Medicare Myth: Low Administrative Cost

Busting the Adminstrative Cost Myth
07/03/09 - Real Clear Politics by Tom Bevan

Bevan looks at statements by Paul Krugman and Jonathan Alter.

[edited] Alter: The administration of Medicare is a miracle of low overhead, and a model of what government can do right, despite all the fraud and abuse. 3% of Medicare's premiums go for administrative costs, compared to 10% to 20% of private-insurance premiums.

Henry Stern below reports that private insurance administrative costs are 12% of total health care costs paid by them, not the "10-20%" exaggerated above.

Note that Alter praises Medicare by calling the overhead figure a miracle. Even he hardly believes that figure. I suppose a miracle doesn't require investigation or explanation. Government just does this better; they are masters at administration! Bevan debunks this:

[edited] The miracle of Medicare administrative efficiency is really just a statistical sleight of hand.

• Medicare serves a population that is elderly and receives much more medical care, making administrative costs smaller as a percentage of total costs.
• Private insurers have a number of "administrative costs" that Medicare does not have, like state taxes of 2-4% on health insurance premiums. These can't be reduced by better administration.
• On a per-person basis between 2001-2005, Medicare's administrative costs were 24.8% higher than private insurers.

Again, Medicare's patients are sicker, so we would expect somewhat higher administrative costs per person as compared to all insured people. I can't know from these figures if 24.8% higher costs are justified by this sicker population.

Read more ...

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Busting the Myth of Medicare's "Low Administrative Cost"
07/02/09 - RightWingNews by McQ

A fine summary and analysis of the above post by Tom Bevan, with a link to more information from John Stossel.

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Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance
06/25/09 - Heritage.org by Robert A. Book, Ph.D.
Via Roger's Rules

[edited] Advocates of a public health care plan say that Medicare has administrative costs of 3% (6-8% including support from other government agencies), compared to 14-22% for private health insurance through employers, and even more for individual insurance.

Advocates say government is just more efficient, and claim that private insurers impose excess costs through marketing, spending to deny claims, high executive salaries, and unrestrained profit.

But, Medicare's administrative costs per person are actually higher than those of private insurance. Higher, despite that private companies incur costs that do not apply to Medicare. Recent history predicts that switching 200 million Americans to a public plan will increase administrative costs by several billion dollars.

The bulk of administrative costs are incurred per-person. Medicare beneficiaries average more health care services than the privately insured. Dividing administrative costs by total medical costs gives Medicare a smaller percentage merely because it administers more medical expense per person.

Administrative costs per person in 2005: Medicare $509, private $453.

For years 2000-2005, Medicare's administrative costs per person were from 5% to 48% higher than private costs (see Table 1 in the article). This, despite "administrative" expenses included in private plans which Medicare does not have. These include state health insurance taxes averaging 2% (as high as 4%), and the cost of non-claim health care expenses, such as disease management and on-call nurse consultation.

Note that the costs of marketing and profit, cited by pubic plan advocates as big expenses, are included in the figures for private insurance costs.

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Public Plan or Bust
07/03/09 - InsureBlog by Henry Stern

Stern gives a view of healthcare proposals from the side of an agent offering private insurance. He describes the incentives and pressures on employers.

[edited] All protestations to the contrary, it certainly appears that our political class is dead-set on making the Public Plan the only plan.

Our best guess: employers will quickly drop their group plans altogether, leaving millions of previously privately insured folks to hop onto the new Public Plans.

A similar program in Massachusetts has led to major shortages and cost overruns, while doing nothing to address the underlying problem of escalating health care costs. Regardless, the plan makes it a "no brainer" for medium and large businesses to delete their group insurance plans:

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The Decision to Opt Out of Medicare
07/08/09 - by Dr Alan Dappen (Via Instapundit)

Medicare claims very low administrative expenses, but doesn't count the administrative burden imposed on doctors. Even fines should be included. Doctors must charge more to cover these expenses, refuse Medicare patients, or close their practices.

[edited] Our medical practice cannot afford to accept medicare patients. Medicare won’t pay for phone or email consultations, barely pays for an office visit, and far underpays to cover a house call.

These services are critical to our medical practice. Medicare would require us to hire too many staff to do too much paper work and administration. Medicare has too many regulations. We can’t understand a lot of them, and Medicare doesn’t seem to understand them either, most of the time.

If I accepted Medicare, then they would have the right to audit our notes and then fine us for non-compliance, for infractions that are not readily clear. Their auditors are paid for every infraction they find, so the temptation to levy fines is irresistible.

Fundamentally, Medicare does not focus on what is most important: practicing effective and efficient medicine to maintain the good health of our patients. Medicare’s paltry reimbursements are coupled with regulations impossible to satisfy. This would not allow us to offer a complete service to our patients, wellness care and the time needed to understand each patient’s unique medical needs and circumstances.

( There is more )

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A 2-minute video clip shows Rep. Jan Schakowsky (D-IL) on 4/18/09 speaking at a rally for Obama's healthcare reform. Schakowsky is emotional and determined.

[edited] (1:23) Those of us who are pushing for a public health insurance option don't disagree with the goal [of a single payer government health plan]. This is not a principled fight. This is a fight about strategy for getting there, and I believe we will.

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What They Sell Versus What They Really Want!
08/02/09 - Economic Swim

A 2 minute video of President Obama's remarks past and present, about a goverment option for healthcare leading to a government run, single payer system. I think the idea is that the government run option will be fair, because it will be, in time, the only option that there is.