TAILIEUCHUNG - Medicare versus Private Health Insurance: The Cost of Administration

Given the importance of the insurance sector, its potential for growth, rapidly emerging trends within the sector including the trend towards liberalization of insurance services, it is essential to clearly understand the challenges and opportunities that arise from both the development of the insurance sector as well as its liberalization for developing countries. It was with this objective in mind that UNCTAD, at the behest of its member States and in accordance to its mandate pursuant to the ninth session of the Commission on Trade in Goods and Services, and Commodities, held in Geneva from 14 to 18 March 2005, held. | Medicare versus Private Health Insurance The Cost of Administration Presented by Mark E. Litow FSA Consulting Actuary January 6 2006 M I L L I M A N Medicare versus Private Health Insurance The Cost of Administration Table of Contents I. Executive II. III. Summary of IV. Methodology. 14 A. Methodology. 14 B. Assumptions Used. 14 V. How the Study was Conducted. 17 A. Administrative Cost Calculations. 17 B. Sensitivity Testing. 18 Tables 1 Fiscal Year 2003 Administrative Costs for Medicare and the Private Market 2 Estimated Administrative Costs Under Medicare - 1967-2025 3 Estimated Private Market Expenses 4 Calculation of Medicare Administrative Costs 5 Private Industry Expense Summary by Market and Function 6 Private Industry Expense Summary by Market and Function M I L L I M A N Medicare versus Private Health Insurance The Cost of Administration I. EXECUTIVE SUMMARY This study compares the administrative costs of Medicare to those for the private insurance industry on average. Medicare costs include those reported by Medicare plus an allocation of some overhead costs that are included in other parts of the Federal Budget but are estimated per this study to belong to Medicare. Private market costs recognize the aggregate average cost as estimated across all three private markets individual small group and large group . All overhead costs are included as private companies must allocate costs by function. Private market costs for commissions premium taxes and profit are shown separately as government does not have such costs. Medicare covers around 42 million individuals with one program which should provide it significant economies of scale. The private under age 65 market covers around 165 million individuals through hundreds of companies suggesting much less ability to create economies of scale. The Federal government usually reports its Medicare administrative costs at about 2 of total payments under the program while private .

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