Analysis: ACA Will Add $274B in Administrative Costs Through 2022
The Affordable Care Act will add nearly $274 billion in new administrative costs to the U.S. health system through 2022, according an analysis of CMS data published on the Health Affairs blog, CNBC reports.
For the analysis, David Himmelstein and Steffie Woolhandler -- co-founders of Physicians for a National Health Program, which advocates for a single-payer health system -- analyzed data published by CMS' Office of the Actuary in July 2014.
The analysis found that the ACA will result in about $273.6 billion more in administrative costs between 2012 and 2022, which amounts to $1,375 annually per newly insured individual.
Of those costs, $172.2 billion will be from increased overhead by private insurers stemming from profits and administrative costs (Mangan, CNBC, 5/27). The remaining amount will be from government programs, including expanding Medicaid under the ACA and running the ACA's federal and state exchanges (Ferris, The Hill, 5/27).
The overall total administrative costs represent 22.5% of the $2.76 trillion the federal government is projected to spend on the ACA over that time period. The authors noted that traditional Medicare has 2% overhead (CNBC, 5/27). However, they said that the increasing number of private insurers administering Medicaid program has resulted in program's administrative costs increasing from about 5% of spending in 1980 to about 9% in 2015 (Overland, FierceHealthPayer, 5/26).
Himmelstein and Woolhandler projected that decreasing the 22.5% overhead amount to 2% would result in $249.3 billion in savings by 2022.
The authors wrote, "Insuring 25 million additional Americans, as the [Congressional Budget Office] projects the ACA will do, is surely worthwhile. But the administrative cost of doing so seems awfully steep, particularly when much cheaper alternatives are available" (CNBC, 5/27).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.