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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 746081  
Subject: Medicare Administrative Costs Are Higher Date: 10/26/2009 8:50 PM
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Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance by Robert A. Book, Ph.D.

...on a per-person basis Medicare's administrative costs are actually higher than those of private insurance--this despite the fact that private insurance companies do incur several categories of costs that do not apply to Medicare.

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Medicare patients are by definition elderly, disabled, or patients with end-stage renal disease, and as such have higher average patient care costs, so expressing administrative costs as a percentage of total costs gives a misleading picture of relative efficiency. Administrative costs are incurred primarily on a fixed or per-beneficiary basis; this approach spreads Medicare's costs over a larger base of patient care cost.

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Why Measuring Administrative Costs as a Percentage Is Misleading

Administrative costs can be divided broadly into three categories:

1.Some costs, such as setting rates and benefit policies, are incurred regardless of the number of beneficiaries or their level of health care utilization and may be regarded as "fixed costs."
2.Other costs, such as enrollment, record-keeping, and premium collection costs, depend on the number of beneficiaries, regardless of their level of medical utilization.
3.Claims processing depends primarily on the number of claims for benefits submitted.

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When administrative costs are compared on a per-person basis, the picture changes. In 2005, Medicare's administrative costs were $509 per primary beneficiary, compared to private-sector administrative costs of $453. 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 (see Table 1). This is 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.


http://www.heritage.org/Research/HealthCare/wm2505.cfm

Not surprising.
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