Medicare's Hidden Administrative Costs: A Comparison of Medicare and the Private Sector

One of the most common, and least challenged, assertions in the debate over U.S. health care policy is that Medicare administrative costs are about 2 percent of claims costs, while private insurance companies? administrative costs are in the 20 to 25 percent range. It is very difficult to do a real apples-to-apples comparison of Medicare's true costs with those of the insurance industry. The primary problem is that private sector insurers must track and divulge their administrative costs, while most of Medicare's administrative costs are hidden or completely ignored by the complex and bureaucratic reporting and tracking systems used by the government.
This study, based in part on a technical paper by Mark Litow of Milliman, Inc., finds that Medicare's actual administrative costs are 5.2 percent, when the hidden costs are included.

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