Medicare’s Administrative Cost — The Last Word, I Hope

Medicare’s Administrative Cost — The Last Word, I Hope

via John Goodman's Health Policy Blog by John Goodman on 9/4/12

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.