Government can do better
Previously, I stated that the starting point for determining the monetary cost for a national Medicare system should be the amount Americans are now spending for total medical care. I showed that we spend roughly $3.2 trillion annually, an average of about $10,000 per person, consisting of $1.25 trillion, mainly through taxes, to provide insurance to 100+ million Americans under the Medicare and Medicaid programs and the rest in private insurance.
Total medical care includes insurance premiums, all out-of-pocket payments, in sum, everything except the cost of care for the 8.8 percent, or 28 million of us who are uninsured (down from 14 percent in prior years as a result of Obamacare). That cost is absorbed by hospitals because they cannot recover it from the uninsured, but then it is passed on to the rest of us in the form of higher hospital charges.
I’ll use this figure as the starting point for the cost of Universal Medicare insurance and assume that it covers all medical costs with no deductibles or co-pays. Since it will cover everybody cradle to grave, the starting point needs to be increased to account for the 28 million currently uninsured, which brings the starting point to roughly $3.5 trillion. Then, it needs to be adjusted down by at least 15 percent leaving a net of roughly $3 trillion, which represents the savings achieved by eliminating private insurance and administering the entire program through the Medicare administration.
This feature is sure to rankle conservatives who would argue that the net cost should increase because capitalism is more efficient than government in providing goods and services and further that hundreds of thousands of jobs would be lost by the current employees of the large private insurance corporations. Conservatives would want the entire program administered by private insurance companies.
However, private insurance companies need profits to support shareholder payouts and are further burdened by huge upper management salaries and expenses. For example, last year, in addition to wasted millions on extravagant expenses like private jets, the CEO of Aetna drew $41 million and the CEO of Gilead Sciences made $900 million. It is undisputed that the overhead cost of private insurance corporations is 20 percent whereas the overhead costs of the Medicare administration is 2 percent. Any lost private sector clerical jobs would be replaced by government sector jobs. The private sector is better than government for some activities but not for this one which merely involves the payment of medical claims.
$3 trillion, which is $1,000 per person less than what we now pay, is roughly 1/3rd of the $9 trillion total income earned by the nation’s 138 million taxpayers. How to pay the $3 trillion will be the next subject.