what percentage of medicare budget is spent on administrative costs?

Full Answer

How much does Medicare spend on administrative expenses?

In 2018, administrative expenses for traditional Medicare (plus CMS administration and oversight of Part D) were 1.3 percent of total program spending; this includes expenses for the contractors that process claims submitted by beneficiaries in traditional Medicare and their providers.

What percentage of federal budget is spent on Medicare?

Medicare is the second largest program in the federal budget. In 2018, it cost $582 billion — representing 14 percent of total federal spending.1. Medicare has a large impact on the overall healthcare market: it finances about one-fifth of all health spending and about 40 percent of all home health spending.

How much does Medicare spend on Medicare Advantage plans?

As a percent of total Medicare benefit spending, payments for Part A and Part B benefits covered by Medicare Advantage plans increased by nearly 50 percent between 2008 and 2018, from 21 percent ($99 billion) to 32 percent ($232 billion), as private plan enrollment grew steadily over these years (Figure 3).

How much do insurance companies spend on administration costs?

"Private insurance companies in this country spend between 12 and 18 percent on administration costs," Sanders said on NBC’s Meet the Press on Sept. 17. "The cost of administering the Medicare program, a very popular program that works well for our seniors, is 2 percent. We can save approximately $500 billion a year just in administration costs."

How much does Medicare cost?

In 2018, Medicare spending (net of income from premiums and other offsetting receipts) totaled $605 billion, accounting for 15 percent of the federal budget (Figure 1).

Why is Medicare spending so slow?

Slower growth in Medicare spending in recent years can be attributed in part to policy changes adopted as part of the Affordable Care Act (ACA) and the Budget Control Act of 2011 (BCA). The ACA included reductions in Medicare payments to plans and providers, increased revenues, and introduced delivery system reforms that aimed to improve efficiency and quality of patient care and reduce costs, including accountable care organizations (ACOs), medical homes, bundled payments, and value-based purchasing initiatives. The BCA lowered Medicare spending through sequestration that reduced payments to providers and plans by 2 percent beginning in 2013.

What is the average annual growth rate for Medicare?

Average annual growth in total Medicare spending is projected to be higher between 2018 and 2028 than between 2010 and 2018 (7.9 percent versus 4.4 percent) (Figure 4).

What has changed in Medicare spending in the past 10 years?

Another notable change in Medicare spending in the past 10 years is the increase in payments to Medicare Advantage plans , which are private health plans that cover all Part A and Part B benefits, and typically also Part D benefits.

What is excess health care cost?

Over the next 30 years, CBO projects that “excess” health care cost growth—defined as the extent to which the growth of health care costs per beneficiary, adjusted for demographic changes, exceeds the per person growth of potential GDP (the maximum sustainable output of the economy)—will account for half of the increase in spending on the nation’s major health care programs (Medicare, Medicaid, and subsidies for ACA Marketplace coverage), and the aging of the population will account for the other half.

What percentage of Medicare is spending?

Key Facts. Medicare spending was 15 percent of total federal spending in 2018, and is projected to rise to 18 percent by 2029. Based on the latest projections in the 2019 Medicare Trustees report, the Medicare Hospital Insurance (Part A) trust fund is projected to be depleted in 2026, the same as the 2018 projection.

How much did Medicare increase in 2018?

As a share of total Medicare benefit spending, payments to Medicare Advantage plans for Part A and Part B benefits increased by nearly 50 percent between 2008 and 2018, from 21 percent ($99 billion) to 32 percent ($232 billion) of total spending, as enrollment in Medicare Advantage plans increased over these years.

How much did Medicare spend in 2016?

The trustees’ summary listed total Medicare expenditures of $678.7 billion for 2016, of which $9.2 billion was characterized as "administrative expenses." That works out to 1.4 percent, which is even lower than what Sanders stated.

Why are administrative expenses higher in commercial markets?

Historically, administrative expenses were much higher in the commercial market because insurers did a lot of underwriting, or using the health status of individuals or groups to determine their premiums. The Affordable Care Act was designed to curb that spending.

What do private insurers do?

In addition, private insurers create provider networks, which is where they determine which doctors will offer which services under each plan and negotiate reimbursement rates. They also review which drugs will be most effective and affordable.

What is the federal cap on administrative costs?

Federal caps on administrative costs reflect this range. Group market insurers have a 15 percent cap and individual market insurers have a 20 percent cap. If exceeded, insurers have to pay a rebate to policyholders under the Affordable Care Act.

What is administrative cost?

