Les Jones

Health Care > Medicare Accounts Costs vs. the Private Sector

You always hear that Medicare has lower accounting costs than the private sector. Megan McCardle thinks she knows why.

For starters, the private sector--whether they be charities or corporations--has to collect and track the money they spend. So does the government--but unlike the private sector, that figure doesn't get charged off against, say, Medicare; it gets charged to the auditor's office, the IRS, the Treasury, the justice department, and so forth. (Social security does track the money you send them, but the IRS, not their legal department, is the enforcer.)

Also, it is often very, very hard to tell what something costs a government agency. They don't pay cash prices for a lot of the services they get, and they don't do normal corporate things like accruing their pension liabilities, so it's hard to know what their true compensation costs are.

Government agencies also--obviously--don't have big finance sections to tell them how much they need to pay in taxes. That doesn't mean they're more efficient at delivering services; it just means that they don't pay taxes. We could achieve the same "efficiency"--and many others besides--by eliminating the corporate income tax.

Apparently (I haven't read the studies myself) when you add in those sorts of costs, the government's administrative costs are higher than the private sector's.

And with Sorbanes-Oxley, publicly-traded companies face even more accounting costs.