A fair accounting of Medicare costs

Friday, February 9, 2007

As the clamor for a universal (meaning: single-payer) health-care system rises, one factoid needs to be discredited: the notion that the federal administration of medical services would be dirt cheap.

"\[T]he overhead for Medicare," says Dr. Stephen Rous of Brown University, a single-payer advocate, "is 1 percent to 2 percent. The overhead for various private insurance plans (HMOs, etc.) is 15 percent to 25 percent."

Not so fast. Medicare indeed reports administrative costs of less than 2 percent - it claimed $5.2 billion in costs and paid $273 billion in benefits in 2003. But those figures don't include the costs of paying claims and tracking down fraud - those are accounted for by the Justice Department and other federal agencies, not Medicare. Nor do they include the building costs and taxes paid by insurance companies, doctors and private hospitals.

The Council for Affordable Health Insurance, a free-market think tank, pegged the actual cost of Medicare compliance at 5.2 percent. And since Medicare spends more than twice as much per recipient as the average private health provider, $6,600 vs. $2,700, the gap shrinks even more.

Even the council pegs overall private costs as more than those for Medicare. But as the debate over the proper medical system for Americans moves forward, the least we can ask for is an honest comparison of the sort the council attempted.