Furthermore, the government outsources much of the claims processing for medicare payments to the private sector. In New York State, for example, it is handled by Empire Blue Cross Blue Shield. So, shutting down private sector health care insurers is not the way to go.
qwest, I think you're looking at this too narrowly.
Medicare is actuarially broke. It's unfunded liabilities are about $60 trillion, or 20X's the entire annual U.S budget. Medicare can continue because of the government's power to tax - the government subsidizes Medicare with general tax revenues. A for-profit private company with similar liabilities would be bankrupt.
It's no secret that in Medicare there is rampant fraud and "abusive" practices by patients and providers of services. President Obama acknowledges this regularly, and pledges to fund major portions of his health care plan by "eliminating" Medicare fraud. No president in 45 years has accomplished this, I hope he can. We'll see.
Meanwhile, it's estimated that Medicare fraud and abuse add tens of billions to the annual Medicare cost. Most of this is subsidized by general tax revenues, not by direct Medicare premiums. A private company does not have this subsidy, and so must be much more aggressive in going after fraud and so-called abuse.
Strangely enough, Congress in its wisdom does not give Medicare the funding to support meaningful fraud-detection work. This means Medicare fraud persists and grows, and Medicare costs suffer.
The exact total amount of fraud in Medicare or in private companies cannot be known, it can only be estimated. The estimates suggest that the higher amounts of Medicare fraud and abuse far outweigh private companies' profit margins.