If Obamacare fails, one sure political consequence is a revival of pressures for something more sweeping, for a single-payer program. Nowadays advocates of such a program in the US call it "Medicare for all."
One of the points they make draws on the supposed efficiency of Medicare. Overhead costs are only 2%. Private insurance plans have overhead at 20% of spending. So the former must represent a better way of doing things than the latter ... right?
Holman Jenkins made several valuable points about this in a recent WSJ column, among them these:
First, the 2% figure is a dubious one to begin with, since Medicare's overhead costs are in fact picked up by other parts of the Federal government. Much of a private insurer's "overhead," for example, is bill collection. That portion of "overhead" for Medicare corresponds to tax enforcement so it is picked up by the IRS. The 20%, then, contains items the 2% doesn't. [Also, HHS' budget includes many management costs.]
Second, Medicare may have kept overhead low by under-spending on fraud prevention. In such a case, higher overhead would be a good thing! But healthcare providers are powerful in every congressional district and they invariably let their congressmen know they find Medicare audits annoying.
Third, the claim should come with some argument as to why this ratio is the pertinent one as a measure of efficiency. After all, if an insurance company's customers never get ill, then 0% of its spending will be on their health, and 100% will be on overhead. So does that mean a state of perfect health for all would be the most wasteful and inefficient of possibilities?
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