Help me out here. I am going to go out on a limb and accept the statistics at face-value. That may turn out to be a mistake on my part, but I want to examine this argument on its merits. Let’s say it is misleading to claim that Medicare has significantly lower administrative costs than private health insurance. Why? Because Medicare covers elderly people that use a lot of health care, so when you say that only 3% of Medicare’s payout goes to cover administrative costs, you need to factor in that it is 3% of a giant pie. Private health insurers cover the healthiest people, so the 12% of their payout that goes to administrative costs is 12% of a much smaller pie. If, as the Heritage Foundation alleges, Medicare actually spends more than private insurers on a per-patient basis, then maybe we shouldn’t expect to see any cost savings from a public option. The 12%-3% difference is an illusion.
I can see how this argument can be made, but I think Tom Bevan goes too far when he says:
But here’s the catch: because Medicare is devoted to serving a population that is elderly, and therefore in need of greater levels of medical care, it generates significantly higher expenditures than private insurance plans, thus making administrative costs smaller as a percentage of total costs. This creates the appearance that Medicare is a model of administrative efficiency. What Jon Alter sees as a “miracle” is really just a statistical sleight of hand.
See, I think Bevan is engaging in a sleight of hand, too. Because the key to the comparatively lower per-patient administrative costs of private insurers is that most of their customers do not use the system and thus it requires very little to administer their accounts.. The real question is whether private insurers could maintain their administrative costs if they had to administer a pool that included everyone over sixty-five years of age in this country. Or, conversely, could the government vastly improve their per patient costs by taking on a pool of healthy adults? I’m guessing that we don’t learn much by making apples-to-oranges comparisons, and what we’re seeing is just two-sides using statistics to suit their own arguments.
A better way to judge is to compare our system to Canada’s and the other large population industrialized nations’ health care systems. How are we doing in the aggregate compared to them? What kind of improvements should we anticipate if we mimic their systems?
Some things to consider:
Comparing the current healthcare bill to Medicare is ludicrous even without adding the public option.
Max Baucus has gotten the options (except for single-payer) scored by the CBO but he won’t disclose that information, leading some to think that the public option scored rather well.
No, wait a minute. It doesn’t matter what size the pie is — 3% is still 3% of whatever size it is. You can’t argue that a percentage is greater than or less than on that basis. 12% of this other pie is still a bigger percentage of that pie compared to 3% of this pie.
And this argument that elderly patients require more care therefore… also fails. The greater use of services would be reflected in a greater need for administration to handle all of those “extra” claims.
Let me add:
I would venture that the additional administration costs of private insurers can, most likely, be attributed to the fact that they argue so often with doctors and patients in order to deny or delay payments.
One time, I had a doctor who had to re-submit a routine claim three times before it was paid. The first time, the insurer said the doctor had used the “wrong code.” And then, her staff had used the “wrong form.” The process took months and involved significant phone calls and paperwork at both ends, even excluding my time and effort in the middle.
In fact, I can’t remember a time that I required services above and beyond basic office visits that didn’t involve arguing with my insurer. It seems that the more serious the accidental injury or sudden illness, the more likely they are to nit-pick about covering all of it. It’s almost like they don’t expect you to argue back when you’re in extreme pain and/or suffering, that you’ll just pay it yourself to avoid having to deal with them. Imagine that!
many (alas) years ago, explaining the high admin costs of usa private health coverage is a result of the hordes of people employed to find ways not to pay claims. Medicare does not have those admin costs.
I agree 3% of a large pie, etc. except iirc the state of Tennessee legislature passed something stating that pi =3. don’t know if it is still in effect though.
my co-pay was raised from $15 to $20 for some office visits, but I was carrying around an old card and the dr’s office didn’t know b/c every system is different, so I paid $15 for a series of office visits. anyway, then they billed me multiple times for the extra $5 – I had no idea what it was for. All in all I think i got 6 extra bills for $5.
One reason Medicare could have lower admin costs is that Medicare has been doing the same thing for so long they’ve gotten real efficient. All medical providers know what they must do to get paid quickly so there is not a hassle b/t doc & Medicare.
I recall about ten years ago the BC/BS scandal in southern Illinois. The whistle blower got $145 Million and his attorney got about $22 million.
Kinda drives up the cost.
Also, you can’t sue the gov’t.
–Is administration cost defined as all spending other than payments to direct care providers (doctors, hospitals, pharmacies)?
–Cost/patient is meaningless because there’s a missing factor: the time period. Are they talking about cost/patient/incident? Per month? Per year?
–If we want to compare the administrative costs relative to the same (or very similar) population, why not look at straight Medicare vs Medicare supplements like Blue Cross vs Medicare HMOs?
It’s interesting that what the Heritage Foundation is really doing is making the case that nothing less than single-payer can significantly cut costs. When you’re no spending vast sums on marketing, litigating, denying claims, bloated executive salaries, profits, and lobbying, there are very few administrative task left to pay for.
Wouldn’t per claim costs be the best measure? There’s still issues of how a claim is defined and how much the typical claim involves, but I think that would get us closer.
We also need to consider the administrative burden imposed by each system on the claimant’s side.
per claim would be an improvement, but it still ignores that Medicare has a much higher incidence of claims per people covered. It’s still apples to oranges.
what about comparing it to tricare?
or any large healthcare organizations own healthcare costs.
Another way to look at it: what’s the administrative overhead for social security?
Health coverage done right would be basically a matter of the government keeping accounts, collecting revenue, and cutting checks. Same as SS. Haven’t looked it up lately, but as I recall they’re extremely efficient about that.
Beside, the HF argument is severely undercut by their usual boilerplate about how the government is obviously radically inefficient, blablabla. Fact is, government inefficiency is directly proportional to how much is contracted out to the corporations.
really…
pretty much sums it up. there’s no doubt, that universal coverage would, in the long run, be less expensive and more responsive.
the health care industry…read big pharma and insurance…wouldn’t be spending this kind of money if it weren’t insanely profitable.
Do “administrative costs” include executive salaries and bonuses?