* Medicare is not efficient
Topics: Health
16 Nov 2009
From: Ervan Darnell
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In the debate over reforming insurance, there is a claim that Medicare
is efficient and private insurance is not. The evidence is that the
management costs are less per dollar of claim paid.
Even if that's right, it misses an important point: private insurance
companies are shopping for acceptable care at cheaper prices. Medicare
just punts on the whole question and underpays against the market rate.
Thus, part of it's overhead cost is buried in cost shifting. Also, it's
failure to shop induces inefficient provision where it does pay cost.
But, now the smoking gun, according to "60 Minutes" [1], Medicare has
fraud of $90B/year, yes, billion. That's out of a total budget of about
$700B. It's fraud overhead alone is 13%! Yes, private insurance has
some fraud as well, but nothing this rampant (at least by the reasons
offered in this episode). Medicare is 'efficient' exactly because it
doesn't vet providers ahead of time or inspect them after the fact. The
'inefficieny' of private insurance is because it uses more paperwork as
a way to damping the fraud. It might not be ideal, but neither is it a
dead waste.
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[1] 10/25/09 episode,
http://audio.cbsnews.com/2009/10/25/audio5420278.mp3
and
http://www.cbsnews.com/stories/2005/09/08/podcast_60min/main828230.shtml
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In the debate over reforming insurance, there is a claim that Medicare is efficient and private insurance is not. The evidence is that the management costs are less per dollar of claim paid.
Even if that's right, it misses an important point: private insurance companies are shopping for acceptable care at cheaper prices. Medicare just punts on the whole question and underpays against the market rate. Thus, part of it's overhead cost is buried in cost shifting. Also, it's failure to shop induces inefficient provision where it does pay cost.
But, now the smoking gun, according to "60 Minutes" [1], Medicare has fraud of $90B/year, yes, billion. That's out of a total budget of about $700B. It's fraud overhead alone is 13%! Yes, private insurance has some fraud as well, but nothing this rampant (at least by the reasons offered in this episode). Medicare is 'efficient' exactly because it doesn't vet providers ahead of time or inspect them after the fact. The 'inefficieny' of private insurance is because it uses more paperwork as a way to damping the fraud. It might not be ideal, but neither is it a dead waste.
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[1] 10/25/09 episode, http://audio.cbsnews.com/2009/10/25/audio5420278.mp3
and
http://www.cbsnews.com/stories/2005/09/08/podcast_60min/main828230.shtml
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