Fwd: qotd: Important: What are Medicare's true administrative costs?

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Subject: qotd: Important: What are Medicare's true administrative costs?
Date: Tue, 19 Feb 2013 14:31:36 -0800
From: Don McCanne <don@mccanne.org>
To: Quote-of-the-Day <quote-of-the-day@mccanne.org>



Journal of Health Politics, Policy and Law
February 15, 2013
How to Think Clearly about Medicare Administrative Costs: Data Sources
and Measurement
By Kip Sullivan

Abstract

The Centers for Medicare and Medicaid Services (CMS) annually publishes
two measures of Medicare's administrative expenditures. One of these
appears in the reports of the Medicare Boards of Trustees and the other
in the National Health Expenditure Accounts (NHEA). The latest trustees'
report indicates Medicare's administrative expenditures are 1 percent of
total Medicare spending, while the latest NHEA indicates the figure is 6
percent. The debate about Medicare's administrative expenditures, which
emerged several years ago, reflects widespread confusion about these
data. Critics of Medicare argue that the official reports on Medicare's
overhead ignore or hide numerous types of administrative spending, such
as the cost of collecting taxes and Part B premiums. Defenders of
Medicare claim the official statistics are accurate. But participants on
both sides of this debate fail to cite the official documents and do not
analyze CMS's methodology. This article examines controversy over the
methodology CMS uses to calculate the trustees' and NHEA's measures and
the sources of confusion and ignorance about them. It concludes with a
discussion of how the two measures should be used.

Two Official Yardsticks
Medicare's administrative costs were $8 billion in 2011, or 1.4 percent
of total Medicare spending of $549 billion that year. Those figures come
from the latest annual report of the Medicare trustees, prepared by OACT
(Office of the Actuary within the Centers for Medicare and Medicaid
Services). As I document below, the $8 billion includes costs incurred
directly by CMS (notably, the salaries of CMS staff and payments to
insurance companies to process claims) as well as costs incurred by
other federal agencies on Medicare's behalf (e.g., tax collection
services provided by the Internal Revenue Service, Part B premium
collection services provided by the Social Security Administration and
the Railroad Retirement Board, and fraud prevention services provided by
the Federal Bureau of Investigation).

The latest NHEA, also prepared by OACT, is for 2010. According to it,
Medicare's overhead totaled $31 billion that year, far more than the $7
billion reported by the trustees for 2010. That $31 billion constituted
6 percent of total Medicare spending in 20102 — much higher than the 1
percent rate reported for that year by the trustees. The difference
between the trustees' measure of overhead and the NHEA measure is due
almost entirely to the fact that the NHEA defines Medicare's overhead to
include not only the $7 billion in administrative expenditures reported
by the trustees for 2010 but also the $24 billion in administrative
expenditures incurred by the insurance companies that participate in
Parts C and D.

Selecting the Right Yardstick

The NHEA measure tracked the trustees' measure quite closely for the
first twenty years of Medicare's existence. But since the mid- 1980s,
which is when the percentage of Medicare beneficiaries insured by
insurance companies began to rise beyond the negligible levels of the
1970s, the NHEA measure of Medicare's overhead has risen dramatically
while the trustees' measure has continued to decline. As of 2010, the
latest year for which data from both measures are available, the NHEA
measure was 4.5 times larger than the trustees' measure — 5.9 versus
1.3. This enormous disparity between two measures that used to be almost
identical should long ago have triggered inquiries within Congress and
the US health policy community as to whether the higher administrative
costs associated with the growing privatization of Medicare are justified.

http://jhppl.dukejournals.org/content/early/2013/02/11/03616878-2079523.abstract


Comment: In his article, Kip Sullivan has finally laid to rest the
distortions and obfuscations of those who contend that Medicare's
administrative costs are much higher than commonly cited percentages -
1.4 percent in 2011. Not only has he shown that the other government
costs that allegedly were left out are actually included, but he has
also shown that the other official measure of Medicare's administrative
costs shows how much more it is costing us to fund the administrative
excesses of the private Medicare Advantage and Part D drug programs - an
egregiously wasteful use of our Medicare funds.

Quoting Sullivan, "This enormous disparity between two measures that
used to be almost identical should long ago have triggered inquiries
within Congress and the US health policy community as to whether the
higher administrative costs associated with the growing privatization of
Medicare are justified."

It should also have triggered the question: Why haven't we yet enacted
an improved Medicare for everyone?