The counter claim by the right wing is that number doesn't reflect hidden costs foisted onto physicians and hospitals to comply with Medicare procedures. However, a study conducted by Physicians For A National Health Program says that while Medicare does indeed underestimate their administrative costs, it still comes nowhere near to what the insurance companies spend.
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.
In addition, the technical paper shows that average private sector administrative costs, about 8.9 percent - and 16.7 percent when commission, premium tax, and profit are included - are significantly lower than the numbers frequently cited. But even though the private sector’s administrative costs are higher than Medicare’s, that isn’t “wasted money” that could go to insuring the uninsured. In fact, consumers receive significant value for those additional dollars.
More:
http://www.pnhp.org/news/2006/january/cahis_claim_of_medi.php
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