Health Care Administrative Cost

Medicare’s claims adjudication and payment processes are performed by private companies that compete for government contracts. Actuarial studies of Medicare’s government administrative cost for this expense component indicate a ratio of 6-8 percent of expenditures. However, when the cost of collecting the necessary revenue to pay benefits is factored in, the true government administrative cost of Medicare increases to 19 percent of expenditures.

CMS annual reports of health expenditures show government health programs’ administrative cost in excess of 14 percent (exclusive of the cost of collecting the taxes to pay for the programs). The same report indicates a comparable administrative cost of less than 10 percent for private health insurance plans.

Private health plans have learned to live with lean administrative cost that saves Americans billions of dollars in health plan cost.