Listen to any proponent of Medicare-for-All and they will cite the low percentage of administrative costs to total costs of current Medicare. Generally this is cited as 2-3% which is considerably lower than private insurance. However, we are not comparing apples to apples.
In fact, Medicare’s administrative costs are too low and this results in increased improper payments and fraud. The CBO and GAO have both called for increased funds to combat fraud. Medicare pays claims and then pursues any issues at a later time; maybe. Medicare has a high overpayment rate. Medicare does virtually nothing in terms of pre-approval or review of medical medical necessity before treatment.
Medicare spends an average of $12,800 (Medicare spending not total spent).
Per person personal health care spending for the 65 and older population was $18,988 in 2012, over 5 times higher than spending per child ($3,552) and approximately 3 times the spending per working-age person ($6,632). The elderly were the smallest population group, nearly 14 percent of the population, and accounted for approximately 34 percent of all spending in 2012. Source: CMS
Simple math will tell you that the higher the denominator, the lower the percentage will be. In other words, you can’t simply apply Medicare data to the entire population and expect the same results.
In the broader category of improper payments, HHS estimates the amount of such payments for Medicare, Medicaid, and CHIP. In 2013, improper payments, including underpayments and overpayments, were estimated to account for the following percentages of the federal government’s payments:
Medicare, 9.3 percent (or about $50 billion),
Medicaid, 5.8 percent (or about $14 billion), and
CHIP, 7.1 percent (or about $0.6 billion).
Almost all of those improper payments are overpayments, which account for roughly 92 percent of known improper payments in Medicare, almost 98 percent of such payments in Medicaid, and approximately 96 percent of such payments in CHIP.
Those percentages and dollar amounts are not HHS’s (or CBO’s) estimates of how much fraud occurs in Medicare, Medicaid, or CHIP. In fact, with respect to Medicare, HHS specifically cautions against citing the improper payment rate as a measure of fraud, noting that the methodology used to calculate that rate is not designed
to measure the amount of fraud.
Improper payments include many payments that are not fraudulent—for example, some for which the paperwork was incorrect, although the service itself was proper—and does not include undetected fraud. Source CBO report October 2014.