Medicare is more efficient than the private healthcare sector?

It would not be uncommon for one to hear or read somewhere about the great efficiencies of the Medicare system when compared to the private sector Healthcare industry. Why those private company's have to advertise, and pay evil corporate executives that fly around the country instead of directing money towards taking care of people.

Researchers at the Heritage Foundation have looked at bit closer at those claims, and surprise, surprise surprise. Even if you add up the marketing costs, employee salaries, the corporate executives, and then total up the non-benefits administrative costs, private insurance companies still spend less than Medicare per beneficiary (Heritage, 2009b). And keep in mind, private insurance pays taxes while Medicare is exempt, and they cover 515% more people than Medicare, and private insurance still manages more efficiently.

Total per-beneficiary health care costs for Medicare patients are growing faster than private insurance patients (Book, 2009; Heritage 2009a & 2009b). The only way that one can arrive at figures that remotely give the impression that Medicare is more efficient than private insurance is with a bit of rhetorical sleight-of-hand with fuzzy math.

The fuzzy math proponents take the administrative costs of Medicare and divide it by the total costs of running Medicare which is a misleading number that has nothing to do with efficiency. The fuzzy math proponents should look at how much the administrative costs are per beneficiary in the program.

If you have a credit card from company A with a limit of $5000, and I have one with a limit of $2000 from company B and it costs $10 per year in administrative costs for either company to administer our credit card accounts, company A is not more efficient just because your credit card limit is higher.

Additionally, one has to totally ignore the fact that the Medicare program is simply electing to pay less and less of beneficiaries total health care costs. It’s sort of like getting your electric bill in the mail for $100, and sending in $50 and telling the electric company to take a hike. Consequently, the electric company has to make up for the loss by passing the missing $50 onto others. Sure you are forcing the electric company to take less, but that is not reducing the costs of operations, services, and R&D for the electric company.

Health care delivery innovation historically is led by the entrepreneurial spirit of the private insurance sector, not public health care plans (Book, 2009). Private sector innovations have led the way in healthcare quality-improvement methods, new customer services, disease management and preventive care (Book, 2009; Turner, 2009) Examples include “MinuteClinics, TelaDoc, specialty hospitals, innovative medical practices, and employer plans that empower consumers” to be engaged in their health care and spending decisions (Turner, 2009)

Let’s take a look at how well Medicare--the model for the public option--runs its signature healthcare program today. Estimated annual fraud and waste $60-$120 billion (Center for Health, 2009), that’s $600 billion- $1.2 trillion dollars over 10 years that could be diverted to preventive and quality care.

Medicare trustees warn alarmingly of the fiscally un-sustainable nature of Medicare, and how it pays for the number of services without any regard to the quality factors (Hilzenrath, 2009).

Over $100 billion per year is gobbled up by defensive medicine practices (American Medical Association, 2008). That’s $1 trillion dollars over 10 years that can be diverted to efficient and effective healthcare delivery practices that work, or preventive care to eliminate, reduce or delay the onset of chronic care disease and ailments which consume ~75% of all spending on healthcare (Baker, Daschle, Dole, 2009).

Why not nudge government a bit to the side to be an effective umpire and allow insurance companies to compete across state lines (Gratzer, 2009; Tanner, 2009) using a common sense regulatory and benefits coverage reporting framework so that consumers can make easy comparisons and choices between plans based on their needs? Why is this not being discussed by the majority in congress?

Why not allow small business to pool together so that they can purchase insurance in bulk like large corporations do (Gratzer, 2009; Tanner, 2009)?

These measures alone are likely to create more competition and reductions in the cost of care. Add the waste, fraud and medical liability reform savings and you’d have a pretty good plan


References
American Medical Association. (2008). Medical Liability Reform Now.

Baker, Howard; Daschle, Tom; Dole, Bob (2009). Working Together To Reform The US Health System.

Book, Robert. (2009, June 25). Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance.

Center for Health Transformation (2009). Healthcare Fraud.

Enzi, Mike (2009, July 13). A Public Option Won't Work--Government-Run Healthcare Plans Are Flawed: The free market has issues, too, but they can be fixed in the long run

Gratzer, David (2009, July 17). A Medicare-Style Public Option in Healthcare Would Kill Private Insurance: What works in higher education won't work in healthcare.

Heritage Foundation (2009a). Outlays per Beneficiary: Medicare v Private Insurance.

Heritage Foundation (2009b). Administrative cost of Medicare and private health insurance.

Hilzenrath, David. (2009, June 16). More Problems Than Solutions in Medicare Report.

Tanner, Michael (2009, July 6). Obama Doesn't Have the Only Prescription for Healthcare Reform.

Turner, Grace-Marie (2009, January 13). The Value of Innovation in Health Care.