One of the claims repeatedly made by the supporters of government health care is that the administrative costs are lower. This post examines that argument.
First, we need to clarify one issue– Who actually processes medicare and medicaid claims? Answer: Not the government. The Center for Medicare and Medicaid Services (CMS) contracts with private contractors to process the claims. Look here, here and here.
Are Medicare/Medicaid’s administrative costs really lower? Answer: Depends on how you do the comparison. As this extensive study notes, on a per claim basis, no. On claims as a percentage of dollars paid out,yes. The reason is simple. It doesn’t cost a whole lot more to pay a claims processor to process a $10,000 claim than to process a $10.00 claim. People who are eligible for medicare/medicaid are far more likely to have high health care bills. More important, in calculating the costs of processing medicare claims, the government accountants do not include the costs of the Center for Medicare and Medicaid Services (CMS). If you also exclude the costs of insurance company administrators and management (that’s who CMS is to Medicare and Medicaid) the numbers are nearly identical.
A more recent study claims that, on a per person basis, Medicare/Medicaid’s administrative costs are higher, not lower, than insurance company costs. The study adds back in all of the government’s administrative costs, such as the cost of the Center for Medicare and Medicaid Services, which are omitted from the costs reported by the government.