Overhead, administrative costs for health plans explode under the PPACA

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Overhead costs for health insurance companies resulting from the Patient Protection and Affordable Care Act will total more than a quarter of a trillion dollars by 2022, according to Health Affairs.

Health Affairs calculated these costs from the official National Health Expenditure Projections for 2012 to 2022 released by CMS' Office of the Actuary in July 2014. Within the projections are two separate cost estimations — one with and one without the effects of the PPACA — allowing for the calculation of incremental insurance cost increases directly attributable to the health reform law.

Between 2014 and 2022, CMS projects private insurance companies will spend $2.757 trillion on overhead costs and administering government health programs — primarily Medicare and Medicaid — including the $273.6 billion in new administrative costs produced by the PPACA. Approximately two-thirds of this new overhead — $172.2 billion — will come from private insurance overhead, according to the report. The remaining third represents overhead for government programs.

The majority of this rapid growth in private insurance overhead is due to increasing enrollment in private plans, which incur high costs for administration. The rest is attributable to the cost of running the exchanges.

Government programs — primarily Medicaid — account for the other $101.4 billion in increased overhead. According to Health Affairs, even the added funds to administer Medicaid will flow primarily to private Medicaid HMOs, which will represent 59 percent of total Medicaid administrative costs in 2022. The subcontracting of Medicaid coverage to private HMOs has almost doubled Medicaid's administrative overhead, which has grown from 5.1 percent of total Medicaid expenditures in 1980 to 9.2 percent in 2015, according to the report.

The $273.6 billion in added insurance overhead derived from the PPACA averages to $1,375 per newly insured person per year, or 22.5 percent of the total federal government's spending for the program.

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