Health insurance administrative cost

An argument advocates of Medicare for All often make is that administrative costs would be far lower than private insurance. They typically say Medicare's administrative cost is only 2-3% of its spending, compared to 12% of revenues for private insurer. Since Medicare's revenues aren't much different than its spending, the different italicized terms matters little. However, there are plenty of other things that make it an "apples and oranges" comparison.

This Mises Institute article gives several counter-arguments. It seems to mostly copy a Heritage Foundation article more than 10 years old. The following counter-arguments are from the articles and some of my own:

1. "Social Security administers the collection of Medicare premiums. The IRS collects the taxes. Health and Human Services pays for building and marketing costs, as well as accounting and related concerns. Attributing those costs correctly would roughly double Medicare’s administrative costs."

In the Medicare 2019 Trustees Report administrative cost was about 1.7% of expenditures in 2018. The breakdown includes amounts paid to other government departments, including IRS and HHS. I don't know how realistic they are. So this argument the articles make seems weak or false.

2. "Medicare patients are far older and less healthy — and more than twice as costly, on average, than younger people in private plans. But having less than half the health care costs per beneficiary more than doubles private insurance’s administrative cost as a percentage of total costs, than if the more accurate measure — administrative cost per beneficiary — was used." A different source I found with more detail said that Medicare's cost per beneficiary is about three times that of private health insurance.

This is a good argument. Expressing administrative costs as a percent of total cost instead of per beneficiary is biased.

3. Private insurers pay premium taxes to states that Medicare does not. The tax averages about 2%. Private insurers, at least for-profit ones, pay income taxes, which Medicare doesn't. How much is difficult to quantify, since there are both for-profits and non-profits, but let's assume it's about 2%.

4. Some private insurer revenues go towards profit and marketing. Private insurers need to advertise and pay salespeople to persuade customers to buy their product. Medicare doesn't. Its revenues are required by law and backed by force.

5. A significant part of a private insurer's administrative cost consists of complying with Medicare rules, regulation, and practices. Since they are ever-changing, simply keeping up-to-date adds to such cost. This is especially true for insurers that administer Medicare Advantage policies.

6.  The costs private insurers bear for administering Medicare Advantage policies is done on behalf of Medicare. Medicare dictates that the policies must cover at least what original Medicare does. Medicare pays these insurers a lot of money to do so. It was about $11,000 per person covered in 2018. So such costs can be regarded as Medicare "off the books" administrative costs.

7. Medicare imposes administrative costs on providers, which aren't included in Medicare's spending. Providers must submit the forms and procedure codes to, and demanded by, Medicare in order to be reimbursed. This story reports that doctors spend almost half their time on paperwork and electronic records.

I'm not convinced that Medicare's administrative costs are higher than private insurance, like the Mises Institute and Heritage Foundation claim. However, Medicare's administrative costs are understated when provider costs aren't included and should be lower given Medicare's much larger size than any single private insurer. Regardless, other things matter, too. Medicare operates by force; private insurers don't. This difference matters little or none to advocates of Medicare for All.

This article has more detail about administrative costs, especially of providers.