During last Wednesday’s presidential debate, President Obama claimed that the private sector just can’t match the leanness and efficiency of the federal government. He was speaking specifically about privately covered health care versus government-run health care. Obama said, “Jim, if I — if I can just respond very quickly, first of all, every study has shown that Medicare has lower administrative costs than private insurance does, which is why seniors are generally pretty happy with it. And private insurers have to make a profit. Nothing wrong with that. That’s what they do. And so you’ve got higher administrative costs, plus profit on top of that.”
But the facts don’t back up Obama. Last year, the Government Accountability Office (GAO) estimated that Medicare loses a staggering $48 billion a year simply because of fraudulent or improper payments. In comparison, the profits of the nation’s ten largest health insurance companies last year were a combined $13.7 billion. In other words, Medicare loses three-and-a-half times what the ten largest private health insurers make.
Moreover, that $48-billion figure doesn’t even represent the full tally on the government side, since, in the GAO’s words, it “did not include improper payments in [Medicare’s] Part D prescription drug benefit, for which the agency has not yet estimated a total amount.” (As an aside, one wonders: Does Obama think the Medicare Part D prescription drug program — the popular program after which the proposed Romney-Ryan Medicare reforms are modeled — is “a voucher program”?) Both 60 Minutes and the Washington Post have previously estimated annual Medicare fraud at $60 billion.
With roughly 40 years of evidence to draw upon, the verdict is in. We can see that government-run health costs have risen far more, per patient, than the costs of privately covered health care. As a study I authored for the Pacific Research Institute shows, since 1970, the costs of Medicare and Medicaid have each risen one-third more, per patient, than the combined cost of all other health care in America.
Why do the costs of government-run health care rise more, even though Medicare and Medicaid pay health care providers less? (And under Obamacare, Medicare providers would be paid even worse — worse than Medicaid providers by the end of this decade — with such “savings” going to fund Obamacare.) I’ve previously offered a few answers in these pages:
“Because [government-run health care] is as devoid of healthy competition as it is replete with wasteful inefficiency. In Medicare, if providers get it right the first time, they get paid once. If it takes four or five times — at seniors’ inconvenience and sometimes at their peril — they get paid four or five times as much.
“…Medicare’s notoriously low payment rates don’t keep providers from making up the difference (and then some) by prescribing more care — which Medicare almost always pays for, no questions asked. [In comparison] most private administrative costs are money well spent — in establishing networks of accountable doctors, combating fraud, and so on.”
In sum — and Obama’s views notwithstanding — nothing gets cheaper by being funneled through the massive bureaucratic apparatus of the federal government.