Facts on Medicare administrative costs

Holman Jenkins wrote in the Wall Street Journal last night,

Many on the left tell us the solution is Medicare-for-All, because Medicare is so much more efficient than private insurers, spending a mere 2% on overhead compared to 20% or higher for private plans. […]

This requires overlooking a lot. Even if overhead-to-medical spending were the right measure, much of Medicare’s overhead is hidden on the books of other agencies, including Health and Human Services, which provides management, and the IRS, which handles revenues.

Sounds convincing, doesn’t it? But I am not convinced Jenkins has considered all the facts. They’re out there. For example,

[A] portion of IRS costs are allocated to Medicare’s overhead by OACT [CMS’s Office of the Actuary]. […] [Also,] (1) the Social Security Administration, not the IRS, calculates and collects Part B premiums for the vast majority of Medicare enrollees, and the Railroad Retirement Board does so for former railroad workers; and (2) a portion of the SSA’s and the railroad board’s costs are allocated to Medicare’s overhead by OACT. […] OACT does include the cost of claims processing, which is done by what used to be called “carriers” and “intermediaries” and are now called “Medicare administrative contractors.” […]

The federal agencies for which Treasury collects expenditure data, and which are therefore included in the trustees’ reports on Medicare administrative spending, include the Treasury Department, the IRS, the SSA, CMS, the Department of Health and Human Services, the Medicare Payment Advisory Commission, the Area Agency on Aging, the Department of Justice, the Federal Bureau of Investigation, and the Railroad Retirement Board (see the appendix). In addition, the appendix lists “quality improvement organizations,” which are private-sector organizations with which CMS contracts. The appendix also indicates that payments by CMS to insurance companies that process claims for Medicare’s original fee-for- service program are included in the trustees’ definition, as are the cost of buildings that house CMS staff and the cost of the numerous demonstration projects Congress requires CMS to conduct.

This is not just buried in an academic journal article. You’ll find it freely available in my post. I’ve written more on this and other issues relevant to Jenkins’ piece. If you’re interested, read his (Google the title to get it ungated) and then these:



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