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Healthcare administration costs hold valuable lesson

There was an interesting article in Time Magazine earlier this month about the impact of administrative costs on healthcare in the United States. The bottom line is that the US spends $2,500 per person per year on healthcare administration.

It is impossible to fully eliminate administrative costs, but if the US were to bring the cost of healthcare administration down to $550 per person – which is what Canada spends on the same function – it would have a profound effect on the cost of healthcare in the United States. Reducing healthcare administration costs by 78% in the US would save $600B each year.

According to the Time article, that would provide enough funding to insure the uninsured in the US and eliminate all co-pays and deductibles for individual payers. That would also leave enough money to pay for in-home health care for the elderly and the disabled in the United States.

Instead, we devote that money to healthcare administration costs.

Parallels between healthcare and education administration costs

The impact of uncontrolled administration costs is not unique to healthcare. Education administration costs in the United States rose from less than $21B in 1980 to $123B in 2014. During the same period, overall spending on instruction at higher ed institutions declined by 12%.

Increasing the size of an institution’s administration does not just increase spending. It brings a more pernicious problem along for the ride. The increase in the size of higher education administration tracks with the increase in construction spending on campuses. In other words, administrators build buildings. Buildings come with long term costs – both in terms of initial debt and ongoing operations. Once you build a building, you can never get out from under its costs.

Unfortunately, very little new construction on campus improves the students’ learning experiences. Instead, administrators prefer construction projects that either generate revenue or benefit themselves.

This phenomenon has played out at WCC. Of the 10 buildings built on campus since 2003, only three had any academic utility at all. But the students pay for these buildings whether they use them or not. And because the Board of Trustees finances these projects in the costliest possible way, the students pay dearly. Since 2003, tuition at WCC has increased by more than 58%.

The community can no longer afford to have Trustees who blindly authorize the ceaseless rise in WCC’s administration costs. This approach has resulted in millions in additional expenses for everything from unchecked executive hiring to unsustainable “investments” like the Health and Fitness Center.

Uncontrolled administration costs have consequences

Rising administrative costs have real consequences. Each extra dollar spent on administration takes a dollar away from instruction. It also puts college education out of reach for the poorest residents. Cutting the cost of administration (by cutting its size and limiting non-academic construction spending) would have a profound effect on the cost of attendance at WCC. As a way to control administrative costs, the state should require public institutions to publicly disclose their administration costs.

If students understood – in dollars -what WCC’s oversized administration costs them, how many of them would continue to enroll?

Photo Credit: 1Day Review , via Flickr