Medicare Is More Efficient If You Ignore Its Inefficiencies

One of the most common arguments made by advocates of single-payer health care is it's a more efficient way of financing care. Its administrative costs are lower, the argument goes, which means that more of the money spent on the program goes to actually paying for care rather than marketing expenses and corporate profits. The problem with this argument, as National Center for Policy Analysis President John Goodman points out in Health Affairs, is that when you look at all the costs involved in administering the program, it's just not true:

What about the claim that Medicare’s administrative costs are only 2 percent, compared to 10 percent to 15 percent for private insurers? The problem with this comparison is that it includes the cost of marketing and selling insurance as well as the costs of collecting premiums on the private side, but ignores the cost of collecting taxes on the public side. It also ignores the substantial administrative cost that Medicare shifts to the providers of care.

Studies by Milliman and others show that when all costs are included, Medicare costs more, not less, to administer. Further, raw numbers show that, using Medicare’s own accounting, its administrative expenses per enrollee are higher than private insurance. They are lower only when expressed as a percentage – but that may be because the average medical expense for a senior is so much higher than the expense for non-seniors. Also, an unpublished ongoing study by Milliman finds that seniors on Medicare use twice the health resource as seniors who are still on private insurance, everything equal.

Ironically, many observers think Medicare spends too little on administration, which is one reason for an estimated Medicare fraud loss of one out of every ten dollars of Medicare benefits paid. Private insurers devote more resources to fraud prevention and find it profitable to do so.

It's hard to defend the efficiency of any program that, according to the government's own estimates, makes nearly $50 billion in bad payments every year (a figure that doesn't even include bad payments in the prescription drug program). And as Goodman points out, higher administrative costs can sometimes actually lead to greater efficiency. One of the ways that Medicare has historically been able to lower its total administrative spending is by skimping on fraud prevention. I say historically because in coming years, fraud prevention will probably be more difficult for private insurers thanks to regulations included in last year's health care overhaul that require insurers to cut back on certain types of administrative expenses. 

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  • rts||

    I had this exact argument with someone the other day, pointing to NEMJ studies showing Medicare is 3x more efficient than any private provider, or some such. All evidence to the contrary was dismissed as "right-wing talking points".

    I'm starting to believe there is no way to reason with progressives.

  • ||

    You can often reason with people who genuinely wish the best for their fellow man and are misguided useful idiots.

    Mostly, though, you can't. They'll just come up with copious amounts of infantile bullshit to counter your arguments and bitch all the way to the union rally downtown.

  • rts||

    I gave up on the conversation (it was online) when they were singing the praises of efficiency not just for (US) Medicare, but Canadian Medicare and the NHS in UK.

  • ||

    At that point, you can read them a burial prayer and bid them farewell -- they've reached the heights of stupidity.

  • sarcasmic||

    Anyone who can explain something in terms that it can be rationally understood cannot be an expert.

    An expert is someone who tells you that something is so complicated that only they can understand it, and you must accept their evaluation rather than make your own.

    Your mistake is that you are trusting your own evaluation of what non-experts (people who explain things) have told you.

    To reason with a progressive you must accept the word of experts and do no rational evaluation of your own.

    At that point you will agree with the progressive, and all that's left to talk about is how stupid those right wingers are for trying to understand things that only an expert can comprehend.

  • A. Raven Thomson||

    What we need are panels of experts to rule over us!

  • ||

    Reality-based community indeed.

  • ||

    Goodman claims that Medicare administrative costs don't include the cost of collecting. Absolutely absurd. What costs? The Medicare tax is electronically collected from employers at the same time as income taxes. And it is simply electronically tranferred to Medicare. Private individuals who are self-employed file their quarterly taxes, including Medicare tax. The Medicare tax is 1.45% for employer and 1.45% for employee. For self-employed it is 2.9%. As for additional administrative costs to doctors and hospitals. They don't hire separate people just to administer Medicare claims. They have to hire staff to deal with the fragmented system we have. It is estimated that the excess administrative costs to doctors and hospitals to deal with the myriad of different insurances accounts for about 10% of their gross revenues.

