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  • Morning Bell: The Truth About Medicare's Administrative Costs

    Now that Al Franken has been seated in the Senate, Sen. Chuck Schumer (D-NY) is now telling reporters he sees no need for the left to compromise on their demands for a government-run “public option” health care plan. Proponents of the public plan, like Schumer, believe government-run health care is needed “to keep the insurance companies honest,” because they believe private insurance companies have higher administrative costs than a government-run health care system would. The explanations for why liberals believe this are as numerous as they are erroneous: government is more efficient than the private sector; private insurance companies spend too much on marketing; executive compensation is too high; private firms fight too many claims; and, of course, private health care seeks too much profit.

    But like many core beliefs of the left, the claim that government-run health care has lower administrative costs than private care is just plain false. New York Times columnist Paul Krugman, for example, likes to cite data showing that Medicare only spends 3% of its total outlays on administrative costs compared to 14-22% for private care. The numbers themselves are correct, but measuring administrative efficiency by a percentage of total costs is completely useless. Heritage fellow Robert Book explains:

    Imagine, for a moment, that Fred and Jane each have a credit card from a different bank. Fred charges $5,000 a month, and Jane charges $1,000 a month. Suppose it costs each bank $5 to produce and send a plastic credit card when the account is opened. That $5 “administrative cost” is a much lower percentage of Fred’s monthly charges than it is of Jane’s, but that does not mean Fred’s bank is more efficient. It is purely a mathematical artifact of Fred’s charging pattern, and it would be silly to compare the efficiency of bank operations on that basis. Yet that is how many analysts compare Medicare with private insurance.

    A much more accurate way of capturing each system’s true administrative costs is by a per-patient basis. When this is done, government-run health care’s administrative costs are routinely higher than private care. In the years from 2000 to 2005, Medicare’s administrative costs per beneficiary were consistently higher than that for private insurance, ranging from 5 to 48 percent higher, depending on the year. This is despite the fact that private-sector “administrative” costs include state health insurance premium taxes of up to 4 percent (averaging around 2 percent, depending on the state)–an expense from which Medicare is exempt–as well as the cost of non-claim health care expenses, such as disease management and on-call nurse consultation services.

    Without their lower administrative cost talking point, the left knows their justification for government run health care in a time of dangerously high deficits evaporates. That is why Paul Krugman has now attacked Book’s findings twice on his personal blog. In neither effort does Krugman ever refute that per-patient is the better metric nor does he cite any data to refute Book’s per-patient conclusions. Read both posts. And read Book’s responses. This is one liberal myth we can put to bed.

    Quick Hits:

    • Health care overhaul legislation from President Barack Obama’s congressional allies would create a federal insurance czar with sweeping new powers to oversee medical plans nationwide.
    • Bank bailouts and recession-fighting measures are exploding the debt of the world’s most affluent nations, sending debt levels to at least 114 percent of gross domestic product in 2014, more than triple the 35 percent of the main emerging economies including China, the International Monetary Fund forecasts.
    • Fitch Ratings downgraded California’s bond rating to BBB, just above junk status.
    • Democrats admit that their cap and trade bill is a job killer.
    • According to Gallup, Americans, by a 2-to-1 margin, say their political views in recent years have become more conservative rather than more liberal, 39% to 18%, with 42% saying they have not changed.
    Posted in Ongoing Priorities [slideshow_deploy]

    38 Responses to Morning Bell: The Truth About Medicare's Administrative Costs

    1. Robert T. Davis says:



    2. James Cooke, Rockwal says:


      "Figures lie, and liars figure.

    3. Ken Jarvis - Las Veg says:

      HF Logic -


      they explain about Credit Cards.

      I have been on Medicare for 12 years

      and it is the BEST HEALTH CARE AVAILABLE.

      I'll bet that ALL that work for HF have Health Coverage



    4. Lawrence K. Marsh / says:

      President Theodore Roosevelt once said–and rightly so–that under government ownership, corruption can flourish just as rankly as under private ownership. Does any person change their moral character, based on whether they are in the employ of government or of private industry? So far, there is no evidence to corroborate that idea.

