An article in the NY Times recently said that Medicare has lower administrative costs than the private sector. Below are things I have posted before
Medicare does have lower administrative costs than insurers, a lot of
that benefit lies either in outsourcing normal administrative costs to
other parts of the government (where they are still costly, but not on
Medicare’s books) or in not doing things that insurers have to do, like
all the boring customer service and billing that comes with selling to
the public, rather than enrolling every citizen over the age of 65.
then there are provider prices. Medicare pays providers less than
private insurers. The idea is that the public option could pay more than
Medicare, but less than private insurers (say, Medicare rates plus 5 to
10 percent), and thereby offer a cheaper product than private
summarize for those who have forgotten the last exciting round of
health-care quarrels, a “public option” would be a public insurer that
would sell policies on the insurance marketplace alongside for-profit
companies. It would be expected to be budget-neutral, which is to say
that it would have to cover all its costs -- including administrative
overhead -- through premiums. Nonetheless, its supporters think that it
would provide cheaper policies than the for-profits, and while people
have long expressed worries that this would crowd other insurers out of
the market, if you favor single payer, that’s a feature, not a bug.
the hopes for a public option revolution were always a bit overblown.
The less wonky supporters of the public option -- and that’s most of
them -- were generally under the impression that private insurers had
bloated administrative costs and obscene profits, so that a public
insurer which could streamline overhead would easily be able to offer
better prices. But while Medicare’s overhead costs are lower than those
of private insurers, that doesn’t mean that the public option policies
would be cheap. For one thing, one of the reasons that Medicare’s
overhead is low is that it doesn’t do annoying things such as sell
policies to consumers, who require a lot of expensive hand-holding and
bill-collecting. As one of many players in the marketplace, the public
option would need to have all those service staff, just like the
insurance companies do.
For another thing, there’s a
credible case that Medicare lowers its overhead by inadequately policing
fraud, which is not necessarily a net savings to the whole system, but
does lower the amount captured in that one budget line. Medicare’s
overhead—which is expressed as a percentage of total expenses -- also
looks artificially low because the population it covers is so sick.
Expressed as a hard number rather than a ratio, its administrative
expenses per enrollee are arguably higher than the private sector's.
there’s the matter of efficiency. Medicare has lower overhead because
it has a huge number of consumers spread out across 50 states. Normal
health insurance policies, unfortunately, are regulated at the state
level, which means that the public option would have to write an
individual policy for each market, have individual networks of doctors
and hospitals, and deal with individual insurance regulators.