RSS Articles and Information
  • Canadian Cancer Patient Says Korean Surgery Saved His Life May 22, 2015
    Gerd Trubenbach of British Columbia was diagnosed with cancer, as a huge tumor was growing in his neck. His family doctor suggested that the tumor could not be removed and there was nothing else that could be done. The wait …
  • How to Prevent Hemorrhoids May 20, 2015
    Many people have hemorrhoids at some time, and they are a common problem. Hemorrhoids are swollen veins in the anal canal, which can be painful but not usually serious. They are caused from too much pressure on the veins in …
  • Emergency Room Visits Increase with Obamacare May 15, 2015
    Obamacare predicted that expanding health insurance coverage for the poor would reduce costly emergency room visits. A new study has found that newly insured people are actually visiting the ER more often, 40% more often than those who are uninsured. …
  • Transparency: Changing the US Healthcare System May 13, 2015
    Ralph Weber, President and CEO of MediBid, is interviewed by David Saltzman of ShiftShapers. Mr. Weber has been in the benefits business since the mid 1990s, serving clients in the US, Canada, and around the globe. A lack of information …
  • Appalachia Sees Increased Cases of Hepatitis C May 11, 2015
    Infections of Hepatitis C, a contagious liver infection spread by blood contact, has more than tripled in Appalachia – Kentucky, Tennessee, Virginia, and West Virginia – fueled by prescription drug abuse in rural areas. About 73% of patients are under …
  • An American Response to Losing ObamaCare Subsidies May 8, 2015
    by Jane Orient, MD This summer, the U.S. Supreme Court could, in King v. Burwell, uninsure 8 million Americans by finding that subsidies are illegal outside State Exchanges. Some Republicans are saying “Let it burn.” For Democrats, it’s “ObamaCare or nothing.” Can …
  • Arthritis Awareness – May Lab Specials May 6, 2015
    Nearly 53 million adults and 300,000 children in America have arthritis. By 2030, 67% of the population will suffer from one type of arthritis.  Arthritis, joint pain or joint disease, is the leading cause of disability in the United States. …
  • American Women are Drinking More Heavily May 4, 2015
    Barbara Feder Ostrov, Kaiser Health News Whether quaffing artisanal cocktails at hipster bars or knocking back no-name beers on the couch, more Americans are drinking heavily – and engaging in episodes of binge-drinking, concludes a major study of alcohol use. …
  • Shortage of Available Surgery Causes Deaths Worldwide May 1, 2015
    Millions of people die worldwide with treatable conditions because of the lack of routine surgeries, more than from malaria, AIDS, and tuberculosis combined. Five billion of the seven billion people in the world cannot get needed surgery or pay for …
  • Cleaning Tips for a Healthy Home April 29, 2015
    Cleaning your home not only makes it look and smell better, it also can improve your family’s health.  Here are some activities you may not have thought of that will make you and your home healthy and safe: Dust Everything …
  • Using Mobile Devices at Night is Bad For Your Brain April 27, 2015
    Dr. Daniel Siegel, a psychiatrist from UCLA, states that staring into a glowing screen late at night is harmful to your brain and body. Staring at any screen at bedtime, be it computer, smartphone, or ipad, is worse than previously …
  • Few Patients Use Quality, Price Information To Make Health Decisions April 24, 2015
    by Jordan Rau, Kaiser Health News Despite the government’s push to make health information more available, few people use concrete information about doctors or hospitals to obtain better care at lower prices, according to a poll released Tuesday. Prices for …
  • Shopping Tools Save Patients Cash on Medical Care April 22, 2015
    Vicki Burns of New Mexico needed a total hip replacement in 2012, but could not afford the hospital’s non-negotiable cash estimate of $79,000. Within two days of placing a patient request on MediBid, she received two bids. She chose a …
  • Hysteria’s History Episode 3 April 21, 2015
  • 20th Century Experiment Attempts to Turn Back Time April 20, 2015
    Ellen Langer, a Harvard psychologist, conducted a radical experiment in 1979 – the results of which were never published. Last fall, this study was featured in the New York Times. The study examined how aging’s effects could be altered or …
  • https://youtube.com/devicesupport April 17, 2015
  • Make Spring Cleaning a Workout April 17, 2015
    Chores you do around the house and garden can burn calories and stretch and tone muscles if done correctly. Short episodes of mild exercise can improve your fitness level if done with intensity and speed. Adding 30 minutes of chores …
  • Provisioning for the Opt Out Journey April 17, 2015
    Ophthalmologist David Richardson, MD on how to prepare for opting out of Medicare. From AAPS 70th Annual Meeting, September 2013, Denver, Colorado.
  • What America’s Decline in Economic Freedom Means for Entrepreneurship and Prosperity April 16, 2015
    The United States was once considered the land of opportunity where entrepreneurs such as Henry Ford, Ray Kroc and Steve Jobs contributed to a flourishing economy by providing new products and services at prices people were happy to pay.Today America’s …
  • Obamacare Fines Debut This Tax Season April 15, 2015
    Taxes for 2014 are due this week, and your tax bill could be affected by your health insurance. If you had insurance during the entire calendar year of 2014 through an employer, a state exchange, or Medicare Part A, you …

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.
More Affordable Insurance AlternativeCategories
Bulk Email Sender