Several recent letters to the editor have addressed the topic of overhead costs associated with the Medicare health access program for the elderly and disabled. The topic has not always been addressed in detail or with accuracy.
In June, 2013 The Journal of Health Politics, Policy, and Law published an article that summarized data and findings from the two official, credible, non-partisan sources for analysis of Medicare overhead costs. First is the annual report to Congress from the Medicare Trustees, whose findings are calculated by the Office of the Actuary, Centers for Medicare and Medicaid Services.
In 2011, the report identified $8 billion in overhead costs, or 1.4 percent of $549 billion in total spending. Overhead costs include salary and benefits for CMS employees and payments to insurance companies for processing claims.
Contrary to one or more previous letters, costs charged to Medicare overhead do actually also include payments to the IRS for tax collection, payments to the Social Security Administration for collection of part B premiums, payments to the FBI for fraud prevention, and other similar payments for services provided.
The second official source for calculation of Medicare overhead is the National Health Expenditure Account. The most recent NHEA data when the examination published in JHPPL was conducted were for 2010. They reported overhead costs of $31 billion (6 percent) of total spending, as opposed to the Trustees 2010 report of $7 billion (1 percent).
The primary difference between the two reports is the NHEA included the $24 billion in administrative expenditures incurred by the private insurers who participate in the part C (Medicare Advantage) and part D (prescription drug) Medicare programs.
Glen E Peterson