How's The Obama "Recovery" Working Out For You?

[Long Run]

Exactly Gob, it takes about 10 seconds to find scores of articles and research papers blowing holes in the Medicare efficiency myth:

http://healthaffairs.org/blog/2011/08/0 ... insurance/

http://www.heritage.org/research/report ... -insurance

As these and the Forbes article linked by Gob show: 1.4% is pure cherry-picked B.S. numbers. The putative number is actually in the 5-7% range because of all the administrative work done by the IRS, HHS, and SSA, which still sounds good, no? But, putting aside that this proves that you cannot trust the article Andrew cited (if you do not trust your own common sense that 1.4% is a ridiculous number), the main reason Medicare appears to be cheaper is that the denominator is so much higher because Medicare patients use a lot more medical services. When you look at the per person cost to administer Medicare versus a private insured plan, Medicare actually costs more. That is right, Medicare costs more on a per person basis to administer than a private insurance plan.

If you bother to educate yourself by reading the articles, you will also see that Medicare contracts with insurance companies to process claims. So how is it that an insurance company is more efficient administering Medicare rather than their own insurance plans?

[Econoline]

Misleading argument. Obviously, most public sector jobs provide value approximate to their pay. However, each public job funded by taxpayers is a net cost to taxpayers. The only way to pay for the net cost of public jobs is taxes from the private sector. Thus, a loss of a private sector job is more harmful to the economy, because we not only lose the private sector job, we also lose funding for a public sector job.

And, while most public sector jobs provide fair value for their cost, there are far more jobs in the public sector that are unnecessary than in the private sector due to competition in the private sector. In addition, there is a reasonable argument to be made that some public sector jobs are more efficiently handled by the private sector. Given both of these, if there are lost public jobs that can be focused in these two categories of low value, then it can most definitely be a good thing to lose a public sector job. Unfortunately, many of the government decision makers cut important services rather than lower priority services, so we end up in a losing situation.

First, how about an answer to my rephrasing of the question: Are unemployed government workers not counted in the unemployment figures? Anyone who holds the Obama administration accountable for the slowness of the overall decline in unemployment (the "Obama 'Recovery' in this thread's title) should have to answer this question first.

Second, income from public employment produces a "multiplier effect" just as does income from private employment, and I've seen no evidence that this multiplier is inevitably less with public rather than private employment. Government employees do, after all, spend money at the same businesses as private-sector employees.

Third, the current "sequester" was specifically designed to give the government almost no leeway as to what gets cut, in order to make the whole idea of implementing it as unpalatable as possible, in order to increase the pressure to reach a compromise that would avoid the sequester.

And finally, there are plenty of "low-value" jobs in the private sector too (mostly in middle management), and these aren't always the first jobs to be cut.

[Andrew D]

Sorry, guys. Check your facts.

The Forbes article is full of shit. It says:

First, other government agencies help administer the Medicare program. The Internal Revenue Service collects the taxes that fund the program; the Social Security Administration helps collect some of the premiums paid by beneficiaries (which are deducted from Social Security checks); the Department of Health and Human Services helps to manage accounting, auditing, and fraud issues and pays for marketing costs, building costs, and more. Private insurers obviously don’t have this kind of outside or off-budget help.

But as I wrote before:

That includes costs incurred by Medicare directly as well as such other costs as tax collection services provided by the IRS, Part B premium collection services provided by the Social Security Administration and the Railroad Retirement Board, and fraud prevention services provided by the FBI.

Why did I write that? Because the 1.4% figure

includes costs incurred directly by CMS (notably, the salaries of CMS staff and payments to insurance companies to process claims) as well as costs incurred by other federal agencies on Medicare’s behalf (e.g., tax collection services provided by the Internal Revenue Service, Part B premium collection services provided by the Social Security Administration and the Railroad Retirement Board, and fraud prevention services provided by the Federal Bureau of Investigation).

So Long Run's argument:

The putative number is actually in the 5-7% range because of all the administrative work done by the IRS, HHS, and SSA, which still sounds good, no? But, putting aside that this proves that you cannot trust the article Andrew cited ....

completely falls apart. What cannot be trusted is Forbes.

The Health Affairs Blog article says that the 1.4% (or 2%) figure "ignores the cost of collecting taxes on the public side." Oops. The 1.4% figure "includes ... tax collection services provided by the Internal Revenue Service ...." So much for trusting Health Affairs Blog.

The Heritage Foundation article says:

Even if Medicare and private insurance had identical levels of administrative efficiency, Medicare would appear to be more efficient merely because of an artifact of the arithmetic of percentages--Medicare's identical administrative costs per person would be divided by a larger number for patient care costs.

So if all patients had their health care provided a single payer, that would be even more efficient than Medicare is now.

At least the Heritage Foundation is (unintentionally) on to something ....

[Long Run]

Sorry, guys. Check your facts.

The Forbes article is full of shit..

So the many articles by media outlets like Forbes, citing the many studies from professional researchers and firms like Milliman, are full of it because an article written by a one person with no research credentials but who is a biased proponent of national healthcare gives us the full story. Hmmm, independent, professionals in the field come to one conclusion, and some biased guy comes to another conclusion, who should we believe?

