Last night, DePauw University hosted the “first-ever debate between Karl Rove and Howard Dean on a college campus.” The debate covered a wide range of issues from Bush administration policy to current events, and included a rather fiery exchange over health care reform.
At one point, Dean argued that Medicare delivers care more efficiently than private insurers. Rove claimed that Dean was comparing “apples and oranges.” “It’s like saying ‘you got to deliver the overnight package the same cost as delivering the mail in three or four days,” he said. “If you had an apples to apples comparison, there is no doubt in my mind that Medicare would be as expensive as private insurance is to administer and far less effective”:
ROVE: Private plans do cost about 7 percent in administrative overhead. However, Medicare does not do the following: Medicare does not have to comply with the varying state insurance regulations nor does it have to have underwrite like private insurance. It doesn’t have those functions. It doesn’t have those costs. It doesn’t engage in the kind of fraud analysis that private insurers do….There are a whole bunch of other things that we abrogate. We say, you don’t need to do if you’re a government plan. It’s apples and oranges. It’s like saying ‘you got to deliver the overnight package the same cost as delivering the mail in three or four days. If you had an apples to apples comparison, there is no doubt in my mind that Medicare would be as expensive as private insurance is to administer and far less effective.
While private insurers, which spend anywhere from 5 to 40 percent of premiums on administrative expenses, do carry extra expenses, a near perfect apples-to-apples comparison exists in the Medicare market. Traditional Medicare and private insurers in Medicare Advantage both operate under the same rules and enroll the same population. Yet according to the Congressional Budget Office, traditional Medicare spends less than 2 percent of expenditures on administrative costs, while private plans in Medicare Advantage spend approximately 11 percent .
In other words, listen to what Rove said, and reverse it. Medicare is actually less expensive to administer and is no less effective than private plans in Medicare Advantage — which receive a 13% subsidy from the federal government. In fact, according to a Government Accountability Office private plans in Medicare Advantage channel their extra subsidy payments into profit, not improved benefits or ‘fraud protection,‘ as Rove claims. (There is also no evidence that fraud is a problem only in public health insurance markets.)
The point is this: high administrative spending is responsible for skyrocketing health care costs and excess spending in the health care system. According to an analysis by the McKinsey Global Institute, excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003)” and 85 percent of this excess overhead “can be attributed to the highly complex private health insurance system in the United States.”
But, one man’s ‘excess overhead’ is another man’s profit and the public industry’s ability to provide care more efficiently is precisely the reason why private insurers and Karl Rove — who actually criticized the President for vilifying private health insurers in his address — are afraid of competing with an efficient Medicare-like public option.
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