Administrative costs are the expenses incurred by medical insurers that are not strictly medical, such as marketing, customer service, billing, claims review, quality assurance, information technology and profits. Is the gap between private and public health insurance providers’ administrative costs really that high?

How much money would be saved by converting to single payer?

Sanders cited Woolhandler and Himmelstein’s article estimating $504 billion in savings from converting to a single-payer system. But the article’s authors admitted that "any such estimate is imprecise" and cited other research placing the number closer to $383 billion.

What did Bernie Sanders say about Medicare?

Sen. Bernie Sanders, I-Vt., said that switching to a single-payer "Medicare for all" health system would save billions of dollars in administrative costs.

How is Medicare self-financed?

One of the biggest misconceptions about Medicare is that it is self-financed by current beneficiaries through premiums and by future beneficiaries through payroll taxes. In fact, payroll taxes and premiums together only cover about half of the program’s cost.

What are the benefits of Medicare?

Medicare is a federal program that provides health insurance to people who are age 65 and older, blind, or disabled. Medicare consists of four "parts": 1 Part A pays for hospital care; 2 Part B provides medical insurance for doctor’s fees and other medical services; 3 Part C is Medicare Advantage, which allows beneficiaries to enroll in private health plans to receive Part A and Part B Medicare benefits; 4 Part D covers prescription drugs.

How is Medicare funded?

Medicare is financed by two trust funds: the Hospital Insurance (HI) trust fund and the Supplementary Medical Insurance (SMI) trust fund. The HI trust fund finances Medicare Part A and collects its income primarily through a payroll tax on U.S. workers and employers. The SMI trust fund, which supports both Part B and Part D, ...

What percentage of GDP will Medicare be in 2049?

In fact, Medicare spending is projected to rise from 3.0 percent of GDP in 2019 to 6.1 percent of GDP by 2049. That increase in spending is largely due to the retirement of the baby boomers (those born between 1944 and 1964), longer life expectancies, and healthcare costs that are growing faster than the economy.

How much did Medicare cost in 2019?

In 2019, it cost $644 billion — representing 14 percent of total federal spending. 1. Medicare has a large impact on the overall healthcare market: it finances about one-fifth of all health spending and about 40 percent of all home health spending. In 2019, Medicare provided benefits to 19 percent of the population. 2.

What percentage of Medicare is from the federal government?

The federal government’s general fund has been playing a larger role in Medicare financing. In 2019, 43 percent of Medicare’s income came from the general fund, up from 25 percent in 1970. Looking forward, such revenues are projected to continue funding a major share of the Medicare program.

How much of Medicare is financed?

As a whole, only 53 percent of Medicare’s costs were financed through payroll taxes, premiums, and other receipts in 2020. Payments from the federal government’s general fund made up the difference.

What is Medicare beneficiary?

Medicare beneficiaries are by definition elderly, disabled, or patients with end-stage renal disease. Private insurance beneficiaries may include a small percentage of people in those categories, but they consist primarily of people are who under age 65 and not disabled.

How much does Medicare cost?

Advocates of a public plan assert that Medicare has administrative costs of 3 percent (or 6 to 8 percent if support from other government agencies is included), compared to 14 to 22 percent for private employer-sponsored health insurance (depending on which study is cited), or even more for individually purchased insurance.

Why is public health better than private health?

Many advocates of a public health plan--either a "single-payer" plan or a "public option"--claim that a public health plan will save money compared to private health insurance because "everyone knows" that the largest government health program, Medicare, has lower administrative costs than private insurance. Some even claim that switching every private insured American to Medicare or something like it could save the nation enough money to cover all currently uninsured Americans.

Why is administrative cost lower in Medicare?

Expressing administrative costs as a percentage of total costs makes Medicare's administrative costs appear lower not because Medicare is necessarily more efficient but merely because its administrative costs are spread over a larger base of actual health care costs. Administrative Costs per Person.

What are administrative costs?

Administrative costs can be divided broadly into three categories: 1 Some costs, such as setting rates and benefit policies, are incurred regardless of the number of beneficiaries or their level of health care utilization and may be regarded as "fixed costs." 2 Other costs, such as enrollment, record-keeping, and premium collection costs, depend on the number of beneficiaries, regardless of their level of medical utilization. 3 Claims processing depends primarily on the number of claims for benefits submitted.

How much higher was Medicare in 2005?

In the years from 2000 to 2005, Medicare's administrative costs per beneficiary were consistently higher than that for private insurance, ranging from 5 to 48 percent higher, depending on the year (see Table 1).

