Medicares pays none of those. The private insurers pay taxes on those profits, the premium taxes obviously should not be included and medicare has no commissions since they force employers to do their collections.
If you are going to include that, then you have to include capital costs for Medicare, i.e., interest on debt.
Medicare’s Funding vs. Premiums and Commissions. But even if Medicare’sadministrative costs are not significantly less than the private sector’s, isn’t it still a better deal since there are no commissions and profits?Not necessarily. Both private insurers and the Medicare program have to obtain the funds to pay claims. Insurers must be transparent in how they acquire, allocate, invest and disburse those funds. Not so with Medicare. Medicare obtains its funds to pay claims in several ways. First, it imposes a 2.9 percent payroll tax on all income, paid half by an employer and half by the employee.12While private insurers have to pay commissions to bring in premiums, Medicare forces employers to collect and process its “premiums.” Those collection efforts show up in employers’ administrative costs, not Medicare’s. Those payroll tax funds are deposited into the Medicare Health Insurance (HI) Trust Fund, known as Medicare Part A, which primarily pays hospital claims.13Second, Medicare also has a Supplementary Medical Insurance (SMI) Trust Fund that covers physicians’ costs, widely known as Medicare Part B. Although this program is voluntary, the vast majority of seniors choose to join it when they turn age 65. One-quarter of the program is funded by a monthly premium, $88.50 per beneficiary in 2006, which is deducted from seniors’ Social Security checks.14The other three-quarters of Part B is funded out of the federal government’s general revenues (that is, revenue from current taxpayers).Finally, the Medicare trust fund operates on a pay-as-you-go basis. Money collected from the payroll tax is paid out in current claims. For most of its 40 years, the Part A trust fund has taken in more in payroll taxes than it paid out, producing, at least on paper, a surplus in the account. However, the federal government borrows that money and uses it for funding other expenses. So there are no hard assets in the Part A trust fund, only IOUs from the federal government.In addition, the government pays the trust fund interest on that borrowed money. But that is just an accounting function; the government doesn’t actually transfer dollars in the fund.Part B, by contrast, draws on federal revenues. In 2004, Medicare beneficiaries paid $31.4 billion in premiums and $100.9 billion came from general revenues.15How much do all of those Medicare taxes, collection efforts and interest really cost? We don’t answer that in this study, but it’s a lot. And when added on to an accurate calculation of Medicare’s administrative costs, it is very hard to claim that Medicare is more efficient than the private sector
