Comparing apples with oranges: administrative expenses and finances in Medicare systems

Proponents of a single-payer or public option health care system often cite the lower administrative expenses in public Medicare compared with those in private Medicare, claiming that this difference represents efficiency. We check the validity of this comparison in terms of accuracy and definitions and suggest expanding its scope to include expanded financial data of the 2 Medicare systems.

Using annual Medicare Boards of Trustees and National Health Expenditure Accounts data from CMS and health insurers' financial statement data, we compare the level and percentage of the administrative expenses of the Medicare systems and show incompatible and not reconcilable definitions of administrative expenses. We expand our analysis to income, benefits, gains and losses, and loss ratios of the programs.

Our methodology is a careful comparison of categories of expenses between public and private insurers using official data sources. The comparison is both qualitative and quantitative.

We validate the low administrative expenses of Medicare parts A, B, and D (1.35% of benefits in 2018) compared with Medicare Part C (10.86% of benefits without loss adjustment expenses [LAE] and 14.84% with LAE for 2018). Expanding the focus, the income and benefits per beneficiary grew faster and larger in Medicare parts A, B, and D than in Medicare Part C-a reversal of earlier trends. The public Medicare program suffered losses in 11 years during 2002-2018, whereas private insurers' Medicare remained solvent with about an 85% loss ratio.

Comparisons of the systems in the United States would benefit from expanding the focus beyond incomparable administrative expenses. For the current period of coronavirus disease 2019, if the trends continue, public Medicare may suffer greater deficits relative to the private Medicare Part C.