In fact, as the Heritage Foundation’s Robert Book explains in a must-read memo on the subject, “Medicare’s administrative costs are actually higher than those of private insurance–this despite the fact that private insurance companies do incur several categories of costs that do not apply to Medicare.”
Book makes the follow points:
1) Medicare patients are by definition elderly, disabled, or patients with end-stage renal disease, and as such have higher average patient care costs, so expressing administrative costs as a percentage of total costs gives a misleading picture of relative efficiency. Administrative costs are incurred primarily on a fixed or per-beneficiary basis; this approach spreads Medicare’s costs over a larger base of patient care cost.
2) In the case of private insurance, administrative costs are measured by the difference between premiums collected and claims paid. The result is that this includes some costs that are not really “administrative.”
For example, many private insurers provide disease management services for patients with chronic conditions and/or on-call nurses for patients to consult by phone. Because these services are provided directly by the insurance company, they do not result in a claim being paid. In addition, most states impose a “premium tax” on health insurers; this tax is obviously not a health benefit claim. However, because all non-benefit costs are defined as “administrative,” these and other similar expenditures are reported as administrative costs.
3) Medicare beneficiaries are by definition elderly, disabled, or patients with end-stage renal disease. Private insurance beneficiaries may include a small percentage of people in those categories, but they consist primarily of people are who under age 65 and not disabled. Naturally, Medicare beneficiaries need, on average, more health care services than those who are privately insured. Yet the bulk of administrative costs are incurred on a fixed program-level or a per-beneficiary basis. Expressing administrative costs as a percentage of total costs makes Medicare’s administrative costs appear lower not because Medicare is necessarily more efficient but merely because its administrative costs are spread over a larger base of actual health care costs.
Bottom line?
4) Medicare administrative costs per beneficiary have substantially exceeded those costs for the private sector, this despite the fact that, as critics note, private insurance is subject to many expenses not incurred by Medicare. Contrary to the claims of public plan advocates, moving millions of Americans from private insurance to a Medicare-like program will result in program administrative costs that are higher per person and higher, not lower, for the nation as a whole.
The fact that Anthony Weiner either 1) doesn’t know this or 2) knows it and refuses to acknowledge it is one more reason that public skepticism about health-care reform is widespread and growing. More and more people understand that they are being sold a bill of good by a coterie of politicians whose chief interest is not in serving the public but in enlarging their own political prerogatives. And that recognition is yet another reason that politicians like Anthony Weiner should start thinking seriously about career counseling.
This is the first thing you should know about Congressman Anthony Weiner: he will not be participating in the proposed health care system designed for the common folks. This man is a member of the elites and will continue getting the best medical treatment possible. This dude will not be standing in any lines waiting for medical treatment.
It is also a mistake not to distinguish between large and small picture economics. The economic doctrines of Ludwig Von Mises and Friedrich Hayek are best for the vast majority of people. However, if you a cynical elitist—the works of John Rawls and John Kenneth Galbraith are ultimately right up your alley. They provide the intellectual underpinnings to justify paying elites like Weiner huge salaries accompanied along with the ability to punish dissenters.
One way of dealing with potential biases between a healthcare provider that deals with only one par of the population is to compare universal public care to private costs.
UK public healthcare has an administration overhead of 4%. (source Hansard)
http://www.publications.parliament.uk/pa/cm199697/cmhansrd/vo961203/text/61203w18.htm
US overhead is 31% (source NEJM)
http://content.nejm.org/cgi/content/short/349/8/768
So, yes there may be a lot of money to be saved by moving towards public health care.
Jon Stewart est un dique.
È un putz, questo Jon Stewart.
I work in a hospital billing office. Yup, billing Medicare. What people think they know about Medicare (or should I say what they don’t know about Medicare) is astounding. I suppose the “low” overhead claim is a claim to efficiency. If they are so efficient why do they constantly reduce reimbursement and benefits but increase Medicare deductibles? This year’s Medicare deductible is $1,100.00 and that isn’t a one time deal for the year like private insurance. Medicare patients pay it for each in-patient stay that is 60 days apart. If they go back into the hospital again within 60 days of the last stay, they do not pay it again. Unless they have a supplement plan it puts quite a dent in their social security checks which for many is their sole source of income. And so the government thinks it knows what an AFFORDABLE public option is? Medicare billing is complicated and time consuming. Their manuals are as clear as mud. If time is money and a larger amount of folks go into a public option that is based on Medicare, hospital and physician costs will go up to meet the additional administrative burden. And no, the reimbursement from an increase in the number of beneficiary claims won’t make up for it. Currently Medicare often pays only a fraction of cost. They rarely pay enough for a hospital to make any profit from their reimbursement. Any profit hospitals make is from private health insurance reimbursement which pays 70% or more of what is charged, not just cost. Some people think hospitals don’t need to make a profit. Are they kidding? What do they think pays for all that high tech, latest in technology equipment and treatment that diagnoses and cures their ills?
re: ” … the statistic that Congressman Weiner proffered to viewers of The Daily Show: that Medicare operates with 1 percent overhead while private insurance companies operate with ‘about a 30 percent overhead.’”
it is likely that Congressman Weiner’s source for this claim is a NYTimes op/ed piece by Prof. Paul Krugman (unfortunately i can’t find a link to it).
interestingly, though Prof. Krugman still claims a substantial cost advantage in the administration of Medicare, in responding to the Heritage Foundation paper he has substantially reduced the claimed advantage to 11% (or, alternatively, 16.7%) vs under-2%: http://krugman.blogs.nytimes.com/2009/07/06/administrative-costs/
btw, i favor Medicare-for-all (just as i favor police and fire protection, national defense, and public education for all). i don’t, however, favor making ridiculous claims about their supposed greater economic efficiency.