From an earlier blog I had pointed out that Hillary Clinton’s health proposal will attack “…excessive profits and marketing.” A standard argument of government run health care is its supposed low administrative overhead. Usually, numbers like 4% are thrown out for Medicare vs. an excess of 30% for the private sector. So if we just move everyone into public health care we will save so much money we can have universal insurance.

A more in depth look at this casts some serious questions about these claimed savings. First, the 30%-plusfigure for theprivate sector is for health insurance for very small plans. This high number is a problem but there are better ways to deal with it than government health insurance.

Actuaries who study health insurance generally use a figure of around 15% for private sector coverage. This number counts everything from administration to marketing to profit. It should be noted that very large firms that are self insured have overhead around 5%.

Proponents of single payer plans arrive at a lower figure for the government by looking at only explicit costs. Unfortunately, there are a host of implicit costs they don’t add into their very low overhead rate. The first set of ignored costs is the lack of inclusion of other public explicit costs. These range from the tax collection costs being shown in a different agency to accounting and oversight costs being borne by an additional agency. Related to this is the excess burden of the taxes used to finance these programs. I am not an extreme supply-sider and I see no academic evidence that income and payroll tax rate reductions finance themselves. But they do change behavior and that is a real cost. My view of the literature on this is that this “excess burden” is in the range of 20%. If the 4% figure given for public overhead is added to that it’s easy to see that total private sector insurance overhead is far less.