      With the shekels come the shackles. Government-owned medical care and insurance will surely mean a politicized rationing of health care, i.e. politically-favored segments of our society will have more care available to them, than do politically-disfavored segments of society. In logical extreme-end conclusion, we should fear a possible Nazi-like scenario, where persons the government arbitrarily deems "unfit to live" are allowed to die, or perhaps their death is even hastened by the government. This amounts to a moral de-priviledging of human life, which should be avoided in America at all cost.

    5. jim smith says:

      If the federal government had a record of managing programs cheaper than the private sector does, then the government would, by results, be shrinking. Instead, we all get to use the word "bloated" more than the past, as this is what Nobama and his central planners are creating for us. Chucky Schumer, famous for his "broadside" analogy and other Sunday afternoon trivia, never met a problem whose solution he couldn't oversimplify, just so long as it includes taxing greedy, corporate profiteers.

    6. J.C. Hughes, Texas says:

      Demagoguery run amok. Enough! Every leftist loon up for election in 2010 needs to be tossed out. And for anyone wishing to fill those empty seats, they best push for laws forever ending federal interference into social welfare, entitlements and free markets.

    7. Tyler Durden says:

      Can somebody ask Schummer who is going to keep the government honest ?

    8. Whicket Williams Kin says:

      When are we going to stop the Czars? I thought that they are unconstitutional?

    9. Anne Martinez says:

      What bluster! Sen. Schumer is full of it. The problem is that even conservatives say the "health care need fixing". No doubt we can improve anything; but; who, beside you, are saying that we have the best health care in the world in the USA. TWT had a ed. that said: Cut out the insurance for all and pay-as-you-go. There's a fix to the problem! The only problem is the 40M without insurance – a middle man always sends cost HIGHER!


    10. Matt. Pacifico, Mary says:

      I just read something about why Government involvement is needed in health care – to

      keep insurance companies honest.

      Who the is going to keep the Government honest. A majority of the group in Washington right now has to be the most corrupt bunch of people we've ever seen.

      Seems like they want to walk around with blinders on. Don't they see what's going on around the country. Think it's time for them to take a cut in pay, benefits, and start laying off some of their aids.

      Matt. Pacifico

    11. Richard Cancemi, Arl says:

      There is an open road ahead for the Liberal/Socialist/Democrats to do more damage to our Country, and for citizens, a road that's going to get get bumpier and bumpier.

      Goodbye America?

    12. jack maclean, Reynol says:

      While I disagree with almost everything this Congress has done, I find it hard for anyone to defend private health care. From Frist to 20 others I know of personally, multiple millions have been made by HMO’s and health insurance companies. Everything from basic care, cancer coverage, through elderly care, the bucks go to the stockholders, not into the quality of care given.

      Without tort reform, there is no health care revision. Let the government get involved and feel the pinch of lawsuit after lawsuit, and maybe between their involvement and the US Government getting sued a time or two, real compromise can happen.

    13. Michael - New York N says:

      With Big Al Franken seated, our country indeed will become a comedy of errors skit. Big Al will feel right at home in Washington. We are indeed very close to loosing our country, our values and our freedoms. This is while we are giving away our National defense. To increase the insult, the Obama administration is considering another stimulus. It is really difficult to spend one's way out of a recession, and then tax your way out. We are a bankrupt nation; look at the great job the terminator did in California with the liberals. We will wind up bankrupt and the laughing stock of the planet.

    14. Jake, LHC says:

      clucki schummmmmmmmmmmmmmmmer you used up all you political capital with your lies in the schummmmmmmmer-obama-banking scandal that raped the taxpayer of the United States and New York State. You should RESIGN in SHAME schummmmmmer for your foney fraudulent actions. When do the hearing under oath start on the banking-housing scandal. Democrats the party of NO-NOACCOUNTIBILITY.

    15. ralph larson says:

      Nice try. This is how we explain that our cost per capita is twice that of Canada or France,yet our health care results are worse. Please read THE SPIRIT LEVEL.

