RSS Articles and Information
  • Physicians are Not Medicine’s Top Earners October 24, 2014
    Physicians are the most highly trained members of the medical industry’s force, yet have median compensation.  The largest salaries go to the Medicrats who oversee the business of medicine. Insurance CEOs average $584,000 compared to surgeons ($306,000) or a general …
  • Health Benefits of Honey October 22, 2014
    Honey has been used as a natural sweetener long before sugar. Bees collect pollen from  plant to plant, which is passed along from bee to bee until it eventually is deposited into the honeycomb. They beat their wings to evaporate …
  • Rotten Food and the VA Hospital October 20, 2014
    by G. Keith Smith, MD Imagine for a moment that you own and operate a restaurant knowing that if you provide spoiled food and rotten service, you will subsequently make more money.  You openly employ strong-arm and intimidation tactics to …
  • Hospitals want patients to pay in advance October 17, 2014
    Hospitals are asking for payments from patients before they leave the facility so they don’t end up with unpaid bills. Knowing the costs before the procedure is important because insurance deductibles are increasing and so are procedure costs. Obamacare policies …
  • State Highlights: Mass. First To Require Health Care Price Tags; Health Disparities In Wis. October 15, 2014
    A selection of health policy stories from Massachusetts, Wisconsin, Illinois, Connecticut, California, Texas, South Dakota and Pennsylvania. WBUR: Massachusetts Becomes First State To Require Price Tags For Health Care Massachusetts has launched a new era of shopping. It began last …
  • Physicians Remove Government from Medical Equation October 13, 2014
    by Gerard Gianoli, MD Doctors in Nevada and across the country are protesting against the government’s intrusion into health care, but we aren’t voicing our concerns using bullhorns and pickets. Instead, many of the state’s 5,400 physicians are protesting silently …
  • Revolutionary Idea Could Change Medicine October 10, 2014
    For those of us who get woozy when having blood drawn for routine testing, a simple pin prick may be the blood test of the future. Elizabeth Holmes, the CEO and founder of Theranos, says that her company can run …
  • Why Accountable Care Organizations Are Failing October 8, 2014
    by Richard Amerling, MD Accountable Care Organizations (ACOs), a key piece of the Affordable Care Act (“ObamaCare”) “reform” plan, are failing because they must fail. ACOs are based on faulty assumptions, poor economics, and junk science. They would not exist …
  • Common Sense Travel Restrictions to Stop Ebola: Dr. Jane Orient October 7, 2014
    Dr. Orient appears on Cavuto – October 6, 2014
  • What Employers Can Do To Reduce The Cost Of Obamacare October 6, 2014
    The Obamacare mandate will be enforced on large employers in 2015 and small employers in 2016. Large companies who self-insure can have a plan that does not cover hospitalization, mental health care, or emergency room visits.  Small companies have to …
  • Ralph Weber Talks About Fixed Pricing – Video October 3, 2014
    You can ask the price of a procedure at a hospital, but may ask several different people before finally getting an answer. Listing set prices for procedures has lead to medical tourism. People will travel to get the price they …
  • Here’s The Thing #5 Fixed Pricing HD October 3, 2014
  • Economists Say Third-Party Payment Key to Increases in Medical Cost October 1, 2014
    The rapid increase in medical costs starting in the 1970s is commonly ascribed be market imperfections. However, federal and state governments have long suppressed the functioning of the market system in the medical industry, write Maureen Buff and Timothy Terrell, …
  • Health Insurance Exchanges Waste Taxpayer Money September 29, 2014
    Obamacare may surpass Cash for Clunkers to become the prime example of federal taxpayer resource mismanagement. For every dollar in premiums for exchange coverage, taxpayers paid 94 cents in subsidies to either enroll people or encourage them to do so. …
  • Mesothelioma: An avoidable cancer? September 26, 2014
    by Sue Redmond Did you know? Mesothelioma is an aggressive cancer that attacks the lining of the body cavity called the mesothelium (80% of which occur within the lining of the lungs). The only known cause to mesothelioma is exposure …
  • Government Healthcare is Breech of Contract September 24, 2014
    by G. Keith Smith, MD One of the smartest people I have ever met is a property and contracts lawyer, someone from whom I have gleaned countless and valuable insights over the years.  He has advised me, among other things, …
  • Dr. Alieta Eck Campaign Update September 24, 2014
    Dr. Eck http://EckForCongress.com speaks to colleagues at AAPS 71st annual meeting on September 5, 2014.
  • Is There A Provider In The House? September 22, 2014
    by Marilyn Singleton, MD, JD Physicians have a proud heritage. We can boast Dr. Benjamin Rush, a founding father, signer of the Declaration of Independence, Surgeon General of the Continental Army, and opponent of slavery. And Dr. James Derham, born …
  • From EBM to Guidelines September 20, 2014
    Richard Amerling, MD presents at the 71st Annual Meeting of the Association of American Physicians and Surgeons, September 5, 2014.
  • Flaw In Federal Software Lets Employers Offer Plans Without Hospital Benefits September 19, 2014
    A flaw in the federal calculator for certifying that insurance meets the health law’s toughest standard is leading dozens of large employers to offer plans that lack basic benefits such as hospitalization coverage, according to brokers and consultants. The calculator …

