Eric Novack attacks the Medicare low-overhead myth

Erik Novack brings up an interesting (if rather dated) argument that is constantly brought up in an attempt to show that Medicare cannot be as good as private insurers. The 2-3% figure is, as Eric points out, a figure arrived at by looking at gross payment rather than per/patient claims. The argument is made that administrative costs and overhead should be looked at in the per-capita figure (which, by the way still gives Medicare a $133 to $271 per person advantage according to the Keiser Family Foundation), but in truth this does not truly look at administrative costs at all.

Healthcare providers know that much of the administrative costs for patients are involved in ordering tests, treatments, getting approval for referrals and other dealings with the insurance companies. The fact is that private insurance has picked and chose their patients carefully so that there would be fewer claims, and then they throw every obstacle in the way to prevent claims. On the other hand Medicare insures everyone who applies!
That is partly why their per capita claims are higher. These patients have to have more tests, therapies and consults and therefore are more expensive. In both Medicare and private insurance, each one of those steps is subject to administrative oversight and thus cost. This is where the real overhead is, and why the math should be done per $ and not per claim.

Recently, (October 2007) the United States House of Representatives Committee on Oversight and Government Reform published it’s finding on the administrative costs of Medicare D (a privatized drug prescription plan for Medicare) versus traditional Medicare. They found that Medicare D administrative costs were 6 times higher than traditional Medicare! Of the average $180 per enrollee only $30 went to “Sales Cost”, while $107 went to administrative costs and $43 went to profit.

But, this is only part of the problem. The cumbersome dealings with private insurance make it more difficult for healthcare providers to practice evidence based medicine. This, we (Healthcare Providers for Healthcare Reform- http://healthcare-reform.org/) believe is the key to why we pay twice as much per capita for healthcare than any other country in the world but are near the bottom of the 30 OECD countries in life expectancy from birth, infant mortality and maternal mortality.

In fact the benefit of Medicare on health has been supported in 2 recent papers. In the New England Journal of Medicine (2007;357:1221-8), one can see that the life expectancy from age 65 (when Medicare kicks in) compared to other OECD countries is markedly better than total life expectancy. In a recent JAMA paper (2007 Dec 26;298(24):2886-94), the authors showed that before age 65, there is a steeper decline in health status among the uninsured compared with those with health insurance. The drop in the uninsured’s health started to reverse once Medicare coverage kicks in at age 65. In fact, by age 70, the difference in health between the two groups was about half what would be expected in the absence of Medicare coverage.

We need some form of universal coverage to restore the health of this country and we believe that we have a workable plan that will incorporate the best of government run and privately run insurance. Please visit our site to see more details: http://healthcare-reform.org/Proposal.htm