    16. Marilyn Chalmers, Ut says:

      Hooray for the TRUTH in Morning Bell! So, the dems are all about "keeping the insurance companies honest?" Since when do they know anything about honesty? Thank you for an honest look at what's going on in our govt. Forge ahead! God is in control of all!

    17. Wayne Green, Fort Ma says:

      Has the government counted in the costs that it usually takes one dollar of taxpayer money to give 20-25 cents back?

      Does their figures account for administrative cost for the caregiver? I have heard medicare/medicaid can be a boondoggle.

      How does their plan compare with catastrophic health insurance coverage with a Health Savings Account (HSA)? Typically these have been running 60+% less than the average plan and the coverage is every bit as good and better in most cases.

      They say they can provide cheaper coverage, is it the same or better quality?

      Will certain people be slighted (e.g. elderly) because of a disproportionate use of the system?

      Would individual tax credits be more effective?

      I used to sell small business insurance, will they implement draconian laws that will force many businesses to close?

      If the government can't provide lower costs with what they got, how can they ask for more? This is an old sales adage used by many businesses.

      And these are a few of the questions I have!

    18. Proud citizen says:

      Money seems to be growing on trees. We the people who have worked and saved may be paying with our 401K plan to provide health insurance for those who are here illegally. Borrowing money from another country is not helping us at all in the future. Cap and Trade could mean the hard working people may loose their jobs, and who will pay for some of the outrageous things our government wants to fund?

    19. Ireland says:

      This Healthcare Plan cannot work and is limited to who it will help. Even those that it might help will have a deductible of $5,000 so those that go to a doctor and seek medical care would only benefit them after spending $5,000 of their own money. It's no secret that health care costs are spiraling out of control in this country. On average, we now spend more per person on health care than both food and housing. Insurance premiums are multiplying much faster than inflation, which prevents economic growth and leaves businesses with less money to give raises or hire more workers. While the quality and availability of medical care in the United States remains among the best in the world, many wonder whether we'd be better off adopting a universal government-controlled health care system like the one that’s used in Canada.

      Do you really want government deciding your course of treatment? Let’s face the facts. Government is well known for their bureaucracy red tape, why is that? Do you want to be one of those who fall between the cracks? Government waist money, and generally could careless about their own constituents; as we told them no more bailouts they ignored us and listened more to the lobbyist and special interest groups and most Americans are just fed up. Lobbyist and Special Interest Groups have a great deal of money at their beck and call. Many of them donate towards these elected officials re-election campaigns. But, they haven’t realized just how angry the American public is about what is going on right now. What makes you think that they even care a hoot about us? It’s more about keeping and retaining government control and most are corrupt enough to gain more power and money.

      So for me handing my health care over to these same people would be a nightmare. A little personal information about myself may help explain why I think that. In October, 2008 I had a stroke that affected my right side while visiting Florida; I live in Alabama. I do not have medical care or health insurance. I spent 10 days in a hospital racking up bills well above 35,000.00. Now, there is no company I know who would hire someone who is right handed and willing to give me a job. When I came home we were told to call Medicare and Medicaid. They would look to see if I qualified to receive support. Just my monthly prescriptions cost are around $200.00. I was granted “temporary” assistance which made the prescriptions just $5.00. But, SSD made an appointment with “their” doctor to determine just how bad my physical issues were. He spent about 5 minutes with me, most of which was answering his questions. He spent about a minute actually looking at my handicaps. About 2 weeks later I received a letter telling me that “I was not sick or handicap enough to warrant their financial assistance.”

      Since February I’ve been fight with them to get my own money back that I put into over 25 years of working into my SSI/SSD that came out of my weekly paycheck. I put a lot of money into it. (about double my medical bills). They give you the total when you first apply. A friend who works in government in another state helped me to find an advocate to help. She told me that this was a game for them and that they do this to everyone who needs SSD assistance. She said it sometimes takes 3 Appeals to get them to agree to help. We are still waiting for that advocate to return my phone calls. This has been a very exhausting and frustrating time, which isn’t actually helping to control my blood pressure any. I’m afraid that this experience has told me to never rely on government to do anything for you. I certainly wish I had my $200,000 back to pay my hospital bills. The longer they play these games the less likely that I will make a complete recovery. The key to making a full recovery is physical therapy which I cannot afford. I have my good days and bad days; I also have mobility issues and lose my balance. One day about 2 months ago I fell and hit very hard on the ground. I put my left hand out to brace my fall and broke my left wrist in the process.

