Whenever someone dares to ask whether a government-run program can actually save on healthcare costs, the low adminsitrative costs of Medicare are always cited as proof that the public sector is already doing it better than the private sector.
Megan McArdle has a great post arguing why this simple factoid is woefully incomplete. The whole thing is worth a read, but she makes several key points which we’ll bullet here:
- Medicare has its own billing department. It’s called the IRS.
- Medicare’s negotiation with drug companies occurs between lobbyists and Congressmen, and are not done internally. An insurance company has to pay for their own billing.
- Medicare has more fraud due to a less aggressive pursuit of phoney claims (the flipside of insurance companies, which may be too aggressive about avoiding payment).
- Medicare represents a tax on employment, which is a cost externalized on society, which doesn’t show up on its own budget.
Now, some might say: Well fine, but isn’t it good that Medicare already has its own billing department and doesn’t have to pay for its own drug cost negotiations?
Yes, you could make a case for that, but when people make the argument that Medicare has lower overhead costs, they’re usually trying to claim that a government program can go toe-to-toe with the private sector in terms of efficiency. It’s great that they have a way of offloading costs, but it doesn’t prove anything about efficiency or effectiveness. And that, ultimately, is what we need more of in the healthcare system.
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