Accounting Tricks

An interesting column from Washington Post economics writer Robert Samuelson on why the Public Option is a joke. One point he makes pokes a substantial hole in the argument that Medicare operates much more efficiently than do private insurance companies.
By some estimates, Medicare's administrative costs are only 3 percent of spending compared with 13 percent or more for private insurers. A new public plan is widely presumed to enjoy an advantage in overhead.
Why is this prediction, that a Public Option would also be able to operate much more efficiently than the private insurance companies do, a trick of accounting (according to "some," quoted by Samuelson)?
Part of the gap between private insurers and Medicare is statistical illusion: Because Medicare recipients have higher average health expenses ($10,003 in 2007) than the under-65 population ($3,946), its administrative costs are a smaller share of total spending. The public plan, with younger members, wouldn't enjoy this advantage.
At 3% of 10K, the administrative cost of the average Medicare patient would be $300. At 13% of $4K, the administrative cost of the below 65 plan would be about $454. Not the huge difference that the percentages would seem to indicate.
It's not insurers that cause high health costs; they're simply the middlemen. It's the fragmented delivery system and open-ended reimbursement. Would strict regulation of doctors, hospitals and patients under a single-payer system provide control? Or would genuine competition among health plans over price and quality work better?
The current Senate plan will not give the Public Option the right to make partial payments to doctors and hospitals like Medicare does to keep costs artificially low (this is cost shifting - we have to make up the difference through higher rates). Instead, it will have to negotiate rates with providers, just like private insurers do. But the Yale Political Scientist who first proposed the Public Option, Jacob Hacker, says this approach doesn't work.
Even Hacker concedes that without reimbursement rates close to Medicare's, the public plan would founder. If it had to "negotiate rates directly with providers" -- do what private insurers do -- the public plan could have "a very hard time" making inroads, he writes. Hacker opposes such weakened versions of the public plan.
Samuelson also points out that the claim that the Public Option would be free of marketing expenses, as is the Medicare monopoly, is untrue - the Government Insurance Plan would be competing against the private insurers and would have to promote itself to compete.
Moreover, accounting comparisons are misleading when they don't include the cost of Medicare's government-supplied investment capital. A public plan would also need investment capital. And suppose the public plan suffers losses. Congress would assuredly bail it out.
The Samuelson column reveals just how flimsy the arguments are for the Public Option. They are rationales for adopting the liberal proposal rather than reasons to do it. Or, more bluntly, they're fabrications, meant to trick Americans into going along with the leftist endgame of single payer.