      This is what all those who take the government healthcare system will pretty much look like this but on a National scale. Take my word for it they will fight you on everything in bureaucratic red tape. For some who have heart disease, lung, kidney and liver issues, this will be a nightmare for them. Will the government deny a transplant surgery because of the cost or dialysis knowing that most survive 5 years after the transplant? Are you willing to put your life into these government bureaucrats and expect them to do the right thing? Government can barely run the government. They are incompetent, inefficient and ineffective with running day to day operations. Weren’t they the same people who were in charge of Fannie Mae and Freddie Mac? Or The Department of Transportation? Social Security Administration? Department of Education? Which one of these run an efficient and effective Government agency?

      If they really want change and healthcare reform the government and this administration may be better placing financial caps on hospitals stays per day, medical procedures and limitations on unnecessary hospital policies. How much they can charge? I had two MRI while in the hospital that cost about $7,000.00 each. What did they not learn from the first MRI? Are these hospitals padding cost to pay for illegals immigrants or for those who are homeless and any other group? Think twice before signing up for the government healthcare. Would it be more prudent to give large tax breaks for those hospitals who help the uninsured, homeless and illegals?

    20. Brad Raffensperger, says:

      Where to begin? First, why in the world would anyone listen to what Paul Krugman has to contribute. Has he ever been right on anything yet? They say in Georgia that even a blind hog can find an acorn once in a while. When will Mr. Krugman find his? Perhaps if he has a convergence experience, sees the light and joins the free market side of things. One can only hope.

      Senator Schumer may believe what he says, but I think the vast majority of Americans know the truth. Government always have higher overhead structures; always have, always will, it is the nature of the beast. Why can't he just be honest and say "Hey, I like it when the government controls things and people, it gives us more power and it moves our society to our liberal vision for America". We may disagree with his ideology but at least we could respect his honesty, something solely lacking in many politicians these days.

      And finally, the piece d'resistance, the debt explosion in the Western societies. Johnny Cash's Folsom Prison Blues says it well, "I hear the train a comin', it's rollin' 'round the bend, And I ain't seen the sunshine since I don't know when." The train wreck coming is our unsustainable spending. If we want some sunshine we need to throw off these shackles of government directives and turn towards our Founder's ideal of limited spending, limited taxation, maximum personal freedom with personal responsibility.

      The Democrats may have the votes, but the Republicans can thwart the main thrust if they will stand firm and stand together. As Senator Schumer so aptly said, "there is no need for the left to compromise". Neither should the right if it is based on truth, real truth, truth that spans through eternity.

    21. Norm, Brookings, Or says:

      We all should remind the politicians that they must get thier hands our of our pockets and thier heads out of the sand, and most important, they can be replaced. Carpenters, bakers, farmers, plumbers and mechanics can do a better job and are tuned to real living.

    22. Barb mn says:

      It's not the government's business to interfere. Their only business is to oversee no corruption is put on the consumer. So if insurance companies have been conducting poor business control or corruption, the government failed their duty!

      What an embarrassment! Al Franken! Addressed what he will fight for: Education, healthcare, environment! All of which government should NOT BE INVOLVED! …increase make-work!

      Let the comedy begin…or commence.

    23. Nelia, AZ says:

      For Ken: I think most people with Medicare as their primary insurance are managing okay, but in my case, only because I have an excellent supplement in one of the best plans CIGNA has to offer – thanks to my deceased husband's employer. However, we really have no way of knowing if the plan these clowns come up with will even resemble Medicare.

      That being said, there is need for help for some, such as people in small business (less than 25 employees) who under current conditions cannot afford insurance for themselves, let alone their employees. But surely those isolated situations can be solved without reinventing the entire health care program. Perhaps if we didn't have to cover the cost of health care for all the non-citizens, the solution would be more simple.

