NCPA - National Center for Policy Analysis

The Costs of the Affordable Care Act Still High

June 2, 2015

The costs of the Affordable care Act's (ACA) exchanges will remain at a high level. The roughly $6 billion in exchange start-up costs pale in comparison to the ongoing insurance overhead the ACA has added to our health care system — more than a quarter of a trillion dollars through 2022.

Between 2014 and 2022, the Centers for Medicare and Medicaid Services (CMS) projects $2.757 trillion in spending for private insurance overhead and administering government health programs (mostly Medicare and Medicaid), including $273.6 billion in new administrative costs attributable to the ACA. Nearly two-thirds of this new overhead — $172.2 billion — will go for increased private insurance overhead.

Most of this soaring private insurance overhead is attributable to rising enrollment in private plans, which carry high costs for administration and profits. The rest reflects the costs of running the exchanges, which serve as brokers for the new private coverage and will be funded (after initial startup costs) by surcharges on exchange plans' premiums.

Government programs — primarily Medicaid — account for the remaining $101.4 billion increase in overhead. 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.

The $273.6 billion in added insurance overhead under the ACA averages out to $1,375 per newly insured person per year, or 22.5 percent of the total federal government expenditures for the program.

Source: David Himmelstein and Steffie Woolhandler, "The Post-Launch Problem: The Affordable Care Act's Persistently High Administrative Costs," Health Affairs, May 27, 2015.


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