Sunday, August 16, 2009

Are Medicare Administrative Costs Cheaper?

One of the persistent arguments for a government health care plan has been the lower administrative costs associated with Medicare compared with government plans. This has been a contentious issue, with others arguing this is simply not true. Well, is it?

The American Medical Association reports that Medicare administrative costs account to 5.2 percent of public programs versus 14.1 percent of private programs. Aha, we'd all save money if we went to a public program!!

Not so fast, sport! The AMA points out to the unfair comparisons in those estimates. An excerpt:

Perhaps the most obvious shortcoming of many estimates is that they ignore unreported spending on administration of government programs. Such uncounted administrative costs are especially evident in the Medicare program and include:
• Tax collection to fund Medicare—this is analogous to premium collection by private insurers, but whereas premium collection expenses of private insurers are rightly counted as administrative costs, tax collection expenses incurred by employers and the Internal Revenue Service do not appear in the official Medicare or NHE accounting systems, and so are usually overlooked
• Medicare program marketing, outreach and education
• Medicare program customer service
• Medicare program auditing by the Office of the Inspector General
• Medicare program contract negotiation
• Building costs of the Centers for Medicare & Medicaid Services (CMS) dedicated to the Medicare program
• Staff salaries for CMS personnel with Medicare program responsibilities
• Congressional resources exhausted each year on setting Medicare payment rates for services

There are other methodological issues - follow the link above for more.

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