    As for fraud, it is rife; but one of the nations leading experts, Malcolm K. Sparrow, in his book, "License to Steal: Why Fraud Plagues America's Health Care System," Westerview Press, 1996, points out that fraud is equally a problem for the private health insurance industry and that both they and Medicare have done a poor job of combatting it. He also points out that for every dollar spent on dealing with fraud, eight or more dollars are recovered. Though it would not automatically change things, under a single-payer system, not only would overall administrative costs be far less; but it would be easier to develop systems and approaches to combatting fraud.

    It is the height of absurdity to claim that any single-payer system could possibly cost as much or more than our current fragmented dysfunctional system. With Medicare, there is one set of fees. Even with one for-profit insurance company there are a myriad of different policies, e.g. different copays, different deductibles, different referral networks (e.g. Point of Service, Preferred Provider, HMO), because of different group policies and different individual polices. Single-payer doesn't advertise, doesn't have field agents selling policies, doesn't take out dividends, doesn't pay obscene amounts to their CEOs and other higher management. And other administrative costs incurred by for-profits such as negotiating with individual doctors, groups, hospitals, pharmaceutical companies and the poor doctors have to devote time to all these negotiations. And doctors can't develop working relationships with a limited number of specialists since different insurance mandate or limit referrals to different networks, etc.

  • NotSure||

    If single payer is such a wonderful idea, why not apply it to other industries. Airlines, cars, telecoms etc, all these can be made cheaper by eliminating advertising and duplication. Clearly it is absurd to have "single payer" for these, but somehow this is the silver bullet for medical insurance.

  • mr simple||

    Clearly it is absurd to have "single payer" for these

    I'm not sure it's that clear to everyone, especially people advocating single payer health insurance.

  • rts||

    Apparently that's also a "right-wing talking point".

  • ||

    You're clearly a redneck with a sloped forehead and 10000000000000000000000000000000000000 guns. You probably also sympathize with the League of the South, hate Asian children, and want the elderly to die in the streets.

    Am I right?

  • rts||

    Well, no, Asian children are delicious.

    The only problem is you're just hungry again an hour later.

  • some guy||

    10000000000000000000000000000000000000 guns.

    That many guns would have the mass of a small galaxy. That's a lot of guns.

  • ||

    You ain't seen nothin' yet! I bet those KKK sympathizers at the NRA have even more!

  • BakedPenguin||

    You forgot "clinging to your religion"...

  • omg||

    Indeed it would. Assuming each gun weighed 3 kgs, that would make the total mass 3.0 * 10^37. That would be a dwarf galaxy with a mass of one millionth the mass of the milky way, except it would be made of guns and not stars.

  • rts||

    My God... it's full of guns.

  • ||

    You cannot compare health care to private industry. The health of a nation's population is fundamental to its success in all areas. It is like education---we can't be competitive without it. But health care is also a basic human right for any industrialized country.

  • mr simple||

    require insurers to cut back on certain types of administrative expenses. 

    That's just called leveling the playing field. Everyone will realize how great Medicare is when all the other insurers are forced to act just like Medicare. You're not against equality, are you?

  • Max||

    Unregulated markets are more efficient if you ignore their inefficiencies.

  • ||

    Ok Max, I'll bite. Where are these unregulated markets of which you speak?

  • Max||

    The ones you free-market fundamentalists pull out of your fat asses and would like to impose on the rest of us.

  • rts||

    I don't think this word "impose" means what you think it means.

  • KDN||

    How dare you seek to impose freedom! Don't tread on my right to be free from choice!

  • Tony||

    I don't think you get to evade responsibility for imposing against people's will just because you happen to name it freedom. The whole reason why you guys are wrong is because you define freedom so narrowly as to be synonymous with oppression.

  • KDN||

    Choice is oppression. Got it.

  • Max's dad, speaking of mom||

    i fucked a goat and liked it

    i hope the spca dont mind it

  • fish||

    Max is sitting in the basement of his moms house worrying there is someone out there not adequately governed.

  • sarcasmic||

    [sarcasm off]
    Incentives matter.

    What incentive is there to root out abuse in socialized medicine? It's not like there is a profit to be made.

    What incentive is there to innovate and come up with new products and services in socialized medicine? It's not like there's a profit to be made.

    What incentive is there to get things done quickly and efficiently in socialized medicine? It's not like there is a profit to be made.

    All socialized medicine has is good intentions.
    We know where that path leads.

