Check out the ratio of administrative costs to payouts on some state Medicaid programs. Private insurance has an administrative overhead of about 18% (from your article, and a number close to what I've seen elsewhere). Compare that to 3.5% for some state Medicaid programs.

We could compare profit... oh wait. MEDICAID DOESN'T RUN A PROFIT. Looking bad for those poor private insurers, hope they can afford to fuel their Gulfstream jets.

Cheers! They have small profit margins?! Why are they making a profit at all?!

I hope Gimein got a fat envelop full of under-the-table cash for this one. Otherwise, there's no excuse.

Velifer,

You're right: insurance companies have much higher overhead than Medicare. Nobody is disputing that. For a bunch of reasons, it's natural that they would. But they still manage to come out costing less.

PS: I do use the 18% figure in the story. But if you want to do a more involved comparison devoted to overhead costs, the difference will be much small, more like 10%. That's closer to the overhead on "self-paying" large company plans (you can look at Wellpoint's financial statements for a good example of this--I haven't looked at the data in any comprehensive way; there might be exceptions).

MG

I don't know why you think they cost less, as per-person-per-month costs of coverage are much less in a government fee-for-service plan than they are in a comparable private insurance plan, even when that plan is managed care, which specifically limits access to care to control cost.

I suppose if I were to only look at the crude calculations done to support the premise of the article, it's possible to come to those conclusions, but it feels more like the data was presented to support a position, not the other way around.

Government insurance in the US covers the oldest, poorest, and sickest. With that risk pool, per-person-per-month costs will be much higher than covering young healthy rich people. A more comprehensive look at cost uses actuarial science to standardize age, sex, race, and disease severity into risk groups that can be compared.

You're clinging to the notion that insuring healthy rich people is cheaper, so government insurance is bad... please, stop it, that straw man is bruised and battered.

First, the private sector overhead of 18% is over-stated. That 18% (which i actually believe is close to 12-14% for the larger public companies) includes some costs which are actually directly related to providing health care such as: nurse case manager, pharmacists staffing call centers, disease management programs, etc. I don't have a good figure for actual overhead but 10% sounds about right. True overhead for the Medicare program is higher than 3-4%. To calculate true overhead we should allocate the cost of collecting Medicare taxes from emplyers and emplyees to the Medicare program and probably allocate a share of some other government costs as well. I have seen data that suggest "true" Medicare overhead is more like 6-8%.

Also, regarding the relative health status of seniors in government run Medicare vs. private sector Medicare Advantage. There is some data that suggests that Medicare Advantage enrolls seniors who are sicker than the average senior population.

On Medicaid -- the private sector actually administers health benefits for about 50-60% of this population. Many states outource their Medicaid programs to both private and publicly traded companies. The states tend to be staisfied with the results and believe they can save 10-20% vs. administering on their own.

The federal government does subsidize some health plans through Medicare Advantage but that doesnt mean that private plans could not (and do not already in some cases) save the goverment money. The federal government is a reactive claims paying machine whereas health plans have a better incentive to take preventive action to reduce health care costs and keep seniors more healthy.

Mr. Gimein,

Are Medicare and Medicare Advantage patient pools comparable? Do those programs cover people who are otherwise identical, or do the private companies get to try to engage in cream-skimming? And if they aren't comparable pools, how can you justify making the claim that private companies plans cost less as if that was evidence of their greater efficiency. It seems to me, if they cream skim the healthiest patients and end up still spending 97% or 110% or whatever number you choose, then they really don't cost less, they just take all the cheap patients out of medicare.

Redriot,

Where is this data suggesting MA actually takes less healthy patients. I don't mean to call you out, but that's quite a claim, so ... link?

As for incentives to take preventative action to keep people healthy, what are you talking about? Health insurers have no such incentive, which is one of their major problems. In the non-medicare advantage regular insurance market, insurers know that around 20% of people will switch insurers in any given year. That means they only have a short duration of time for preventative care to payoff, which basically means there is little incentive. With a private insurer, diabetics often have to fight to get more needles and blood sugar testing strips. You'd think cheap blood sugar management would be promoted, but since insurers know they will likely drop the patient in a few years, they have little incentive to prevent complications that come down the road.

I don't know about medicare advantage specifically, but I do know that the profit motive and the desire to keep people healthy more often than not are in conflict, not aligned, so to say they have a greater incentive to keep people healthy is dubious at best.

redriot - insurance companies don't provide healthcare regardless of what their employees titles are. This is a key point in their defense against malpractice lawsuits when denial of insurance results in bad outcomes. The fact that the insurance company employees make decisions of what health care is provided based on approvals or denials of payment for planned or ongoing medical conditions is beside the point. The key is that profit or income or revenue -take your pick - is not diminished by having to payout pesky judgements from those malpractice suits. It really hurts the share price of the company.