[dgs49]

Not to mention the obvious fact that an institution staffed by workers who can - essentially - never be fired will NEVER outperform an institution where people have to prove their worth every day, or be fired.

Very basic, actually.

[Big RR]

[quote][Not to mention the obvious fact that an institution staffed by workers who can - essentially - never be fired will NEVER outperform an institution where people have to prove their worth every day, or be fired.
/quote]

Then how do armies comprised of draftees who are public employees who, essentially, can/will never be fired, win wars, especially against mercenaries?

[dales]

Self-Preservation

[Big RR]

To a certain extent, yes; but then self-preservation would lead one not to take any chances--something usually needed to win.

[dales]

Not many do, they attack en masse or risk an individual cour martial.

[Andrew D]

Pure fantasy:

So the many articles by media outlets like Forbes, citing the many studies from professional researchers and firms like Milliman, are full of it because an article written by a one person with no research credentials but who is a biased proponent of national healthcare gives us the full story. Hmmm, independent, professionals in the field come to one conclusion, and some biased guy comes to another conclusion, who should we believe?

Actually, my primary source is a gem. It appears in a widely respected journal, the Journal of Health Politics, Policy and Law, which is published by a renowned university, Duke. Articles in the JHPPL are peer-reviewed.

In contrast, as my primary source pithily observes, the Milliman paper lies "entirely outside the peer-reviewed literature". Citing the Milliman paper with approval, while rejecting a peer-reviewed paper which appears in a widely respected journal published by a renowned university, is indefensible source bias.

Two other relevant papers also lie "entirely outside the peer-reviewed literature": a paper by Matthews, which is "'based in part'" on the Milliman paper; and a paper by Zycher, which relies on the Milliman and Matthews papers. Two other relevant papers rely on one or more of the Milliman, Matthews, and Zycher papers: a paper by Book and a paper by Goodman and Saving.

Why does that matter? Because:

(A) The linked article from the Heritage Foundation is by Book, the linked article from Forbes relies on Book, and the linked piece from Health Affairs Blog is by Goodman and Saving;

(B) Both (i) Book and (ii) Goodman and Saving rely on one or more of Milliman, Matthews, and Zycher;

(C) Thus, at bottom, the linked articles from the Heritage Foundation and Forbes and the linked piece from Health Affairs Blog all rely on non-peer-reviewed schlock.

Hmmm. A peer-reviewed article in a widely respected journal published by a renowned university or an incestuous web of non-peer-reviewed articles and their progeny. Whom to believe?

[Andrew D]

With respect to the false claim that the 1.4% figure for Medicare's administrative costs does not include administrative costs incurred by government agencies, the peer-reviewed article describes the combination of political bias and sheer ignorance which underlies that claim:

Beginning around 2005, conservative groups and individuals alarmed by the increasing visibility of the
single-payer and public option campaigns began to promote the argument over the Internet (and entirely outside the peer-reviewed literature) that Medicare’s overhead is higher than either of OACT’s measures indicates. The groups include Milliman Inc. (Litow 2006), the Coalition for Affordable Health Insurance (CAHI) (Matthews 2006), the Manhattan Institute (Zycher 2007), the Heritage Foundation (Book 2009), the Cato Institute (Cannon 2009), the American Medical Association (n.d.), and America’s Health Insurance Plans (Lemieux n.d.).

Although the allegations in the papers published by these groups vary slightly, the papers share a common theme, namely, that “the government” or “Medicare” (OACT is not identified) fails to include in its definition 484 Journal of Health Politics, Policy and Law of Medicare’s overhead numerous expenditures incurred by CMS and by other agencies — such as the IRS, the Social Security Administration, and the Federal Bureau of Investigation — which contribute services essential to the administration of Medicare. ...

* * *

The conclusion drawn by the Manhattan Institute paper is typical of these three papers (Zycher 2007: 3): “We find the administrative costs of Medicare to be about twice as large as a proportion of total Medicare outlays as commonly asserted, because the administrative costs reported in the Medicare budget do not include the costs of other federal government administrative functions reported in other parts of the federal budget.” ...

The most striking feature of these three papers is that the authors apparently do not know that the trustees’ report is the original source of official information about Medicare’s administrative expenditures. Each of the three papers makes a passing reference to the trustees’ reports, but only to document a statement about where Medicare gets its revenues. The fact that the trustees’ report contains information on Medicare’s overhead is not mentioned, much less discussed, by these papers. The NHEA receives similar treatment.

Unfortunately for the private-sector-uber-alles crowd, the administrative costs reported by the Centers for Medicare and Medicaid Services -- i.e., the 1.4% figure -- do include the costs which the non-peer-reviewed schlock claims are missing from that figure:

The US Treasury Department, which is responsible for administering the two Medicare trust funds, collects data on expenditures (including administrative expenditures) from the various agencies that contribute to the administration of Medicare. CMS is, of course, one of those agencies. The Office of Financial Management within CMS is responsible for reporting annually all of CMS’s expenditures, including its own administrative expenditures, to Treasury.