Medicare vs. Private Admin Costs: Let the facts stand

By Ralph Weber CFP®, ChFC®, CLU®, REBC®, and Dave Racer, M.Litt*

health care and medical care for the uninsuredMany health care reformers cite Medicare’s administrative cost as a reason to drop private insurance and move to a government-managed health care system. Depending on who makes the claim, Medicare’s administrative cost estimates range from 1.5% to 12%. In much the same breath, these reformers claim that private insurance companies spend 10% to 50% on administration.

The real administrative cost of Medicare and private health insurance relies on how one defines administrative expense. The estimated cost of administering Medicare, for instance, often excludes overhead items that are not only common to private health insurers, but to all businesses. These different ways of accounting confuse an honest evaluation of the government’s Medicare administrative cost.

So what constitutes an administrative expense? Where can one find real, honest numbers with which to make an intelligent comparison?

Governments across the country have turned to HMOs and managed care to resolve health system problems. Yet, do the most common administrative cost measurements include the high cost of administering managed care, compounded by CPT codes and other billing codes, the cost of billing a host of different insurance companies, and all the other normal business accounting practice cost? These additional – and unnecessary – costs add tens of billions of dollars to the health care bill; a sorry waste of money when there is a less costly, workable solution available (and it is not Medicare).

The best way to measure administrative cost is also the simplest: Take the total dollars spent on health care and subtract how much actually gets to the providers (doctors, hospitals, etc.). The difference is administrative cost.

The health care spending “bible” is the endless set of statistics from the Centers for Medicare and Medicaid (CMS). CMS tables provide a detailed, line item description of how each dollar is spent.

One spending line item on the CMS tables is tiled “Government, Administration and Net Cost of Private Health Insurance.” This is the line item so often quoted out of context when proponents of government medicine are trying to understate the costs of government administration. For private insurers, this line item includes the cost of administration, marketing, research, premium taxes, facilities, equipment, insurance and reinsurance losses, as well as profit.

The CMS data for government spending include additional line items that fall below the “Administration” line: “Government Public Health Activities, Research, and Structures and Equipment” (see Table 1). If CMS separated these same costs for private insurers in the same manner as it does for government plans, it would be a fairer way to compare the two; but it does not, and that fact goes ignored.

Table 1

      Private Insurance Government 

Healthcare

 
Non Patient Care costs        
  Government Administration and Net Cost of Private Health Insurance   x x
  Government Public Health Activities   x
Investment  
  Research   x
  Structures and Equipment   x

 

To shed light on real administrative cost of public versus private health care requires computing the actual per capita cost in absolute dollars. Table 2 shows such a comparison.

