Medicare Needs to Learn to Say No
Some people like to blame our cost problem on administration. Proponents of this view point to Medicare, which spends something like 3-5% on administration, as compared to around 15-20% for HMOs in California.
I don’t like this argument. In fact, it is completely backwards. I would argue that Medicare spends too little on administration. They pay for all services regardless of cost, review nothing, and end up with a financing scheme that is rife with fraud (see this story from MSNBC).
And because Medicare covers everything and reviews nothing (in essence, does no “upstream rationing”), it makes administration that much harder for the private plans. Medicare’s 2003 decision to pay for left ventricular assist devices is a good example. These devices can cost Medicare $200,000 or more, but patient survival is very poor. And once Medicare covers them, it puts pressure on all health plans to provide access to them.
Even if you think administrative costs are too high, they still can’t explain the growth in health care spending. The percentage we spend on administration hasn’t changed in at least the last decade. So, while it may eat up some of our health care dollars, it doesn’t explain why the pie is getting bigger.
Everyone loves Medicare because it always says “Yes.” It is convenient to pick on HMOs, but they should at least get some credit for trying to say “No.”
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