Private sector versus Medicare? It’s basically the same thing

Here’s a yes or no question that most Americans, including those running for president get wrong: Is Medicare run by the government? Before I started working at Medicare after a decade in health care, I would have said so. But after several years at the agency, I came to realize that the better one-word answer is actually no — Medicare in truth is run by private industry.  

Sure, the relatively tiny number of employees at the federal Centers for Medicare & Medicaid Services (CMS) play a key oversight role, but they don’t in any real sense deliver Medicare to the American people. The principal job of CMS’s 6,200 employees is to manage contracts with hundreds of private companies, both small and large, that together provide Medicare to us all.

I am not only talking about the relatively well-known Medicare Advantage plans, whereby about one-third of Medicare recipients choose to get their benefit directly from a health insurance company like Cigna or Aetna.

Medicare Advantage just happens to be one area of CMS’s operation where the agency allows the companies that are delivering Medicare to use their own names, logos and limited provider networks. 

No, what I mean is that even traditional Medicare is delivered by private industry. Sure, when you get the old standby red, white and blue card in the mail, it appears to come directly from the feds. And, the website has a reassuring “medicare.gov” address. Likewise, when you need help and dial 800-MEDICARE, you’ll hear an authoritative, soothing “Welcome to Medicare” greeting, and that branding will continue seamlessly until the end of the call — and indeed will continue throughout your decade or more on

Medicare, even though virtually all of the friendly, efficient folks you deal with will in fact work for private companies, not the federal government.

But don’t take my word for it. Look at the numbers. CMS has 6,200 employees and in 2018 spent $995 billion, meaning each employee oversees spending of $160 million. Sounds like a lot, even for an insurance company, right? It is, and how.

This level of money managed per employee is about 100 times what we see with other health insurers. For instance, Aetna with fewer than 50,000 employees had 2017 revenues of over $60 billion, or about $1.2 million per employee.

In 2017, Cigna’s 46,000 employees managed $41.6 billion, or under $1 million per capita. And, Anthem’s 63,900 employees oversaw $91 billion in revenue, or $1.4 million each. 

I can say that CMS employees, overall, are at least as good as their private-sector counterparts. And, certainly federal employees, instead of private industry, could run Medicare. In fact, Social Security, with 60,000 employees managing a successful and popular benefits program that is not nearly as complicated as Medicare, looks a lot more like a true government-run program.

But primarily government employees have not run Medicare since its creation in 1965. Medicare is designed to be a federally funded program delivered almost exclusively through contracts with private, for-profit companies.

Today, these contractors include every one of the major health carriers, and this also has been true from the start: the first-ever Medicare claim was paid by Aetna in 1966 – a check to Hartford Hospital for $517.57. 

The reality is that for more than 50 years Medicare has been perhaps the most successful public-private partnership in American history.

What does this mean for the current debate over the many proposed flavors of Medicare expansion? First, the argument that expanding Medicare would amount to creeping socialism is exposed as uninformed and overblown.

Medicare’s historic approach is to rely heavily on the private sector, and none of the expansion proposals on the table require an overhaul of the program’s underlying private-industry based business model.

Second, the emerging litmus test in the presidential race over whether or not private insurance should continue to exist after the next stage of health-care reform becomes a bit beside the point.

Every one of the nation’s largest health carriers already works for Medicare, and these companies’ government segments are typically among their fastest-growing and most profitable. Any imaginable Medicare expansion will mean more, not fewer, private sector jobs, and the carriers will get a good share, as they always have.

Under even the most ambitious reform proposals, the worst-case upshot for the carriers will be a re-balancing — a marked expansion and reconfiguration of their already vibrant government segments over a period of several years, with a parallel pullback on the commercial sides. Not to sugarcoat it, the transition will be a difficult scramble; but for the insurance companies, even “Medicare for all” would mean disruption, not destruction. 

Ted Doolittle, currently the health-care advocate for the State of Connecticut, is a former senior official at the federal Centers for Medicare & Medicaid Services.