The traditional Medicare program allocates only 1 percent of total spending to overhead compared with 6 percent when the privatized portion of Medicare, known as Medicare Advantage, is included, according to a study in the June 2013 issue of the Journal of Health Politics, Policy and Law.
The 1 percent figure includes all types of non-medical spending by the Centers for Medicare and Medicaid Services plus other federal agencies, such as the IRS, that support the Medicare program, and is based on data contained in the latest report of the Medicare trustees. The 6 percent figure, on the other hand, is based on data contained in the latest National Health Expenditure Accounts (NHEA) report.
The journal article, written by Minneapolis-based researcher Kip Sullivan, finds that the gap between the two measures has been growing over the last two decades as enrollment in private Medicare plans has risen.
"The high administrative costs of the privatized portion of Medicare are no surprise," says Sullivan. "What's surprising is that the high administrative costs of the Medicare private insurance companies haven't provoked a debate about whether spending more money on insurance industry overhead is a good use of scarce tax revenues."
According to Sullivan, the low attention given to this issue is caused in part by confusion about Medicare's overhead costs.
"The confusion is due partly to the existence of two government reports," says Sullivan, "and partly to claims by critics of Medicare that the government fails to report all of Medicare's overhead costs." The paper addresses both sources of confusion.
The article explains the difference between the yardstick used by the trustees and the one used by the NHEA and concludes both are accurate. The trustees' measure counts as overhead only those administrative expenditures that support the traditional fee-for-service Medicare program, in which approximately three-f
|Contact: Mark Almberg|
Physicians for a National Health Program