Does Medicare have lower administrative costs?

[archerships]

…only an extremely small portion of administrative costs are related to the dollar value of health care benefit claims. Expressing these costs as a percentage of benefit claims gives a misleading picture of the relative efficiency of government and private health plans.Medicare beneficiaries are by definition elderly, disabled, or patients with end-stage renal disease. Private insurance beneficiaries may include a small percentage of people in those categories, but they consist primarily of people are who under age 65 and not disabled. Naturally, Medicare beneficiaries need, on average, more health care services than those who are privately insured. Yet the bulk of administrative costs are incurred on a fixed program-level or a per-beneficiary basis. Expressing administrative costs as a percentage of total costs makes Medicare’s administrative costs appear lower not because Medicare is necessarily more efficient but merely because its administrative costs are spread over a larger base of actual health care costs. When administrative costs are compared on a per-person basis, the picture changes. In 2005, Medicare’s administrative costs were $509 per primary beneficiary, compared to private-sector administrative costs of $453.

Via Greg Mankiw

Original: craschworks - comments

Comments

[pasquin.livejournal.com]

Ever notice that true administrators of Medicare are left off the books? The legislators. Add in their salaries and perks and then let's see how well it compares to the private sector.

[crasch.livejournal.com]

Yes, I wonder how they account for the cost of collecting the taxes used to pay for Medicare.

as this is still at the top of my friendsfeed I'll try again

[denshi.livejournal.com]

Plan X is composed of elderly and disabled patients who need more carethan the working-age adults in Plan Y. Consequently the per-patient total costs are substantially higher for X than Y. To compare the administrative costs between X and Y we need to rescale the total costs to unity, most easily by expressing admin costs as a percentage of total care costs. Basic math, you follow?

The paragraph cited is playing rhetorical bait-and-switch by changing the units of debate. It would be more honestly written as "by providing markedly less care, average private insurers incur slightly lower per-person total administrative costs than medicare." This isn't hard to follow; I have to applaud the author for his skill of obfuscation.

Re: as this is still at the top of my friendsfeed I'll try again

[crasch.livejournal.com]

Suppose you have two patients, X and Y. Suppose both patients incur admin costs of $1000. However, patient X is 22 years old, and has medical expenses of $10,0000 per year. Patient Y is 72 years old, and has medical expenses of $30,0000.

Expressed as a percentage of total care costs, patient X's admin costs are 10%, whereas patient Y's admin costs are 3%. But it would be illegitimate to say that Y's admin costs were 3 times lower than X's, right?

Medicare, by definition, is a program from the elderly.

Private insurance companies provide insurance to a population that, in aggregate, is much younger than the Medicare population.

Most medical costs are incurred in the last years of life. Therefore, there will be a much higher level of overall spending for Medicare patients than for privately insured patients.

Therefore, expressed as a percentage of total care, the admin costs will be lower for the Medicare patients than for privately insured patients.

But to claim that the admin costs of Medicare patients are lower than privately insured patients is a fallacy.

Re: as this is still at the top of my friendsfeed I'll try again

[denshi.livejournal.com]

I don't think anyone is claiming that total admin costs of Medicare are lower. The argument has always been over which is more efficient at providing services, i.e., what % of total costs are lost on disbursing those services.

The efficiency metric is important to the question of what kind of health care system would serve us best. The total admin costs, detached from any cost of required care, illuminates very little.

Re: as this is still at the top of my friendsfeed I'll try again

[crasch.livejournal.com]

I don't think anyone is claiming that total admin costs of Medicare are lower.

Uh, here's Jonathan Alter from Newsweek

But the administration of Medicare is a miracle of low overhead and a model, despite all the fraud and abuse, of what government can do right. Three percent of Medicare's premiums go for administrative costs. By contrast, 10 to 20 percent of private-insurance premiums go for administrative costs. Roll that figure around on your tongue. When you swallow and digest it, you'll understand that any hope of significantly reducing health-care costs depends on a public option.

Paul Krugman, Obama, and many other pro-government healthcare supporters have made claims statements.

Re: as this is still at the top of my friendsfeed I'll try again

[denshi.livejournal.com]

So you're telling me I'm right?

What you just quoted is a claim that admin costs as a percentage of total costs are lower in Medicare than average private insurers.

Re: as this is still at the top of my friendsfeed I'll try again

[denshi.livejournal.com]

You do grasp the distinction between totals and percentages, do you not?

Re: as this is still at the top of my friendsfeed I'll try again

[bandicoot.livejournal.com]

This is obviously written with by a man who never had to deal with Medicare...