    24. Ben C, Ann Arbor, MI says:

      The problem is a fundamental shift in our culture from personal responsibily (me) to third party responsibity (they). The third party is mostly the government with its social engineering agenda. Fueling this is our judical system that negates personal accounatablity with the burden placed on others. The courts "protect us" from hot coffee etc viewing the public as morons incapable of processing common sense.

      Simply look at the financial crisis in California and other states. If the state governments focused on their primary responsibilty – police, fire, roads, and eliminated the entitlements there wouldn't be a crisis even in these tough economic times.

      But alas, we are now a "they" society looking to someone else to blame, solve our problems, and provide for our needs. Healthcare etc is fueling the change and as I see it we are on a one-way road.

    25. ella quinn n.c. says:

      Ken leave heritage alone.All you do is complain about them.

    26. Marilyn - Ca says:

      When amnesty is passed our health care costs will skyrocket. Our seniors will be the least cared for albiet they have paid into it for a lifetime. The waiting time will cause loss of lives or more severe treatment due to the delay of treatment. I fear my beloved country shall no longer know what true freedom really is. My heart goes out to the younger generation as they will never know the greatness of our Country as it was meant to be. TO MANY SOLD HER OUT..

    27. Private Enthusiast says:

      I would like someone to explain to me why one of the parties does not advocate a tax credit to pay for health insurance premiums. This would provide one with more of their hard earned money while expanding the coverage in the private health care arena. It seems that any policy that contributes to the expansion of the health care system through the private sector would provide a larger benefit to all.

    28. Roger S., MA. says:

      Another "Czar", for insurance this time? How many do we have now, 5, 10, 25 ? I lost count.

      Aha ! That's why BO traveled to Moskau this week. Not to shake hands with Medwedjef. Not to talk to Vladimir. No! He wanted to bring them our Czar's ? In exchange for their oligarchs? (Trouble is, the oligarchs are as strapped for cash, these days, as our big corporations, but don't tell anyone! All the same, I don't think it'll be a deal.) Maybe we can get Al Franken to write a skit about it. That's one thing he used to be pretty good at, back in college days. He really was a funny guy, then!

    29. bob, Washington Stat says:

      Government administrative costs always take me back to an old saying……. "government workers, they don't get rich, but then they don't get tired either"

    30. Helmetfoot Boston, says:

      I hope I wake up soon.

      This administration reminds me of "Student Government Day." That's the day that high school kids are "elected" to fill the jobs of the real legislators, and all the elected officers.

      The problem is, the bloody kids didn't go home! They stayed and stayed and stayed. They just got in the way of the grown-ups but because there are so many talkers and not enough doers, they had their support.

      That's what the problem is: the Kids haven't gone home.

      They will when I wake up. I hope.

    31. Christopher Popham S says:

      There is an alternative option to nationalizing

      your health care choices. It is a co-operative

      plan, known as the Alexander McGee Medical Plan.

      For all the information on this plan go to,

      We must not allow the federal government to

      control and dictate how, when, where and by whom

      our medical health care is administered.

      At least take a few minutes to familiarize

      yourselves with the benefits of this plan.

      Thank you.

    32. Pingback: » Financial News Update - 07/07/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater

    33. Harry, Illinois says:

      I rent a blood tester from a company that charges $280/month for me to test my blood each week. I call in those test results each week and they call it in to the doctor.

      Before becoming eligible for Medicare, my insurance company prior to any payments being made by either them or the patient, would allow a negotiated price of $108.00/month for this unit. Now that Medicare is my primary insurance, Medicare allows $149.91/month for the unit. As you can see, that is quite a bit of difference. It would appear to me, that the government should be in a very good position to negotiate a similar if not a lesser rate. Can you imagine what the cost will be if they pass National Health Care?

    34. Dennis A. Social Cir says:

      We all voice our opinion about this subject and that is all most do. If the American people want this mess stoped we need to be active in all areas. It is time that letters are written, e-mails are sent, phone calls are made and personal visits are made to our Senators and Representives. We the people have the power to bring all this "guvernment" intervention to a halt, it is left up to us to stand up and tell them enough all ready.

