Now that Rep. Pete Stark, D-Fremont, is chairman, once again, of the House Ways and Means Committee’s Subcommittee on Health, what he believes about the health care system matters — especially if he’s wrong. Which he surely is when he talks about Medicare.

Stark has already announced that he would like to expand Medicare to cover all Americans. Such proponents of a single-payer, government-run health care system assert that if the U.S. would put everyone in Medicare, or something similar, Medicare’s efficiency would save so much money that the country could provide health insurance coverage for everyone, including the 46 million uninsured, for what it is currently spending.

Apparently, he believes the federally run Medicare program is significantly more efficient than the private sector and often points out that Medicare’s administrative cost is just 2 percent, far lower than what we’d find in the private sector.

“If the private sector is so efficient,” asks Stark in a letter to The Wall Street Journal, “why do we have to pay it more to do the job?”

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Unfortunately, Stark’s numbers are wrong.

Oh, the Medicare trustees do say that administrative costs are roughly 2 percent. The problem is that figure excludes billions of dollars of what any private sector company would count as administrative costs.

To arrive at its 2 percent ratio, the trustees simply divide total claims paid by what it costs to write the check for those claims.

That’s it. No overhead. No management. No rent on the building. No anti-fraud efforts.

Of course, the government does many of those things; the numbers just aren’t captured in the official administrative cost estimates.

For example, all of the months Capitol Hill staff spent working on the Medicare Modernization Act back in 2003 — similar to the kinds of broad policy decisions a private sector board of directors might make for a company — weren’t captured in Medicare’s administrative costs.

A private sector company would include at least a portion of the CEO’s salary in administrative costs, but the Medicare administrator’s salary isn’t included.

And consider fraud. Insurers and health plans spend a lot of time and effort scrutinizing medical claims to ensure they are fair and accurate — so much so that doctors and hospitals constantly complain about the scrutiny. Not Medicare. While the government does look for fraud, that comes under the Office of Inspector General and therefore escapes Medicare’s administrative cost figures.

Medicare not only excludes most of its true administrative costs, it offloads administrative costs on the private sector.

An insurance company has to sell policies and then collect the premiums. That’s an administrative cost. Medicare simply requires private companies to collect its “premiums” for it — that is, the 2.9 percent payroll tax that is paid on all income.

So the mandate makes the private sector’s administrative costs — including those in insurance companies, which are also employers — go up, giving Stark even more ammunition. It’s like robbing Peter to pay Paul, and then criticizing Peter for not doing as well as Paul.

So what are Medicare’s actual administrative costs? The Council for Affordable Health Insurance asked Mark Litow of the actuarial firm Milliman Inc., to find that number.

According to Litow, when all costs are included Medicare’s administrative cost ratio is around 5.2 percent. Administrative costs in the private sector average about 8.9 percent, and 16.7 percent when commissions, premiums taxes and profits are included (which are not applicable to Medicare).

So, the single-payer advocates smugly claim: Medicare is still more efficient than the private sector, even when the other factors are included, right?

Not so fast. Comparing Medicare with private sector insurance is difficult because the vast majority of Medicare beneficiaries are 65 years old or older; while most private sector beneficiaries are under 65. As a result, the average Medicare payout ($6,600 per person per year in 2003) is higher than the private sector ($2,700 per person per year). That discrepancy favors Medicare’s administrative cost ratio.

The country will likely have an extensive debate over health care reform over the next two years leading up to the 2008 presidential election. There will be many voices claiming that the government can deliver health care more cheaply and more efficiently than the private sector, holding Medicare up as the model. But Medicare is neither cheap nor efficient. That point must be made; The future of our health care system depends on it.

Merrill Matthews is director of the Council for Affordable Health Insurance and a resident scholar with the Texas-based Institute for Policy Innovation.