Treasury sends the expenditure data from the various agencies to OACT, and OACT in turn uses that information to develop the trustees’ report. CMS’s annual statement of its expenditures (the document is called CMS Financial Report) is audited by independent outside auditors, by the Office of the Inspector General, and by the Government Accountability Office (GAO) (personal communication, C. McFarland, Deputy Director, Office of the Actuary, CMS, February 28, 2012). The US Treasury Department’s annual report on US spending is audited annually by the USGAO (n.d.).

The federal agencies for which Treasury collects expenditure data, and which are therefore included in the trustees’ reports on Medicare administrative spending, include the Treasury Department, the IRS, the SSA, CMS, the Department of Health and Human Services, the Medicare Payment Advisory Commission, the Area Agency on Aging, the Department of Justice, the Federal Bureau of Investigation, and the Railroad Retirement Board ....

Thus far, it appears that the article which I linked -- the peer-reviewed article in a widely respected journal published by a renowned university -- has been dismissed unread. I await evidence to the contrary.

[Andrew D]

Two other points bear noting concerning (1) the identification of claims-processing costs as administrative costs and (2) the identification of private-sector insurers' Part-C-and-Part-D administrative costs as Medicare's administrative costs.

As the peer-reviewed article points out, with respect to claims-processing costs for traditional Medicare (Parts A and B), "the cost of processing claims for the traditional Medicare program ... is ... include[d in] the cost of claims processing, which is done by what used to be called 'carriers' and 'intermediaries' and are now called 'Medicare administrative contractors.'" Thus, the claim that the 1.4% figure does not include claims-processing costs for Parts A and B is simply false.

Medicare Part D is prescription-drug coverage. All Part-D coverage is provided by private-sector insurers. Medicare Part C ("Medicare Advantage") is a program whereby a private-sector insurer provides Part A and Part B coverage and usually also provides Part D coverage.

The 1.4% figure for Medicare's administrative costs rises to 6% if one "defines Medicare’s overhead to include ... administrative expenditures incurred by the insurance companies that participate in Parts C and D." That is entirely consistent with the fact that the administrative costs of private-sector health insurance are -- as the Congressional Budget Office, Blue Cross Blue Shield, and others have consistently found -- much higher than the administrative actually incurred by the government (all government agencies) because of public-sector health insurance.

Including in Medicare's administrative costs the costs which private-sector insurers incur in connection with Parts C and D is a rather odd bit of accounting. After all, those costs are costs which private-sector insurers choose to incur in the course of making a profit. If their revenues were not greater than their outlays, including their administrative costs, they would not choose to participate in Parts C and/or D.

Still, even if one indulges in that accounting oddity, the 6% figure for Medicare's administrative costs is still a far sight lower than the 11.12% - 35.8% figures for private-sector health insurers' administrative costs.

The bottom line is that Medicare is far more efficient than is private-sector health insurance, even if one includes in Medicare's administrative costs private-sector insurers' administrative costs incurred in their Parts C and D profit-making enterprises. Which goes to show, as I said at the beginning, that there are public-sector entities which function more efficiently than do their private-sector counterparts.

[Lord Jim]

I've been wanting to respond to a couple of things Econo has said:

A simpler way of phrasing my original question might be: Are unemployed government workers not counted in the unemployment figures?

Of course they are; for example, a couple of years ago when the census was being conducted, unemployment went down a little when thousands of people were hired to work on the census, and back up a little when they were let go.

Unemployed people are counted as unemployed regardless of what type of job they previously held so long as they are still looking for employment. (It's the ones that have given up looking for work that really represents the bulk of our unemployment problem today.)

So yeah, people who were working for the government are counted as unemployed...

Not sure what your point is supposed to be...

income from public employment produces a "multiplier effect" just as does income from private employment, and I've seen no evidence that this multiplier is inevitably less with public rather than private employment. Government employees do, after all, spend money at the same businesses as private-sector employees.

Sure, money spent by public sector employees are governed by the same laws of economics as money spent by private sector employees. But you're skipping past a central point:

Because all of the cost for a public sector employee, (salary, benefits, healthcare retirement, etc.) is initially born by the public treasury, each public employee represents a net cost (by a significant multiple) to public coffers, regardless of any multiplier effect or taxes that employee might pay...

(This is obviously true; if it weren't we could just make every unemployed person a government employee and magically the budget would balance...)

Clearly this net cost is not the case with a private sector employee, so from a purely economic standpoint, private sector job creation is vastly preferable to public sector job creation. Every private sector job created represents a net plus for the treasury; every public sector job created represents a net minus.

[Andrew D]

Because all of the cost for a public sector employee, (salary, benefits, healthcare retirement, etc.) is initially born by the public treasury, each public employee represents a net cost (by a significant multiple) to public coffers, regardless of any multiplier effect or taxes that employee might pay...

But do people in the real world ignore the long-term benefits of economic activities? Of course not.

Everyone who owns a house that is subject to a mortgage is looking into the future: The "net minus" of owing a ton of money to the bank is outweighed, in the long term, by the "net plus" that will come later.

Looking only at the cost that "is initially born[e] by the public treasury" ignores long-term gain. And that is not a good way to make public policy.