Medicare’s Administrative Cost — The Last Word, I Hope
As I have written before, no one knows what administrative costs are. Like “fraud and abuse,” there is typically no line item for the expense. Even if there were, it would be an arbitrary number. So why do people obsess over it? Because the socialists have decided that in places like Canada, administrative costs are lower than they are in the United States. These same folks and the columnists who parrot their views in the popular press also claim Medicare is less expensive to administer than private insurance.
In the latest foray, Yuval Levin at NRO argues that Medicare’s administrative costs are underreported in a column responding to Paul Krugman. Although he points out that “fact checking Krugman is rarely worth the time,” he has some good observations. See our own response to the Krugman column as well. In addition to Levin’s case, Tyler Cowan observes that the cost of collecting taxes is 20% or more of each dollar of revenue. Although he doesn’t say so, the critics of U.S. health care almost always include the private insurance cost of selling insurance and collecting premiums, but exclude the cost of tax collection. Austin Frakt chimes in, but in my opinion misses the subtext: Is Medicare less expensive to administer than private insurance?
Here is a brief review of the literature: Robert Book discovered that reported Medicare’s administrative costs per patient (not as a percentage of the bills) were actually higher than private insurance. A Milliman study concluded that when all costs are considered (including the cost of tax collection) Medicare’s cost as a percent of total spending is 66% higher than private insurance. Ben Zycher concludes that a government run system would have higher administrative costs than a private system. And Tom Saving and I showed (based on CBO numbers) that Medicare has not been more successful that the private section in holding down costs — as Krugman, Robert Reich and others have claimed.
Interesting. I didn’t know there were so many studies out about this. Thanks Dr. Goodman!
These are the same people who demanded honorable mention trophies for every student who participates in competition. Inefficiency isn’t something to be celebrated, or endorsed with lackluster reports. Unfortunately this is all that big government is capable of.
Its nice to see different views on health care.
Why is it necessary to keep killing the same dead snake?
Proponents of Medicare-for-All national health insurance love to tout the administrative simplicity of a system devoid of numerous insurers. However, people often fail to account for the cost of government when measuring the cost of running Medicare. Moreover, private insurers spend money to manage the care received and ensure resources are not lost to fraud and abuse. The optimal amount of administrative costs is not zero. Rather, a prudent insurer will continue to invest in administration until the last dollar spent administering a health plan exactly equals the revenue saved by the investment.
Those on the left ultimately want a single pay, government medical system. Obama essentially said so in the campaign season four years ago. They don’t ultimately care if other options in the meantime work or not.
To imply that the Govt could run any large scale program successfully is hilarious. When was the last time the Govt hasn’t bankrupted any govt program?
Good analysis, Devon…it all comes down to the margin.
Are we referring to fixed administrative costs here? If so, shouldn’t they be the same for both Medicare and private insurers?
In the case of Medicare having more patients than private insurers, shouldn’t these costs be lower (for Medicare) since they are spread along a larger base of patient care cost (if we are still talking about fixed adminsitrative costs, of course)?
Place the word “private” in front of anything and people already wrongfully assume is more expensive.
Unfortunately, Medicare-for-all is where we’re headed!
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