NCPA - National Center for Policy Analysis

Obamacare's Hard Hitting Overhead Costs

May 28, 2015

Five years after the passage of ObamaCare, there is one expense that is still causing sticker shock across the healthcare industry: overhead costs. The administrative costs for healthcare plans are expected to explode by more than a quarter of a trillion dollars over the next decade.

  • The $270 billion in new costs, for both private insurance companies and government programs, will be "over and above what would have been expected had the law not been enacted," one of the authors, David Himmelstein, wrote Wednesday.
  • Overhead is expected to make up 45 percent of all federal spending related to the Affordable Care Act. By 2022, that ratio will decrease to about 20 percent of federal spending related to the law.
  • The extra administrative costs amount to the equivalent of $1,375 per newly insured person per year.

Private insurers have been expanding their administrative overhead despite some regulations from the Obama administration to control those costs, such as the medical loss ratio, which requires a certain amount of premium dollars to be spent directly on healthcare.

The rest is the result of expanded government programs, such as Medicaid. It also includes the cost of running ObamaCare exchanges at both the federal and state levels.

The federal exchange, as well as the 13 state-run exchanges, have all been boosted by grant money, though those funds will run out by 2016. The exchange will then need to rely on fees to plan premiums. 

Source: Sarah Ferris, "Overhead Costs Exploding Under Obamacare, Study Finds," The Hill, May 27, 2015. 

 

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