Advocates in the Obama administration, the mainstream media, and congressional Democrats routinely claim that a government-run health insurance program would have lower administrative costs than those of the private sector.
New York Times columnist Paul Krugman, for example, puts it this way: “But it’s a fact that insurers spend a lot of money looking for ways to reject insurance claims. And health care providers, in turn, spend billions on “denial management,” employing specialist firms — including Ingenix, a subsidiary of, yes, UnitedHealth — to fight the insurers.”
Those costs are passed on to consumers “in the form of higher health care prices and higher insurance premiums,” according to Krugman, pointing to a McKinsey consulting firm estimate of $66 billion in excessive costs just for drugs and medical devices.
Overall, Krugman concludes that Medicare’s management costs equal a mere 3 percent of the program’s total outlays, while the same costs equal as much as 22 percent for the private sector.
But the numbers look dramatically different when costs are calculated per beneficiary, rather than as a percentage of total costs, as is done by Krugman and others.
The Heritage Foundation’s Robert Book points out that, measured on a per-beneficiary basis, “government run health care’s administrative costs are routinely higher than private care. In the years from 2000 to 2005, Medicare’s administrative costs per beneficiary were consistently higher than that for private insurance, ranging from 5 to 48 percent higher, depending on the year.”
And guess what? Private sector costs are lower despite “the fact that private-sector ‘administrative’ costs include state health insurance premium taxes of up to 4 percent (averaging around 2 percent, depending on the state) — an expense from which Medicare is exempt — as well as the cost of non-claim health care expenses, such as disease management and on-call nurse consultation services.” — Mark Tapscott, editorial page editor
