Answer: Whomever it pleases. Some money will trickle down to those who help patients, but 40% or more may be siphoned off en route.
It is often asserted that Medicare is the very model of efficiency, with a mere 3% in administrative costs. But that is just the part of the HHS and CMS budget that the government chooses to call “administration,” and most administration is delegated to private contractors.
The question is how much of it reaches patient care—even “unnecessary” patient care. By adding up all monies that went to anything or anyone associated with providing patient care: hospitals, nursing homes, professionals, pharmaceutical companies, wheelchair manufacturers, etc., and comparing that number to the total amount listed under “healthcare” in the federal budget, Dr. Deane Waldman calculated that about 40% of the 2010 federal “healthcare” budget went for something other than medical goods and services.
All Medicare payments pass through regional Medicare carriers (formerly fiscal intermediaries, now Medicare Administrative Contractors or MACs). Insurance companies such as Blue Cross Blue Shield, Aetna, CIGNA, and UnitedHealth Group bid on these government contracts to process and pay claims. Their expenses are not in the 3%.
Data on how much profit the carriers make (they don’t bid to lose money) and how much they pay to their executives and staff is not readily available. But the threshold for fraud investigations is $200 million, according to a whistleblower, who writes that “there is no meaningful accountability for gross malfeasance” and that “whistleblower protections are of little effect.” 
Preliminary results of a forensic audit of Arizona’s Medicaid program, reputedly the nation’s most efficient (it is 100% managed care) show contractor-level administrative costs of about 10%, plus pre-tax profits to contractors of more than 2% ($228 million on $10 billion in one year).
Doctors and hospitals face tremendous single-payer (Medicare and Medicaid) compliance costs, reflected in the 3,000% increase in the number of administrators since 1970 (see graph). Thus, even the money that reaches them is in large part spent on administration rather than actual care.
The photograph below shows the files of Dr. Lawrence Huntoon’s correspondence with Medicare carriers (“Little Frank”) before he opted out. Claims filed by doctors are often “lost” or denied for reasons such as the carrier’s opinion that the service was not “medically necessary.” Advice given by the carrier to physicians concerning its own rules was in error 96% of the time.  And even if the carrier eventually admits that the physician was correct, it still might not pay the wrongfully denied claims. But if the doctor is overpaid because of carrier error or later adverse determination, he must report this and refund the money, even years later.
Patients are urged to look out for and report Medicare fraud, as 10 percent of the Medicare single payer’s payments allegedly goes for fraudulent claims and fraud-fighting campaigns. Honest doctors have had their lives ruined by prosecution for alleged violations of arcane rules. 
- The single payer pays administrators, rule makers, compliance officers, auditors, investigators, prosecutors, information technology vendors, etc., first.
- Physicians and hospitals that provide legitimate patient services are paid with “rubber money,” which the single payer can “claw back” based on retrospective determination of a coding error, lack of medical necessity, unacceptable “quality,” failure to meet spending targets, etc.
- The single payer determines how much will be paid to whom under what conditions.
- Physicians who accept the single payer’s money must accept the single payer’s conditions, under threat of civil fines and criminal prosecution, even for inadvertent errors.
- Burr T. Report from a Medicare whistleblower. Part 2: qui tam follies. J Am Phys Surg 2002;8:114-116. Available at: http://www.jpands.org/vol8no4/burr.pdf.
- Huntoon LR. Medicare: incompetence-based bureaucracy. J Am Phys Surg 2004;9:102-103. Available at: http://www.jpands.org/vol9no4/huntoon.pdf.
- Libby R. The Criminalization of Medicine: America’s War on Doctors. Praeger; 2007.
Printable PDF of Question #4: https://goo.gl/emfsV3
Single Payer IQ Test Question Archive: https://aapsonline.org/category/hcriq/