Not because claims are large per beneficiary in Medicare.
The Heritage Foundation claims that private insurance companies spend $56 dollars less per beneficiary on administrative costs than Medicare ($453 v. $509), but that is a tiny difference considering how many more health care transactions Medicare must approve and pay for per beneficiary than a private insurance company handling a pool of basically healthy non-elderly children and adults.
Medicare Advantage plans are private insurance serving the elderly population. So this is a case of different systems serving similar populations. (Medicare Advantage clients are probably somewhat healthier than the average senior, but the average cost of their health care is still very high.) If costs depended mainly on number of people, these plans should have low administrative costs as a percentage of spending. They don’t — their numbers look like those of private insurance in general.
Meanwhile, other countries have Medicare-like systems that cover low-cost as well as high-cost individuals. Canada’s system is actually called Medicare. So this is a similar system covering a different, lower-cost population. If costs depended on the number of people, Canada should have high administrative costs; in fact, its numbers look like those of American Medicare (actually even better.)
[T]he Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage. This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population.
(And even these numbers may unduly favor private plans: A recent General Accounting Office report found that in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and 6.6 percent to profits—a 16.7 percent administrative share.)
The CBO study suggests that even in the context of basic insurance reforms, such as guaranteed issue and renewability, private plans’ administrative costs are higher than the administrative costs of public insurance. The experience of private plans within FEHBP carries the same conclusion. Under FEHBP, the administrative costs of Preferred Provider Organizations (PPOs) average 7 percent, not counting the costs of federal agencies to administer enrollment of employees. Health Maintenance Organizations (HMOs) participating in FEHBP have administrative costs of 10 to 12 percent.
In international perspective, the United States spends nearly six times as much per capita on health care administration as the average for Organization for Economic Cooperation and Development (OECD) nations. Nearly all of this discrepancy is due to the sales, marketing, and underwriting activities of our highly fragmented framework of private insurance, with its diverse billing and review practices.
The flip side of this analysis is that administrative cost savings from going to something like a single payer plan are on the order of 5-9% of the total on a one time basis. Another big chunk of savings could result from an end to cost shifting to "able to pay patients" from "unable to pay patients."
These savings are significant, but the final sentence quoted above (in italics) is mostly wrong. Much of the difference from the OECD has to do with the fact that OECD countries are paying its providers less for the same services, using more cost effective providers (clinics and primary care physicians, instead of emergency rooms), and offering prevention instead of cure to low income people. The lower provider cost has something to do with the improved bargaining position of a single payer system vis-a-vis providers compared to a fractured set of insurers vis-a-vis providers.
Two systems that work better than the American model are the French and Dutch systems.