1. Medicare administration costs are approximately $500 per year per person cove
ID: 1207874 • Letter: 1
Question
1. Medicare administration costs are approximately $500 per year per person covered by Medicare. This is about 4.5% of the total annual health care expenses covered by Medicare. U.S. private health insurance administration costs are approximately $490 per year per person covered by private health insurance—about 8.5% of the total annual health care expenses covered by private insurers.
b. Consider a proposal under which everyone in the U.S. who currently has private health insurance would be offered Medicare insurance in the same way that people over age 65 receive it. What do you expect would be the effect on Medicare administration cost per person covered by Medicare? Would it rise? Fall? Stay about the same? Explain carefully what you base your prediction on. In answering, try to think what insurance administration costs are mostly related to. Are they proportional to the number of people covered? Do they also depend on the number of treatments the people receive? For the purpose of answering this question, what are the most important differences between people currently covered by Medicare and other people who have private health insurance?
Explanation / Answer
With the Medicare coverage given to everyone in the U.S., Medicare administration cost per person will come down. This prediction is based on following facts.
1. One Medicare plan covering everyone will reduce the cost of transaction, documentation, compliance and many other overhead expenditures on per person basis.
2. One Medicare plan covering everyone will bring in economy of scale and efficiency in operations. At present, many private insurers are working and it causes the higher administration cost.
3. More standardized and centralized system of Medicare will further reduce the administrative cost.
Medicare administration cost does not increase in arithmetical proportion to the number of people covered under the program. Thus, the cost per person decreases with an increase in the number of people covered.
Medicare administration cost is the cost other than the expenses paid to health care providers. Thus, no. of treatments received by people will not affect the Medicare administration cost.
At present, Medicare covers individuals of and above 65 years who have worked and paid into the system as well as individuals with disability. It also covers end stage diseases such as renal function disease.
Thus, in a present scenario, Medicare is available to certain category of individuals and remaining population goes for private health insurance.
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