ACA Adding Billions to Health Care Bureaucratic Waste: Study

For Immediate Release

Contact: 

Mark Almberg, PNHP communications director, mark@pnhp.org

ACA Adding Billions to Health Care Bureaucratic Waste: Study

Initial $6 billion in start-up costs of exchanges pale beside $273.6 billion in extra insurance overhead from 2014 through 2022, researchers say

WASHINGTON - The Affordable Care Act will add more than a quarter of a trillion dollars to the already very high administrative costs of U.S. health care through 2022, according to a study published Wednesday at the Health Affairs Blog.

Drawing on the “National Health Expenditure Projections for 2012-2022,” released in July 2014 by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS), the authors – Drs. David U. Himmelstein and Steffie Woolhandler – calculated yearly estimates for private insurance overhead and government program administration costs both with, and without, the effects of the ACA.

Using estimates from the Congressional Budget Office, they also calculated the ACA’s coverage and cost.

“Between 2014 and 2022, the ACA will add $273.6 billion in new administrative costs over and above what would have been expected had the law not been enacted,” said Himmelstein. “That's equivalent to $1,375 per newly insured person per year, or 22.5 percent of total federal expenditures for the program.”

Himmelstein and Woolhandler write: “Nearly two-thirds of this new overhead – $172.2 billion – will go for increased private insurers’ administrative costs and profits,” while the rest of the added overhead “is attributable to expanded government programs, i.e. Medicaid. But even the added dollars to administer Medicaid will flow mostly to private Medicaid HMOs, which will account for 59 percent of total Medicaid administrative costs in 2022.”

They observe that while insuring 25 million additional Americans, as the CBO projects the ACA will do, “is surely worthwhile,” the administrative costs of doing so “seem awfully steep, particularly when much cheaper alternatives are available.”

By way of alternatives, they point to traditional Medicare, which runs for about 2 percent overhead. Were the 22.5 percent overhead figure associated with the ACA to drop to traditional Medicare’s level, the U.S. would save $249.3 billion by 2022, they say.

The overhead rates of universal, single-payer systems such as Taiwan’s or Canada’s are even lower, closer to 1 percent, they write, adding that if the U.S. were to adopt a single-payer system, the savings on bureaucracy and paperwork would amount to about $375 billion annually, enough to provide high-quality, first-dollar coverage to all Americans.

“In health care, public insurance gives much more bang for each buck,” they write.

Himmelstein and Woolhandler are professors at the City University of New York School of Public Health at Hunter College and lecturers in medicine at Harvard Medical School. Their long-term research interests include the administrative costs of U.S. health care. They co-founded Physicians for a National Health Program.

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The Post-Launch Problem: The Affordable Care Act’s Persistently High Administrative Costs,” by David U. Himmelstein, M.D., and Steffie Woolhandler, M.D., M.P.H. Health Affairs Blog, May 27, 2015.

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Physicians for a National Health Program is a single issue organization advocating a universal, comprehensive single-payer national health program. PNHP has more than 15,000 members and chapters across the United States.

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