The Affordable Care Act will add more than a quarter of a trillion dollars in additional insurance administrative expenses from 2012 to 2022, according to an analysis of federal data released Wednesday by two medical school professors.
Dr. David Himmelstein and Dr. Steffie Woolhandler, both professors at City University of New York School of Public Health, are proponents of a national single payer healthcare system. They looked at National Health Expenditures data posted by the CMS in July 2014 and calculated that the additional overhead attributable to the ACA would add up to $273.6 billion.
That amounts to 22.5% of total ACA-related costs over 10 years and is much greater than the 2% overhead rung up by traditional Medicare, according to the authors. They posted their findings on the blog of the policy journal Health Affairs.
The researchers said they had to use the July 2014 data because subsequent releases no longer included "without ACA" figures.
Nearly two-thirds of the new administrative expense — $172.2 billion —will go toward increased private insurance overhead, according to Himmelstein and Woolhandler's tally.
Most of the new private insurance overhead is due to rising enrollment in private plans, which carry high costs for administration and profits, they wrote. The rest reflects the costs of running the ACA health insurance exchanges, which will be funded by surcharges on premiums.
Government overhead, mostly for Medicaid, accounts for the remaining $101.4 billion. But much of that, they contend, will wind up in the hands of private Medicaid HMOs.
"Insuring 25 million additional Americans, as the CBO projects the ACA will do, is surely worthwhile," the authors write. "But the administrative cost of doing so seems awfully steep, particularly when much cheaper alternatives are available."
It's worth noting that administrative costs account for a small fraction of total health expenditures. The additional $35 billion that will go toward government administration and net insurance costs in 2022 because of the ACA, for example, amounts to less than 1% of the $5 trillion the CMS projects the U.S. will spend on healthcare that year.
