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Will whopping admin costs undermine Obamacare’s planned cost-savings?

Will whopping admin costs undermine Obamacare’s planned cost-savings?

Consider all the work that we put into navigating the insurance morass. Now imagine all the people working on the insurance side, processing claims and prior authorizations, and determining who gets coverage for which treatments. Now add to those costs the salaries of thousands of insurance executives and the hospital administrators whose job it is to make sure everyone gets paid. It’s no wonder the American health care system is the most expensive in the world.

Is the Affordable Care Act (ACA) helping?

This week on the Health Affairs Blog, David Himmelstein and Steffie Woolhandler (full disclosure: they’re our mentors) wrote about how the ACA is making this problem worse, not better in a post called “The Post-Launch Problem: The Affordable Care Act’s Persistently High Administrative Costs.” They looked at the “National Health Expenditure Projections for 2012-2022” from the Centers for Medicare & Medicaid Services and compared projected national health care costs with and without the ACA for the next several years.

These comparisons show that the ACA will add $273.6 billion in administrative costs by 2022, bringing total administrative expenditures to over a quarter of total health care costs (that’s truly astounding, particularly when you consider that administrative costs for traditional Medicare are about 2 percent of total costs! About two thirds of this added expense – $172.2 billion – will go to private insurance companies via the insurance exchanges. Of the remaining one third, most will ultimately end up in the coffers of private insurance companies who run managed care plans offered through Medicare and Medicaid.

Himmelstein and Woolhandler conclude: “In health care, public insurance gives much more bang for each buck.”

Over here at Slow Medicine, we agree with that conclusion. A single-payer system would be simpler for patients and providers and would consolidate overhead costs and reduce administrative waste. It’s the most logical solution to a problem we shouldn’t keep reinforcing with complicated legislation.


[Photo by Reynermedia via Flickr.]


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