    [\sarcasm off]

  • KDN||

    They'll just do it for the children.

  • some guy||

    What incentive is there for any government project to be efficient? The harder they fail, the more money they get next year! All they really have to do is avoid major scandals, where "major" is relative to the size of the project.

  • ||

    We're dealing with people who regard profit as some sort of Original Sin. They don't know--or can't accept--the fact that profit (and loss) are important signals in a functioning economy.

  • sarcasmic||

    For these people everything is a popularity contest.
    They latch onto ideas because of a perception of popularity.
    Even if they understood how profit, loss, and price signals sort the good from the bad bring goods to where they are needed, they don't give a shit.

    Espousing such things do not make you popular.
    Look at Krugman.
    The economist in him knows that his columns are full of outright lies.
    But spewing that shit makes him popular.

  • some guy||

    They don't know--or can't accept--the fact that profit (and loss) are important signals in a functioning economy.

    They also don't get that profit is a pretty good indicator of how much value you have added to the world.

  • ||

    You're exhibiting an MBA, intrinsically paternalistic type of thinking. You've got to get past that, or something.

  • ||

    http://www.nytimes.com/2011/08.....uel&st=cse

    "The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed by President George W. Bush, put an end to this arrangement. It required Medicare to pay the physicians who prescribed the drugs based on a drug’s actual average selling price, plus 6 percent for handling....
    ....
    The act had an unintended consequence....
    In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share. But if a shortage develops, the drug’s price should be able to increase again to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening...."

    Funny how government setting prices means we get less of what we want...
    Well, we will just have to form gulags to make those people make cancer drugs. Floggings will spur inovation...

  • ||

    I would take those Medicare fraud numbers with a grain of salt. In the home medical equipment industry, a "bad" payment may be due to something as minor as a physician's signature that is hard to read. In the HME world, Medicare's documentation and process requirements are much more demanding and arbitrary.

  • Paul||

    I say historically because in coming years, fraud prevention will probably be more difficult for private insurers thanks to regulations included in last year's health care overhaul that require insurers to cut back on certain types of administrative expenses.

    I ask again, if healthcare is a right, then what is healthcare 'fraud'?

  • cynical||

    Getting money intended for healthcare but spent on something else that isn't a right?

  • ||

    Goodman claims that Medicare administrative costs don't include the cost of collecting. Absolutely absurd. What costs? The Medicare tax is electronically collected from employers at the same time as income taxes. And it is simply electronically tranferred to Medicare. Private individuals who are self-employed file their quarterly taxes, including Medicare tax. The Medicare tax is 1.45% for employer and 1.45% for employee. For self-employed it is 2.9%. As for additional administrative costs to doctors and hospitals. They don't hire separate people just to administer Medicare claims. They have to hire staff to deal with the fragmented system we have. It is estimated that the excess administrative costs to doctors and hospitals to deal with the myriad of different insurances accounts for about 10% of their gross revenues.

    As for fraud, it is rife; but one of the nations leading experts, Malcolm K. Sparrow, in his book, "License to Steal: Why Fraud Plagues America's Health Care System," Westerview Press, 1996, points out that fraud is equally a problem for the private health insurance industry and that both they and Medicare have done a poor job of combatting it. He also points out that for every dollar spent on dealing with fraud, eight or more dollars are recovered. Though it would not automatically change things, under a single-payer system, not only would overall administrative costs be far less; but it would be easier to develop systems and approaches to combatting fraud.

    It is the height of absurdity to claim that any single-payer system could possibly cost as much or more than our current fragmented dysfunctional system. With Medicare, there is one set of fees. Even with one for-profit insurance company there are a myriad of different policies, e.g. different copays, different deductibles, different referral networks (e.g. Point of Service, Preferred Provider, HMO), because of different group policies and different individual polices. Single-payer doesn't advertise, doesn't have field agents selling policies, doesn't take out dividends, doesn't pay obscene amounts to their CEOs and other higher management. And other administrative costs incurred by for-profits such as negotiating with individual doctors, groups, hospitals, pharmaceutical companies and the poor doctors have to devote time to all these negotiations. And doctors can't develop working relationships with a limited number of specialists since different insurance mandate or limit referrals to different networks, etc.

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