Administrative efficiency of public programs is lost in the health plan marketplace
The Kaiser Commission on Medicaid and the Uninsured
The Medicaid Resource Book
July 2002
By Andy Schneider, et al
In total, the states spent $6.6 billion (federal and state funds combined) on (Medicaid) program administration in FY 1997, representing $163 per enrollee and 3.9% of total Medicaid spending.
... these estimates do not include the administrative costs incurred by Medicaid managed care plans. In some states, administrative outlays are folded into capitation payments to MCOs (managed care organizations). These outlays reflect the costs attributable to activities such as utilization review, quality improvement, and data collection and reporting. Although these amounts are not included in the data states report to CMS, one study has reported that HMOs participating in Medicaid had administrative cost ratios of over fourteen percent in 1998. The same study found that HMOs that did not participate in Medicaid had administrative cost ratios of just under 16 percent for that same year.
A... point is made on the managed care side of the program. The increase in state contracting with MCOs on a risk basis, it is argued, creates the need for more, not fewer, administrative resources: "the movement by Medicaid officials to contract with large managed care companies does not, as many originally thought, mean that the staffs of state governments can easily be streamlined. To the contrary, the effective management of managed care puts pressures on state agencies to hire additional personnel. Failure to do so seriously threatens the access of Medicaid enrollees to health care of adequate quality. Whether state agencies will be able to build and sustain adequate staffs to deal with managed care in an era dominated by the dogma of downsizing remains an open question."
For both states and the federal government, Medicaid is a challenging program to administer. Medicaid bears all of the administrative responsibilities of a traditional insurer, which range from determining the scope of benefits it offers to processing claims to monitoring the quality of services it purchases. In addition, Medicaid pays for a much broader array of benefits than private insurers or Medicare and must make income and resource eligibility determinations that those payers do not. Finally, states and the federal government must carry out these responsibilities in an environment of rapid change in the health care marketplace and ever-increasing fiscal stakes.
http://www.kff.org/content/2003/2236/
Comment: Publicly administered health insurance programs have much lower administrative costs than do private health plans. But it is important to realize that much of the efficiency of public programs is lost in our fragmented, duplicative method of funding health care. By using private managed care organizations, significant percentages of public funds are being diverted to private administrative costs. But what is not commonly realized is that the public administrative costs are also increased even more because of the requirement for additional state oversight of the managed care organizations. And this doesn't even take into account the greater administrative burden and costs placed on the providers of health care.
Reform advocates who reject the single payer model because of lack of political feasibility usually support increases in public programs to fill in the voids in coverage. They must keep in mind the fact that advocacy for this model of reform comes at the very high cost of perpetuating and expanding the egregious administrative waste of our system.
Reasonable solutions can be achieved only after the problem is precisely defined. Administrative waste is one of the greatest and most serious problems of our current system. A satisfactory solution must reduce this waste. The single payer model is clearly the most administratively efficient system of funding health care. The burden should be on advocates of other models of reform to prove the superiority of their approach. Lacking that, we should move forward and enact a single payer system now.