What percentage of health insurance premiums are administrative costs?

In recent years, these so-called "administrative costs" have accounted for 11.4--13.2 percent of total health insurance premiums. [7]

How much did health care administration cost in 1999?

To date, few studies have estimated the systemwide cost of health care administration extending beyond BIR activities. In a 2003 article in The New England Journal of Medicine, researchers Steffie Woolhandler, Terry Campbell, and David Himmelstein concluded that overall administrative costs in 1999 amounted to 31 percent of total health care expenditures or $294 billion 5 —roughly $569 billion today when adjusted for medical care inflation. 6

How much is BIR 2019?

Applying the NAM’s percentages of BIR costs to recent projections of national health expenditures from the Centers for Medicare and Medicaid Services (CMS), CAP estimates that BIR costs will amount to $496 billion for 2019. 15 (see Table 1) According to CAP’s calculations, this includes $158 billion in overhead for private insurance; $56 billion for administration of public insurance programs; and $282 billion for the BIR costs of hospitals, physicians, and other care providers. CAP’s estimate does not include the administrative costs associated with retail sales of medical products, including prescription drugs and durable medical equipment.

What percentage of Medicare costs are administrative?

The BIR costs for traditional Medicare and Medicaid hover around 2 percent to 5 percent , while those for private insurance is about 17 percent. 32 Some public finance experts, including Robert Book, have argued that the low levels of Medicare overhead are deceptive. Because seniors have relatively high health expenditures, the argument goes, administrative costs make up a relatively small share of their total health care spending. However, Medicare’s per capita administrative expenditures are higher than those in other forms of insurance. 33 Even if one compares higher-end estimates of Medicare administrative costs to low-end estimates of costs for private insurance, the gulf between administrative costs for Medicare and private coverage is large. 34 Organisation for Economic Co-operation and Development (OECD) data also show that other nations are able to achieve low levels of administrative costs while maintaining universal coverage across all ages of the population. 35

What is global budgeting?

Global budgeting—the practice of paying providers revenue based on their expected costs —also holds promise for both lowering administrative spending and overall costs. As opposed to traditional fee-for-service payments, which reward providers for doing more, global budgeting incentivizes providers to deliver care more efficiently. 60 Global budgeting is a feature of many countries with much lower health care administrative costs, including Scotland, Wales, and Germany. 61 As Woolhandler, Campbell, and Himmelstein point out in their 2003 article, “The existence of global budgets in Canada has eliminated most billing and minimized internal cost accounting, since charges do not need to be attributed to individual patients and insurers.” 62 As Germany shows, both single-payer and multipayer systems can use global budgets.

What is the BIR component of administration?

The BIR component of administration is most relevant to systemwide reforms that seek to reduce the expenses related to claims processing, billing rates, or health insurance. The largest share of BIR costs is attributable to insurance companies’ profits and overhead and to providers 8 where BIR costs include tasks such as record-keeping for claims submission and billing.

What are administrative costs in healthcare?

The main components of administrative costs in the U.S. health care system include BIR costs and hospital or physician practice administration. 4 The first category, BIR costs, is part of the administrative overhead that is baked into consumers’ insurance premiums and providers’ reimbursements. It includes the overhead costs for the health insurance industry and providers’ costs for claims submission, claims reconciliation, and payment processing. The health care system also requires administration beyond BIR activities, including medical record-keeping; hospital management; initiatives that monitor and improve care quality; and programs to combat fraud and abuse.

Why should all payer rates be set?

Setting all-payer reimbursement rates would eliminate the need for providers to negotiate rates with individual private insurers, while also giving policymakers better leverage for controlling overall health care cost growth. In the current U.S. system, providers charge different rates to different payers, and the billing process is complicated and opaque. The list prices that hospitals are now required to publish bear little connection to what individual patients—or those patients’ insurers—actually pay. 58 Setting all-payer rates would simplify billing and improve transparency by establishing a single set of rates for each provider, while also giving regulators a tool to protect consumers from exorbitant rates. 59

Summary

Health

Cost

Causes

Effects

Impact

Future

Funding

• Medicare is funded primarily from general revenues (41 percent), payroll taxes (37 percent), and beneficiary premiums (14 percent) (Figure 7). Part B and Part D do not have financing challenges similar to Part A, because both are funded by beneficiary premiums and general revenues that are set annually to match expected outlays. Expected future inc...

See more on kff.org

Assessment

Purpose

Benefits