Question

Reformers point to the fact that Medicare operates with lower administrative overhead costs as evidence that commercial insurers (such as United, Aetna, Anthem) are wasteful and inefficient. What accounts for that additional spending? Is that a good thing or bad?

Answer 1

Medicare is a form of social security scheme where the health expenditure of individuals is subsidized or paid for by the authority providing it. Health insurance is a commercial arrangement where the individual arranges for an authority that would pay his/her health expenditure in return for the payment of a premium This implies that Medicare covers the individuals who are more prone to health care risks or are contributing significantly to the society (for example, government employees) Health insurance schemes, however, are purchased by individuals who wish to safeguard their financial interests and wish to have a sound financial plan Therefore, the objective of the two schemes is very different. Medicare is there to protect the interests of the individuals. Whereas, health insurance is there to help the insurance companies reap profits by spreadıng some indivıduals' health rısk and the cost associated with it over a larger pool of people. Thus, Medicare schemes would provide the basic services of indemnifying in case of the risk. This leads to lower administrative overhead costs due to the services being designed to focus on exactly what it is meant for However, the commercial insurers, being driven by profit motives, end up with a lot of wasteful expenditure which is done to attract the consumers. The consumers would purchase that policy which would provide them the most benefits. Therefore, the insurance companies would do whatever is best to serve their needs. All this happens due to intense competition in the market for health care insurance. This is a good thing in the sense that the health insurance schemes provide the maximum benefits and are tailor made to the individual's needs. But it can be bad as many individuals would have to pay for the services that they do not need.