Medicare Is the Solution, Not the Problem

ryan medicareMeanwhile, administrative costs eat up 15 to 30 percent of all healthcare spending in the United States. That’s twice the rate of most other advanced nations. Where does this money go? Mainly into collecting money: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is “billing clerk.” A third of nursing hours are devoted to documenting what’s happened so insurers have proof.

Trying to slow the rise in Medicare costs doesn’t deal with any of this. It will just limit the amounts seniors can spend, which means less care. As a practical matter it means more political battles, as seniors – whose clout will grow as boomers are added to the ranks – demand the limits be increased. (If you thought the demagoguery over “death panels” was bad, you ain’t seen nothin’ yet.)

Paul Ryan’s plan – to give seniors vouchers they can cash in with private for-profit insurers — would be even worse. It would funnel money into the hands of for-profit insurers, whose administrative costs are far higher than Medicare.

So what’s the answer? For starters, allow anyone at any age to join Medicare. Medicare’s administrative costs are in the range of 3 percent. That’s well below the 5 to 10 percent costs borne by large companies that self-insure. It’s even further below the administrative costs of companies in the small-group market (amounting to 25 to 27 percent of premiums). And it’s way, way lower than the administrative costs of individual insurance (40 percent). It’s even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

In addition, allow Medicare – and its poor cousin Medicaid – to use their huge bargaining leverage to negotiate lower rates with hospitals, doctors, and pharmaceutical companies. This would help move health care from a fee-for-the-most-costly-service system into one designed to get the highest-quality outcomes most cheaply.

Robert ReichEstimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year. More Americans would get quality health care, and the long-term budget crisis would be sharply reduced.

Let me say it again: Medicare isn’t the problem. It’s the solution.

[This is drawn from a post I did in April, also before current imbroglio]

Posted on the LA Progressive July 23, 2011 (infographic added October 20, 2012)

Robert Reich
Robert Reich’s Blog


  1. says

    Mr Reich has rightly touched on a key point – administrative costs. However, his treatment has a possible disconnect. According to him, administrative costs eat up 15-30 percent of HEALTH-CARE SPENDING in the USA.

    That claim is a bit different – and with more serious implications – than his assertions about how administrative costs differ among INSURANCE schemes – Medicare or other.

    Administrative costs borne by insurance companies or schemes are only a part of total administrative costs incurred in medical-care activity. In particular, as Reich notes, hospitals and doctors spend huge amounts of money billing each other and clients and insurers. These overhead costs likely are getting quietly passed along as ‘treatment overhead’ costs to everybody, and all to insurers, not just to certain clients or to certain insurers.

    So even if Medicare’s stated ‘administrative’ costs are low, likely they are on top of inflated ‘treatment’ costs.

    My own job-related medical-insurance is quite good in coverage, but its statements illustrate the needless (in this computer age) and costly paper nightmare that seems peculiar to the medical insurance industry. Any other service would regularly each month send me a single monthly statement that lists outstanding prior-months’ unsettled claims or bills, plus all new claims made by or for me and their status. Instead the insurance company sends me episodic reports on each separate claim made by or for me. Quite separately I get episodic incident-by-incident third-party-provider bills, including from labs I never heard the doctors mention. Lots of paperwork, none providing any overall tracking. You would never know that the insurance company actually had a single continuing account for me.

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