In fact, President Obama has made this claim several times. This statistic about Medicare’s low administrative costs has become one of the linchpins in the argument for a “public option” on health care. The only problem, not surprisingly, is that it’s hogwash.
The explanation is really quite simple, and it’s provided here by Robert Book of the Heritage Foundation. The statistic cited by Alter and Krugman uses administrative costs calculated as a percentage of total health care costs (For Medicare it’s roughly 3 percent and for private insurers it’s roughly 12 percent).
But here’s the catch: because Medicare is devoted to serving a population that is elderly, and therefore in need of greater levels of medical care, it generates significantly higher expenditures than private insurance plans, thus making administrative costs smaller as a percentage of total costs. This creates the appearance that Medicare is a model of administrative efficiency. What Jon Alter sees as a “miracle” is really just a statistical sleight of hand.
The fact is, on a per person basis, the government plans simply costs more in terms of administrative costs than competently run private sector insurance. Anyone who has ever dealt with any Federal agency knows that intuitively. Bevan calls this oft-touted statistic “hogwash”.
I’d call it an outright, intentional lie.