Table 2

Costs as percentage of expenses   Private Insurance Medicare Medicaid   Government Grand Total
Number of enrollees   201,991 41,375 39,554   91,884 299,106
Total cost in millions   775 431 329   1,036 2,241
  Cost per Capita   3,837 10,422 8,328   11,272 7,493
Patient care costs   680 410 304   851 1,878
  Medical Loss Ratio   87.79% 94.99% 92.29%   88.32% 86.67%
Non Patient Care costs   12.21% 5.01% 7.71%   11.68% 13.33%
  Government Administration and Net              
  Cost of Private Health Insurance   12.21% 5.01% 7.71%   5.74% 6.95%
  Government Public Health Activities           6.19% 2.86%
Investment              
  Research           3.68% 1.89%
  Structures and Equipment           2.26% 4.49%

 

If one assumed from Table 2 that Medicare administrative cost is just 5.01%, compared to 12.21% for private insurance, it might seem that Medicare is administered at a significantly lower rate. However, comparing the percentage of cost for activities not directly related to patient care paints a far different and truer picture: Private insurers’ non-patient care costs are 12.21% compared to 11.68% public healthcare. Yet, this still leaves out vital data.

Table 3 shows the cost of care in dollars per capita and leads to the truth. Considering “Government Administration and Net Cost of Private Health Insurance” in isolation, the net cost of administering Medicare is 11% greater than that of private insurers on a per capita basis. Including all non-patient care cost indicates that public healthcare administration is 281% greater than that of private insurance administration. This assessment still does not include the cost of collecting taxes, nor does it include the providers’ cost of complying with insurance billing and collection requirements.

Table 3

Per capita in absolute dollars   Private Insurance Medicare Medicaid   Government Grand Total
Number of enrollees   201,991 41,375 39,554   91,884 299,106
Total cost in millions   775 431 329   1,036 2,241
  Cost per Capita   3,837 10,422 8,328   11,272 7,493
Patient care costs   3,368 9,900 7,683   9,257 6,280
Non Patient Care costs   468 522 642   1,317 999
                 
  Government Administration and Net   -          
  Cost of Private Health Insurance   468 522 642   648 521
  Government Public Health Activities   - - -   698 214
Investment   - - -   - -
  Research   - - -   415 142
  Structures and Equipment   - - -   255 337

 

Americans have always been mistrustful of the concept of “government efficiencies” (the ultimate oxymoron). The idea that government can manage health care more effectively and more efficiently is counter-intuitive, and for good reason: The facts show it is not true.

Let the facts stand, and in so doing, let us quit considering the nonsense of a government-run health system. Instead, let us move toward the kind of reforms that will unlock the power of American consumers, and watch effectiveness and efficiencies fall into place.

About the authors

Ralph Weber is a Canadian expatriate, now a Tennessee-based health insurance design consultant, and CEO of Route Three Benefits, Inc. Also the founder and CEO of MediBid Inc., A free market online medical shopping portal for transparency in pricing.

Dave Racer is a speaker, writer, publisher and co-author of Your Health Matters: What you need to know about US health care (Alethos Press LLC, 2006), FACTS: Not Fiction – What really ails US health care (Alethos Press LLC, 2007), and Why health care costs so much: The solution – Consumers (Alethos Press, 2009).  See Alethos Press.

—-

Notes:

CMS expenditure data taken from Table 4, and table 6, National Health Expenditures, by source of funds and type of expenditure: Calendar year 2007. Last accesses January 18, 2009

Enrollment data taken from CPS Annual Demographic Survey Table HI01. Health Insurance Coverage Status and Type of Coverage by Selected Characteristics: 2007. Last Accessed January 18, 2009

No related content found.



At MediBid, we restore market forces to medical care. Doctors get to set their own rates based on their training, experience, and outcomes, and patients get to shop for medical care across state lines and international borders. Many times with MediBid, you will find procedures that are more effective than procedures allowed, or covered by health plans. Transparency and competition are the only way to achieve reasonable costs. Many of our employer clients offering group health insurance through MediBid save $5,000 per employee per year. Those are substantial savings. Patients are saving an average of 48% vs. insurance discounted rates, or 80% vs. retail. Contact us for more information.
Share

Comments

This entry was posted in Cost of Health Care, Insurance and tagged , . Bookmark the permalink.
Categories
Bulk Email Sender

Switch to our mobile site