The latest talking points, delivered by top Democrats and echoed in a town hall question to Republican Senator John McCain, is that government-run health care would be good because Medicare is more efficient than private insurance.
Not so fast, says Fox News analyst James Farrell:
There are three general points to keep in mind:
(1) The Democrats are comparing apples and oranges because Medicare is not subject to many of the costs that private plans are;
(2) If you compare similar services on a per patient basis, private health care companies are more efficient than the government; and
(3) Medicare is administered largely by private insurance companies "“ the federal medical programs which are primarily internally administered are even less efficient than private insurance plans (even including all the costs which private companies bear and which the government is exempt from).
Why you cannot compare Medicare with private insurance
First, private insurance plans must pay government taxes and assessments up to 5% of premiums. These add to the "overhead" costs. Medicare is exempt from these costs.
Second, in determining the overhead costs for Medicare, the government excludes the cost of its own employees who enroll recipients, perform outreach and education, handle customer service, and do auditing and other functions. Private plans include these in overhead.
Third, insurance companies have to collect premiums. The IRS does that for Medicare.
Fourth, private companies do underwriting; their premiums have to cover their costs. Medicare deficits have to be covered by taxpayers.
Fifth, the cost of servicing the public debt is not included in Medicare costs"”and Part B is 75% subsidized by general revenues, not beneficiary premiums. If a private insurance company borrows money, the interest paid goes to its overhead.
Comparing on a per patient basis
Even including all the advantages that Medicare has over private plans, if you compare administrative costs on a per patient basis, private plans are far more efficient that Medicare.
For example, the Heritage Foundation found that 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.
Year Medicare admin costs per patient Private insurance Govt higher by
2000 $380 $256 48.4%
2001 $386 $281 37.5%
2002 $420 $411 22.7%
2003 $433 $425 5.3%
2004 $521 $425 22.7%
2005 $509 $453 12.3%
Similarly, a study by the Sherlock Company for the Blue Cross and Blue Shield Association in 2009 found that "[i]n comparing only those administrative functions that Medicare performs, private administrative costs are actually lower "” $12.51 per member per month, compared to a $13.19 per member per month in traditional Medicare.
So how can Democrats claim that Medicare is more efficient than private insurance? They look at statistics comparing administrative costs as a percentage of total claims paid out (and not on a per beneficiary basis).
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.
Comparing to government plans which are not privately administered
The alleged "efficiency" of government-run health care over private industry is similarly debunked when you compare the administrative costs of the health care plans that the government internally administers versus private insurance.
According to a March 2009 analysis done for the Association of Health Insurance Advisors, if you exclude Medicare, the administrative costs as a percentage of total claims for the other government-run health care programs which are internally administered (Medicaid, VA, etc) is 26%. This is more than twice as high as the 12.7% figure for privately paid health care (even without adjustments for taxes and assessments).
Looking at cost per person is not an accurate way to compare administrative costs. You have a elderly base of people who have multiple procedures, appointments, drugs etc compared to a base of people who may or may not have any of these things. One person has 300 invoices, procedures etc. another has two. Talk about apples and oranges
The government already covers the elderly, poor, children, Veterans, and the disabled. Let’s consider the working poor, small businesses who can’t afford it, people with preexisting conditions, young people just starting out, and people who have lost their johs and find themselves without insurance…private insurers aren’t going to be too thrilled with these groups!
Elizabeth
Please don’t fax, email or hand deliver this to anyone in Washington DC. If you do they will all feel foolish and stupid for suggesting government healthcare and we wouldn’t want that!
You make your point that you can’t compare apples to oranges and then justify your conclusion by comparing apples to oranges. Medicare costs will be higher because they include, as you say, elderly, disabled or patients with end stage renal disease – and patients who can’t get private insurance. So you can’t compare Medicare and private insurance on a per patient basis either. And you can’t compare just administrative costs, you have to include the insurance companies’ profit margin because this is the cost to you and me – paying for executives, and the stockholders. Also, I’m sorry, having Rush’s picture literally on the Heritage Foundation’s web site does not give the sense that these figures are useful. It is also a mistake to hold private insurance up as the gold standard, it by definition doesn’t work as well for the doctor and patient as it does for the company itself; and over the last two decades I’ve been in the field the insurance companies have been getting stronger and stronger. Too much so.
I’m tired of both sides just bashing each other with propaganda arguments. If you don’t like a their public plan then start pushing for insurance reform or tort reform. I’d like to see something positive done. We need to get something out of this rather than just defeating the other side.
Tort reform ……… did you listen to the Democrat response to Tort reform, you can’t do that, how would a jury ever be able to give a 20 billion dollar lottery win to a smoker. Tort reform in the USA, are you crazy?
Wow! I had been scouring the Net for just these kinds of facts and the only thing I was finding was the admin cost/beni's paid. This really frames the cost of overhead argument very well. Please make it a feature story on Fox News at 6PM or maybe have O'Reilly put it into his Talking Points. Please!
the average life expectancy of u.s.citizens is about 55th in the world and the infant mortality rate is about 45th best. this is according to the cia factbook. we pay far more per citizen than any other country for health care. this obviously includes all the socialized medicine countries like canada and france. why are their people more healthy? where is all the money going?
french drink more …. where are you getting these statistics?
Very good article. My analysis shows that larger group plans have lower admin costs even when using a per cent of claims format.
Not to mention the overhead incurred by hospitals, physician’s offices and clinics by having to hire extra staf just to deal with Medicare’s red tape to get clains processed. If we truly want to see Healthcare reform start with Medicare and Medicaid. Privae insurance does need to be looked at as well.
The one flaw in this analyses is that it does not factor in the many frustrating hours spent by subscribers doing battle with private insurers over claims. As a person who has been covered by both types of medical coverage I can attest to the fact that while I often had to contact my private insurer, I have spent litterally no time with Medicare over my coverage and claims during the seven years I’ve been on Medicare. I doubt if there are very many people on private insurance who can make the same claim. I think that’s worth the so-called 12% difference in G&A costs.
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