Health-reform follies: Who’s more efficient?

New York Post, September 19, 2009

OF all the wishful thinking, denial of realities and blatantly false assertions that surround President Obama’s push for government-dominated health care, the biggest whopper is the claim that public administration will be more efficient than private health plans.

Taxpayers won’t be subsidizing the public option, the president insisted to Congress last week: “By avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers.”

How many people really believe that the government, with its political imperatives, is a more capable manager than a private organization focused on bottom-line results? Is the Postal Service more efficient than FedEx because it is prevented by law from turning a profit?

The most cited “evidence” for the claim of government efficiency is Medicare — which, we’re told, spends a mere 2 percent on administrative overhead. In fact, Medicare is a case in point why we need less, not more, government management.

For proof, go to the pages of Health Affairs, a leading health-policy journal — where a bipartisan roster of former Medicare and Medicaid administrators have spent years chronicling the inefficiencies and the frustrating and often downright absurd political imperatives that they faced.

“We pay claims quickly and efficiently,” Centers for Medicare and Medicaid Services Administrator Tom Scully noted in 2003. But: “Everyone gets the same rate, whether they are the best or worst doctor in town. We are very good at fixing prices . . . In the long run, government price-fixing for services has never worked in any system in any society.”

The problem lies in a lack of clarity of what defines efficient administration. The government-takeover advocates define it as the percent of output that is devoted to overhead. Medicare is efficient, they assert, because it spends just 2 cents on the dollar mailing checks.

But this is akin to saying that a parent who reared a child on minimal food and basic clothing, with no outside activities or supplemental education, was more efficient than a parent who spent money on books, tutoring, after-school sports and college because the costs of getting the child to adulthood was lower.

Health-care fraud (like all theft) increases costs to the honest and is best prevented before the fact. Private health plans incur administrative costs to prevent it. The government’s own studies show that $1 of anti-fraud spending on Medicare and Medicaid nets $17 in savings.

Yet Congress consistently refuses to fund fraud prevention. “Fraud dollars don’t compete well with the NIH, with CDC, with the Department of Education,” a former acting CMS administrator under President George W. Bush told Health Affairs. “Over the last five years cumulatively, Congress has declined to appropriate $579 million worth of additional resources to fight fraud.”

President Bill Clinton’s Medicare director, Bruce C. Vladeck, made this case back in 1997. “One of our most serious shortcomings derives from the artifact of being a public agency,” he told Health Affairs. “It’s very difficult for us to get rid of an unsatisfactory provider.”

Medicare is filled with ironies, chief among them is that it’s a public program that is efficient precisely because it uses the private sector to conduct most of its transactional business: The program’s day-to-day administration is largely contracted out.

Social Security employs 66,000 people to serve the senior population, Medicare a mere 4,600. Social Security merely determines initial eligibility and then cuts checks. Medicare must pay a vast number of doctor, hospital and other care-provider bills. It gets the job done by contracting the work out to private insurers, mostly Blue Shield plans.

President Obama said again last week that his plan would cost $900 billion and be deficit neutral. The cost, he insisted, would be covered mostly by cutting fraud and abuse in Medicare and Medicaid. Yet, if those programs have hundreds of billions in waste, why should we believe a new public health plan would be more efficient?

Obama says we need a public plan to reduce costs and to keep private insurance honest. We need to ask: Who will keep the public plan honest and efficient?

Sally Pipes is president and CEO of the Pacific Research Institute and author of “The Top Ten Myths of American Health Care.”

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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