      The "guvernment" is known for its lack of responsiblity when it comes to programs funded with tax payer monies. They are penny wise and dollar foolish. All obama nd reid, and pelosi need to do is convince 30% of the people that this is the right thing to do and it happens. The other 70% will belly ache but never do anything about the problem. I have heard to many say "my vote does not count" well it is past time to make that vote count and be heard on these and other issues.

    35. Pingback: The Truth About Medicare’s Administrative Costs « Conservative Thoughts and Profundity

    36. Dave Schraub, Indiana says:

      Comrade Ken, your statement on medicare explains everything I need to know about you. You don’t understand that you will be the biggest loser, if this socialized program goes thru. Have a good day.

    37. sandy arizona says:

      Have any of you had an honest response to your questions from your elected representatives?

      Term limits nationwide

      Also just check the millions of dollars doled out to Medicare officials each year in bonuses We need a house cleaning for all of those who do not honor their oath of office or the constitution.

    38. Deborah Calvert, New says:

      I placed my mother in a Sunbridge nursing home facility owned by Sun Healthcare Group Inc. after caring for her 6 yrs at home. She was very happy to be near her peers and socialize. Nine monhts later the Office of Statewide Health Planning & Development condemned their HVAC system to patient rooms. Numerous families complained to management about this and broken blood pressure monitors and cuffs, thermometers, blood sugar montior and oxygen saturation monitors. Management sent mid level managers to meet with families and encourage us to move to another facility if we did not like their lack of staffing according to law, they were on a budget and couldn't even afford to advertise for nurses. We called in the Guardian Angels program with the Dept of Justice State Attorney General's office to help us. SUN attempted to bar families from visiting and the Guardian Angels program called the Dept of Health to call SUN and demand the visiting hours signs be removed within 24 hrs or risk a fine. It was simply illegal. Not long afterward they finally sent a board member to visit families and he directly fired the Administrator and DON. YET equipment did NOT get fixed or replaced, and I received a letter from the board member in writing that the lack of HVAC to patient rooms was historically not harmful. We watched patients die due to their negligence from Oct – Dec 2003 to the degree the Dept of Health shut them down with only 37 patients remaining, refusing admittances for six months until the new license holder NEWPORT NURSING could properly train employees SUN left behind 12/1/2003 when they sold the facility. Unfortaunately, the broken equipment led to my mother's long suffering death after a stroke they caused she couldn't swallow. Their medical director and her personal physician, Dr L Scott Stoney, declared SUN killed her due to these errors. We could prove willful misconduct by the top management for not responding to this critical situation and violating a California State injunction from 2001 for killing patients with a broken HVAC system in Burlingame, Calif in 2000. This was blatant disregard for human life by the CEO of Sun Healthcare, a publicly traded corporation overseen by the SEC..

      I sued but apparently my attorney began working for Sun. He threatened me in mediation settlement for SUN's CEO, stating if I insisted on a jury trial he'd not only harm me but also make me out to be a crazy woman. I was coerced into signing off on only a fraud charge, since this attny had dropped wrongful death, elder abuse, injunctive relief, while I had surgery at UCLA for a pancreatic tumor. But I was smart enough to refuse to sign any confidentiality agreement. I sued Dan Liepold for malpractice, he died 2 weeks after learning I'd hired Eugen Andres to represent me. Think he was stressed? I won that case in 2008.

      Sun cheated the Calif taxpayers of out millions of dollars in fines, as the Deputy Attorney General, Claude Vanderwold, told my attorney and I that this facility of Sun's in Newport Beach was NOT considered in the fine they issued to SUN worth $2.5 Million in Sept 2005 for violating the injunction. Sun cheated me out of treble damages for being able to prove willful misconduct, or $3-$4 Million.

      Was this corporate corruption?

      Buzz Aldrin would say "this isn't rocket science".

      Deborah Calvert, Newport Beach, California

      and former assistant to Buzz Aldrin

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