Don’t you hate waste in government? Most Americans do, especially because it’s at our expense.
So you’ll hate to hear that the administrative (i.e. bureaucratic) costs to implement ObamaCare is set to top $273 billion – that’s nearly one quarter of a trillion dollars! Just how many staplers and paperclips do they need?
The Health Affairs blog crunched projections for 2012-2022 from the Center for Medicare and Medicaid Services (CMS) which projects $2.757 trillion in spending for private insurance overhead and administering government health programs (largely Medicaid and Medicare). Of that $273.6 billion are new administrative cost attributed to ObamaCare. That averages out to $1,375 per newly insured person per year, or 22.5 percent of the total federal government spending for ObamaCare.
Nearly $2 out of every $3 of this new overhead –$172.2 billion – will go for increased private insurance overhead due to rising enrollment in private plans which tend to carry high admin costs and profit. The other $1 of new overhead spending is funneled for government programs (primarily Medicaid).
These numbers sound astoundingly high for overhead, but how do they stack up against overhead costs for other public health programs? Traditional Medicare has overhead of just 2 percent (compared with 22.5 percent for ObamaCare). Ouch!
No one knew just how big of a bureaucracy would be needed to get Americans to sign up for ObamaCare whether though the federal and state exchanges or through Medicaid expansion. Perhaps with this knowledge Congress might have made a different decision. The co-authors of the report advocate for a single payer system where the government covers everyone and they argue that given 2-percent overhead costs for Medicaid, Congress should have pursued the single-payer system. Neither Obamacare nor a single-payer system is the best way to save the taxpayer though. They both feed the gaping appetitive of the big, inefficient government monster.
CNBC reports:
Dr. Steffie Woolhandler told CNBC that she and her blog co-author Dr. David Himmelstein only became aware of the projected spending data earlier this year…
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"I am pretty sure we're the first we're bringing it to light," said Woolhandler, who like Himmelstein is a City University of New York School of Public Health professor as well as a lecturer in medicine at Harvard Medical School. "This is the first time there's been a number, and it's a pretty shocking number."
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A CMS spokesman had no comment when CNBC asked about the blog post.
The large amount of spending devoted to administrative costs both in dollar terms and as a percentage of total ACA spending is a reflection of Obamacare's "use of private health insurance for most of the coverage expansion," said Woolhandler. Private insurance, she said, is "associated with high overhead costs."
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"Traditional Medicare is a bargain compared to the ACA strategy of filtering most of the new dollars through private insurers and private HMOs that subcontract for much of the new Medicaid coverage," the blog said. "Indeed, dropping the overhead figure from 22.5 percent to traditional Medicare's 2 percent would save $249.3 billion by 2022."
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Woolhandler, like Himmelstein, is a proponent of a single-payer health system that would have the federal government insure all Americans. Both are co-founders of a leading advocacy group for that goal, Physicians for a National Health Program.
Obamacare expands healthcare coverage in several ways: selling private insurance plans on government-run marketplaces with heavy tax-payer funded assistance in the form of subsidies to about 80 percent of customers, allowing more poor adults to qualify for Medicaid, and allowing people under age 26 to stay on their parents' private insurance plans.
Big-government healthcare advocates think all problems are solved by a single-payer system, but that’s an overblown assertion. In this BloombergView article from last spring, Megan McArdle explains why a single-payer system won’t make healthcare cheap:
There are two potential outcomes for a “public option” health insurer: It could set rates high, in which case it wouldn’t control costs, or it could jam them down to Medicaid levels, in which case no one but the very healthy or the very desperate would buy that insurance because it will be hard to actually use that coverage.
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… we cannot count on financing single-payer with the fabulous cost savings to be gained by making our system more like Europe's. Europe didn’t gain fabulous cost savings by making their systems more like Europe's: Its nations started from a lower base, and held down cost growth, but they did not actually use single-payer systems to cut what they were spending.
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But even if we got a single-payer system tomorrow, we would not be able to do what those other countries have done, which is not build expensive single hospital rooms in the first place. Those hospitals were built over time, as funds became available and as the old buildings wore out. Trying to replace them all at once with semi-private rooms or wards would cost more than just sucking up the extra expense of the hospitals we have.
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Today I’ll just finish by reiterating the point I made at the outset: The financing is impossible, in part because the politics are impossible. And the politics are impossible in part because the financial hit would be too big. Single-payer would have to be paid for at the extremely high prices that Americans pay, not the lower European prices that we’d rather have. And when you look at the taxes needed to finance a government takeover, you quickly realize that most people just aren’t willing to pay the price.
At the end of the day government providing healthcare for most or all Americans is a bad idea. We're not Europe and it's not wise – or possible as McArdle contends – to remodel our system after Europe.
Private healthcare in this country may not be perfect but injecting more market principles into our healthcare system will help more Americans of all incomes and be more efficient than the failed ObamaCare experiment. The private sector has an incentive to eliminate waste to keep their costs down: profit. With no profit motive, inefficiencies and waste occurs with no reason to keep them under control.