Rossputin.com Rational Thinking About Our World

Over at the Peoples Press Collective, a commenter posed the usual liberal canard that Medicare is more efficient than private insurance. Here’s the right answer:

Beth,

You need to get your facts straight. First of all, administrative costs at private companies are generally estimated around 18% (plus or minus a few percent), not 30%. More importantly, that 3% number for Medicare is partly a myth and completely misleading.

On a per-insured person basis, Medicare’s administrative costs are HIGHER than private insurance.

The Heritage Foundation lays out the argument very well at http://www.heritage.org/Research/HealthCare/wm2505.cfm

To save you the reading, here’s a summary: Describing administrative costs as a percentage of total health care spending is extremely misleading because Medicare covers older people, i.e. people whose health care costs are much higher on average than the rest of the population.

Here’s an analogy from Heritage: “Imagine, for a moment, that Fred and Jane each have a credit card from a different bank. Fred charges $5,000 a month, and Jane charges $1,000 a month. Suppose it costs each bank $5 to produce and send a plastic credit card when the account is opened. That $5 “administrative cost” is a much lower percentage of Fred’s monthly charges than it is of Jane’s, but that does not mean Fred’s bank is more efficient. It is purely a mathematical artifact of Fred’s charging pattern, and it would be silly to compare the efficiency of bank operations on that basis. Yet that is how many analysts compare Medicare with private insurance.”

There are other problems with your argument. For example, other parts of government are used to support Medicare, i.e. the Treasury to collect taxes. If you add in the costs of these functions, the apparent administrative cost of Medicare doubles.

When you compare apples-to-apples, i.e. on a per-person basis, you get this result:

“When administrative costs are compared on a per-person basis, the picture changes. In 2005, Medicare’s administrative costs were $509 per primary beneficiary, compared to private-sector administrative costs of $453. In the years from 2000 to 2005, Medicare’s administrative costs per beneficiary were consistently higher than that for private insurance, ranging from 5 to 48 percent higher, depending on the year (see Table 1). This is despite the fact that private-sector “administrative” costs include state health insurance premium taxes of up to 4 percent (averaging around 2 percent, depending on the state)–an expense from which Medicare is exempt–as well as the cost of non-claim health care expenses, such as disease management and on-call nurse consultation services.”

“It is worth noting that some of the additional private-insurance costs cited by pubic plan advocates, such as marketing and profit, are included in the above figures for private-insurance administrative costs. Directly provided health services and state health insurance premium taxes are also included.

Even without these costs, Medicare administrative spending is still higher–suggesting that Medicare’s administration is even more inefficient compared to private insurance than is suggested by its higher per-beneficiary administrative costs.”

Furthermore, those who want to argue for Medicare’s efficiency based on “administrative” spending (even though Medicare is NOT more efficient in that or any other area) neglect to recognize the massive cost of fraud and abuse (which are generally in fraudulent claims so they don’t show up as administrative spending.)

Medicare fraud is ENORMOUS and expensive. Private companies spend a lot of administrative money preventing fraud and abuse whereas Medicare is unable to stop fraud and abuse. Just another reason that it’s all the more remarkable that private insurance is actually more efficient in the administrative area than Medicare is.

According to ABC News, fraudsters take $68 billion a YEAR from Medicare: http://abcnews.go.com/print?id=7508614

According to the American Association of Physicians and Surgeons, “Medicare fraud is estimated at 10% of total dollars spent, and can be expected to increase as the “baby boomers” reach Medicare-eligible age.”
http://www.aapsonline.org/fraud/medfraud.htm

If that cost were accounted for in the same way that you implicitly penalize private firms for stopping such abuse by criticizing their administrative costs, you would find that Medicare’s costs are not just higher than private companies’ on a per-person basis, but MUCH higher.

Here’s more on Medicare fraud:
http://www.nytimes.com/2008/08/21/business/21medicare.html
http://www.msnbc.msn.com/id/22184921

And, as if they were reading my mind, just after I wrote this note I received notification of a new study by congressional staff entitled “Medicare Experience Suggests Americans Should Expect Massive Fraud with Nationalized Health Care” which you can read HERE.

So, Beth, you are simply parroting more of the left’s talking points (aka lies) in support of a government takeover of medicine. Why don’t you think about Barack Obama’s apparent slip of the tongue when he compared the Post Office to FedEx and UPS. The Post Office is going to lose $7 billion this year even after regularly raising rates faster than inflation over recent years. Even during this brutal recession, however, FedEx is (slightly) profitable. Do you really want to have the Post Office of health care systems?