Medicare is No Model of Administrative Simplicity or Efficiency


Medicare is No Model of Administrative Simplicity or Efficiency

Aug 9, 2019 3 min read
Robert E. Moffit, Ph.D.

Senior Research Fellow, Center for Health and Welfare Policy

Moffit specializes in health care and entitlement programs, especially Medicare.
Medicare is no model of administrative simplicity. the_burtons/Getty Images

Key Takeaways

“Medicare for All” legislation pending in Congress would give Washington total control over American health care.

Medicare’s bureaucratic structure and regulatory functioning imposes mostly hidden costs on American health care system.

The fulfillment of these diverse personal needs is what “Medicare for All” will not, and cannot, deliver.

“Medicare for All” legislation pending in Congress would give Washington total control over American health care. It would abolish private and employer-based health coverage and replace it with a new, government-run health program.

Its sponsors claim this would reduce administrative costs and produce huge savings. “Private insurance companies in this country spend between 12 and 18 percent on administration costs,” says Sen. Bernie Sanders, I-Vt. “The cost of administering the Medicare program… is 2 percent. We can save approximately $500 billion a year just in administration costs.”

Not so fast. Most independent analysts are reluctant to embrace such bold claims. Glenn Kessler, a fact-checker for The Washington Post warned backers of Medicare for All to be “cautious” in relying on “the administrative cost saving” as a talking point, and Politifact rated Senator Sanders’ statement as “half true.”

Comparisons between public and private sector administrative costs are tricky. Medicare and private insurance cover radically different populations: Medicare beneficiaries are generally older and sicker than those enrolled in private plans.

Because Medicare beneficiaries’ utilize medical services at dramatically higher levels, the program’s administrative costs naturally account for a lower percentage of total program spending. However, as Dr. Robert Book, a senior fellow at George Mason University, argues, measuring administrative cost per beneficiary, rather than as a percentage of total spending, shows that Medicare’s administrative cost has been historically higher than private insurance.

Medicare is no model of administrative simplicity. The program is governed by tens of thousands of pages of rules, regulations, guidelines and related paperwork. Its structure, organization, payment and pricing and related rules—including coding, documentation and reporting requirements—are mind-numbingly detailed.

This morass of bureaucratic complexity imposes high, albeit often hidden, costs, including administrative demands on harried doctors and other medical professionals who must daily comply with the program’s overbearing rules and paperwork under the penalty of law.

These transactional costs—the mandatory reporting and the time, energy and effort required to satisfy these bureaucratic requirements—are very real. Writing for the Journal of the American Medical Association, researchers report that, for American doctors, “…the time spent on administrative issues related to reporting clinical or quality data to government or other agencies is a major problem.”

Year in and year out, congressional micromanagement adds further to this complexity, as politically powerful interest groups lobby intensely for additions, subtractions, or self-serving modifications of Medicare law and regulation. Like a busy spider, Washington relentlessly multiplies the restrictive strands of its vast web of regulatory control.

Medicare’s bureaucratic structure and regulatory functioning imposes mostly hidden costs on American health care system. They are every bit as real as the overhead costs of private health insurance; they just don’t show up on Medicare’s books.

Yet all of this bureaucracy does not render Medicare immune to waste, fraud and abuse, or “improper payments” to providers.

In Fiscal Year 2017, the Government Accountability Office (GAO) reported that improper Medicare payments totaled $52 billion, only $1.4 billion of which was recovered. Last fiscal year 2018, GAO estimated that Medicare racked up another $48.5 billion in improper payments.

Meanwhile, doctors and patients struggle with Medicare’s cumbersome appeals process for months, even years, to get reimbursed for legitimate billings. Once again, these costs of Medicare’s administrative failures are real, but such losses are not counted as administrative costs.

The congressional champions of “Medicare for All” make another big mistake. They assume “big” administrative savings from legislation creating, from scratch, an entirely new federal infrastructure, heavily armed with an even greater arsenal of regulatory powers of unprecedented size and scope. Abolishing all private coverage as well as public programs, like Medicare, and starting over, as prescribed under both the House and Senate Medicare for All bills, would be a huge, complicated and costly undertaking.

Champions of government-controlled health care fixate on private health plans’ administrative costs while studiously ignoring the stupendous amount of waste and inefficiency generated by existing government-controlled health programs.

Harvard University Professor Regina Herzlinger says it best. “The assertion that governmental control of the health sector would lower administrative expenses ignores all other aspects of the health care system, such as quality, convenience and innovation. It assumes that our sole interest is minimizing administrative expenses. But our interests are much more complex: we want excellent, high quality, convenient, consumer-responsive care, delivered at a reasonable price.”

The fulfillment of these diverse personal needs is what “Medicare for All” will not, and cannot, deliver.

This piece originally appeared in The Philadelphia Inquirer

Donate to The Heritage Foundation

Our more than 100 policy experts and researchers are invited to testify before Congress nearly 40 times a year