How much overhead in private and government insurance will it take to have universal coverage under the ACA? Quite a bit in one current view of the data.
Through the next seven years, some $2.7 trillion may be spent on both private health insurance overhead and government administration of Medicare, Medicaid and qualified exchange plans, according to a Health Affairs study by David Himmelstein, MD, and Steffie Woolhandler, MD.
"The roughly $6 billion in exchange start-up costs pale in comparison to the ongoing insurance overhead that the ACA has added to our healthcare system," write Himmelstein and Woolhandler, who both teach at the City University of New York.
Himmelstein and Woodlander combed through the forecasts of the Centers for Medicare & Medicaid Services' Office of the Actuary and estimated that the administrative costs attributable to the Affordable Care Act will run some $273 billion through 2022, about $172 billion of it across the 125-plus private health insurers.
"Most of this soaring private insurance overhead is attributable to rising enrollment in private plans which carry high costs for administration and profits," write Himmelstein and Woolhandler, both of whom are single payer advocates and cofounders of Physicians for a National Health Program.
They estimate that annual overhead per newly insured American will be $1,400 in 2022, down from about $1,500 this year, though still accounting for 15 percent of the country's $9,255 per capita healthcare price tag as of 2013.
Along with private insurance, Himmelstein and Woolhandler argue that another $100 billion of the new administrative burden through 2022 will be due to Medicaid--and most of that may flow to Medicaid managed care organizations.
By 2012, Medicaid HMOs will account for almost 60 percent of the federal-state program's administrative costs, which is more than it needs to be, Himmelstein and Woolhandler argue. "The subcontracting of Medicaid coverage to private HMOs has nearly doubled Medicaid's administrative overhead, which has risen from 5.1 percent of total Medicaid expenditures in 1980 to 9.2 percent this year."
They also point to Medicare Advantage as another private-public program that promises more administrative costs, citing overhead figures north of 10 percent per enrollee dating back to 2011.
All of which leaves them with a conclusion reinforcing their belief that "a universal single payer system would pare down both insurers' and providers' overhead, yielding huge administrative savings." If the U.S. had a well-run "Medicare for all" system, some $275 billion would have been saved in 2012, they write, citing a study by their home organization, Physicians for a National Health Program.
"Traditional Medicare runs for 2 percent overhead, somewhat higher than insurance overhead in universal single payer systems like Taiwan's or Canada's," Himmelstein and Woolhandler argue. "Yet 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."
Skeptics of the single payer approach like Manhattan Institute fellow Avik Roy have called that 2 percent administrative figure into question, noting that some of Medicare's administrative functions are performed by the IRS and the Social Security Administration, which help collect taxes and premiums.
Roy also points to a Heritage Foundation study from 2005 that found private health insurers spent about $453 per beneficiary in administrative costs compared to Medicare's $509 that year. (The study, however, did peg private insurers' administrative costs at 13 percent of patient care expenditures, compared to 5 percent in Medicare.)
In any case, the need to reduce administrative waste remains real, with the goal of universal coverage currently being dependant on publicly-funded, privately-run programs serving an aging society with a growing chronic disease prevalence. Perhaps this need for an economy of scale is one reason why big health insurers are looking to get bigger.