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Posted by on Sep 7, 2009 in Health, Politics | 140 comments

Is Low Medicare Overhead A Myth ?

One thing that has been mentioned in the debate over health care reform is the idea that Medicare has a much lower overhead than private insurance companies so to switch over to a government system would save money. But one of the problems is that this assumes the current overhead would remain the same if millions more joined the system.

As has been pointed out by some of the opponents to a government system, part of the reason that overhead with Medicare is low is because the costs of treatment are high. Most people on Medicare are older and thus have more health problems, accordingly it costs less as a percentage of those costs to manage the overhead.

For example consider two people, Charlie and Grandpa Joe.

Charlie is 25 and on private health insurance, Grandpa Joe is on Medicare.

During a given year it costs $ 50 in overhead for both men to cover the basic record keeping.

Charlie has $ 1,000 in medical services and it costs $ 100 for the overhead. So his total cost is $ 150, his percentage though is 15%.

Grandpa Joe has $ 20,000 in medical services and it costs $ 550 for his overhead. So his total cost is $ 600, or four times higher than Charlie. But as a percentage of total services he comes out at 3%.

If you put Charlie and his friends on a Medicare style system, the costs are likely to rise.

Obviously this is but one point, but is is one worth considering as we continue in the health care debate this fall.