HMO's Kill: Medicare Has a 2% Overhead

May 11, 2008 (LPAC)—As against President Obama's pet Nazi, Peter Orszag, who wants to cut life-saving medical treatments to balance budgets, Lyndon LaRouche has emphatically argued that it is the overhead costs of our corrupt, private insurance-dominated health-care system that are killing people, and that the only solution is to go back to the Hill-Burton system of providing adequate medical infrastructure, while dumping the HMOs.

The truth of this is evidenced by the fact that numerous studies have shown that the administrative costs for Medicare — a government-run program — run at about 2%, as compared to 30% or more for private insurance. (Some have estimated that the total overhead and administrative costs for the U.S. health-care system is as high as 50%!)

A GAO study, already in the 1990's, found that the U.S. could save enough simply on administrative costs with a single-payer national health program to cover all uninsured Americans.

A 2003 study in the New England Journal of Medicine, comparing administrative costs of health care in the U.S. and Canada, found that in 1999, administrative costs per capita were $1,059 in the US, compared to $307 in Canada. By one measure, administration was 31% of health care expenditures in the US, compared to 16.7% for Canada's mixed public-private insurance system. Canada's national health insurance program had overhead of 1.3%; its private insurers had overhead of 13.2%.

The NEJM study found that it would save $209 billion annually, just to cut U.S. overhead costs to the level of Canada. That figure is about $400 billion today, according to testimony by Harvard's Dr. David Himmelstein, to a House subcommittee on 4/23/09. Himmelstein argued that only a publicly-financed, single-payer system can rein in costs while guaranteeing universal, comprehensive coverage.

Himmelstein attacked the half-measures being proposed by some Democrats, including that of a "public plan option," and he showed that costs have skyrocketed under the Massachusetts plan, which has a public plan co-existing with private insurance.

Medicare's costs have risen significantly under the HMO system which Congress grafted onto Medicare in 2003 at the behest of the insurance companies. The Center for Medicare Advocacy cites numerous studies showing that it costs 14% more, to provide services through the Medicare Advantage program (Part C — additional coverage through HMOs and PPOs), than through the traditional Medicare program administrative costs of 2%.

As for the prescription-drug component of Medicare (Part D), which is run through private insurance companies under the 2003 "reforms," a House subcommittee reported in 2007 that administrative costs, sales expenses, and profits account for 9.8% of the total costs of Part D, as compared what it gauged as the traditional Medicare administrative expenses of 1.7%.