...The basis for the assertion is the claim that Medicare spends only 2% to 3% of its outlays on administration, compared with private plans’ alleged costs of 20% to 25%.Furthermore, there are various accounting differences that one must remember when comparing relative administrative costs of Medicare vs. private insurance plans that make Medicare seem artificially cheaper than it really is:
In fact, data from the Congressional Budget Office (CBO) shows that insurance companies spend at least 50% less on administration that government does on its health programs. (The Congressional Budget Office Reports: Comparing health care admin cost: who's less costly?)
* Private insurance plans must pay government taxes and assessments up to 5% of premiums. When these are factored out, the real net cost of private administration is less than 10%.Journalists and politicians need to be aware of these hidden costs, rather then repeating myths promoted by those with a specific policy agenda.
* CMS excludes the cost of its own employees who enroll recipients, perform outreach and education, handle customer service, and do auditing and other functions. Private plans include these in overhead.
* Private plans have on average a higher number of claims to process for a given amount of expenditure.
* Insurance companies have to collect premiums. The IRS does that for Medicare.
* Private companies do underwriting; their premiums have to cover their costs. Medicare deficits have to be covered by taxpayers.
* The cost of servicing the public debt is not included in Medicare costs—and Part B is 75% subsidized by general revenues, not beneficiary premiums.