reducing the effective cost of care through the tax code, we ease pressure on both patients and providers.

Looking ahead

The data is clear: ballooning administrative demands are diverting dollars from care, pressuring provider finances, driving burnout, and limiting what doctors can do for patients. Insurers and regulators have roles to play in rebalancing incentives.

A combination of administrative simplification, inflation-adjusted payments, and meaningful tax relief on health care expenses offers a practical path forward. These steps are grounded in evidence from organizations like the AMA, CMS data, and independent analyses. They could reduce waste, support a healthier workforce, improve patient access, and make the system feel fairer overall.

It’s a complex challenge, but one we can tackle thoughtfully. Providers want to practice medicine, not paperwork. Patients deserve timely care without unnecessary hurdles. Getting this right benefits everyone.

Kayvan Haddadan is a physiatrist and pain management physician, and president and medical director of Advanced Pain Diagnostic & Solutions, a multidisciplinary pain management practice in California that he founded in 2012. A physician and surgeon licensed by the Medical Board of California, he is double board-certified in pain medicine and physical medicine and rehabilitation. He is also certified in controlled substance registration through the DEA and serves as a qualified medical examiner through California’s Department of Industrial Relations Division of Workers’ Compensation.

Dr. Haddadan earned his Bachelor of Science degree from the College of Alborz in Tehran, Iran, and his medical degree from Shahid Beheshti University of Medical Sciences. He later received his Educational Commission for Foreign Medical Graduates certification in Philadelphia, completed an internship in medical surgery at Loyola University Medical Center’s Stritch School of Medicine in Illinois, and finished his residency in physical medicine and rehabilitation at the same institution. He completed his fellowship in pain medicine at California Pacific Medical Center’s Pacific Pain Treatment Center and also trained in medical acupuncture for physicians at the University of California, Los Angeles David Geffen School of Medicine.

Dr. Haddadan has contributed to 29 research publications across multiple specialties, including pain management, cardiology, pulmonology, endocrinology, gastroenterology, and infectious disease. His work has examined topics such as hyperlipidemia in high cardiovascular risk patients, hyperuricemia and gout management, type 2 diabetes and hypertension, chronic obstructive pulmonary disease and asthma therapies, influenza treatment, irritable bowel syndrome, and opioid related complications in chronic pain care. His research has also included clinical outcome studies in spinal cord stimulation and award-winning presentations on neuropathic pain management and neuromuscular disorders.