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The high cost of “free” health care

Steve BucksteinQuickPoint!

Those who advocate using the federal Medicare program as a model for “universal health care” in America claim that it only spends two percent of its budget on administrative functions.

But that pales in comparison to what Harvard professor Malcolm Sparrow believes may be the 20 percent eaten up in fraud and mismanagement. Parade magazine recently reported that Sparrow sees $70 billion of Medicare’s 400 billion dollar budget going toward false claims and mischarges.

Even if there were no fraud and mischarges, Medicare fails the low-cost test for another reason. Critics often claim that private insurance is costly because of the advertising needed to attract customers, agent commissions and other overhead costs. But we can’t assign the costs of premium collection to private insurance plans without also assigning to Medicare the cost of collecting the taxes that pay for government insurance.

Economic studies show that the social cost of collecting taxes is actually quite high. In fact, using the most conservative study results, we find that the excess burden of a universal Medicare program would be twice as high as the administrative costs of universal private coverage.

So the next time someone tells you that Medicare is an efficient model for a single-payer system, tell them they’d better find another payer.

Steve Buckstein is founder, Senior Policy Analyst and Director of the Oregon Economic Opportunity Project at Cascade Policy Institute, Oregon’s free market think tank.

© 2008, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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