Thursday, October 23, 2014

Comparing the administrative costs of Obamacare to single payer

Above: Critics of Obamacare from the right
Below: Critic of Obamacare from the left

Since this is a very long post, I wanted to emphasize at the beginning that we're most interested in two numbers: $5 billion and 27 million. Obamacare is (at least) $5 billion more expensive than single payer. And, Obamacare leaves 27 million people uninsured that would otherwise be covered by single payer. Essentially, our political system chose to pay $5 billion to prevent 27 million people from getting health insurance.
[UPDATE]--The $5 billion number comes from only start-up costs for the Obamacare website and exchanges--so only for the exchanges and only through 2014. Himmelstein and Woolhandler use CMS estimates to calculate the increase in administrative costs caused by Obamacare to the entire health care system (public and private) from 2014 to 2022: over a quarter of a trillion dollars. See full update at the bottom of this page.

This is the third and final post on how the design of social welfare programs affects their administrative cost. The first two posts (part 1, part 2) established the theoretical framework, exploring how various aspects of social policy design, like eligibility, actuarial values, economies of scale, etc, should affect administrative cost and program efficiency. Of course, theory does not always match reality, so a separate series of two posts compared the individual and aggregate costs of the American versus social democratic welfare states using real world data. This demonstrated that the theory behind program design is sound: the theoretical administrative efficiencies of the social democratic model indeed result in enormous cost savings in the real world.

Missing thus far is an example of social policy analysis using the lessons of administrative design on a real world social welfare policy. This post concludes this series on administrative cost by performing such an analysis on Obamacare. We will examine all the areas of administrative cost (and waste) covered in parts 1 and 2: universal eligibility, actuarial values, economies of scale, automatic enrollment, and other, miscellaneous administrative issues. Since we've already established that the social democratic (single payer) system is the most efficient option, we will compare the administrative structure of Obamacare to the single payer model, and how Obamacare's design makes it less efficient than single payer.

Before beginning, it's worth reiterating that Obamacare is basically the law Obama wanted, not something watered down to get conservative votes (see here and here) (and recall that every single Republican in both houses of Congress voted against the bill, minus one abstension).

Obamacare and universal eligibility
Single payer systems derive much of their efficiency from universal eligibility. When everyone is eligible, there is no need to hire legions of bureaucrats to ensure that all applicants meet eligibility requirements, or verify that all current beneficiaries remain eligible. Every step away from universal eligibility means that some system must be created and staffed by bureaucrats to ensure that only eligible applicants are able to participate, and this does not happen for free.

Obamacare is not a universal program, and every step it takes away from universal eligibility adds unnecessarily to administrative cost.

It's not hard to understand why Obamacare was not designed to be a universal program: American society has complicated feelings about health insurance, and Obamacare was legislators' attempts to turn these feelings into law:
  • Feeling: Americans generally feel that those who work hard but cannot afford health insurance should have some help accessing health insurance. But American society is also afraid that someone might get a free ride. Everyone should have access to insurance, but they should also have to work and/or pay for it. Everyone should pay for health insurance what they can afford to pay.
    • Solution: A central piece of Obamacare is to provide financial assistance to those who otherwise would not be able to afford health insurance. However, the law takes careful precautions to ensure that people don't get "too much" assistance: if you're wealthy enough to afford health insurance (wealthy enough being defined as richer than 400% of the federal poverty line), you are not eligible for financial assistance. If you are poorer than 400% of the federal poverty line, Obamacare provides financial assistance for you to purchase private insurance, but will not pay 100% of cost of the insurance. The poorer you are, the less you have to pay; but unless you are poor enough to become eligible for Medicaid, you must pay something. Finally, if you are offered insurance from some other source--usually, an employer or a family member's employer--you are not eligible for any financial assistance--unless your premiums are unaffordable (Obamacare defines unaffordable insurance as exceeding 9.5% of your family's income), in which case the above rules apply.
    • If you are eligible for financial assistance, you must choose a private insurance plan; depending on your area, there may be dozens of different insurers and/or plans to choose from.
  • Feeling: It's an American cultural norm that employers should offer their full time employees health insurance, but it's also a cultural norm that small businesses be exempted from complying with expensive rules.
    • Solution: Obamacare requires businesses with more than 50 full time employees to offer all full time employees health insurance or pay a fine. Businesses with fewer than 50 full time employees are exempted from this rule; their employees are eligible for financial assistance, as described in the first bullet point.
  • Feeling: For whatever reason, American society is adamant that employers should offer all full time employees health insurance. But these feelings aren't so strong for part time employees.
    • Solution: Obamacare does not require employers to offer part time employees health insurance. When part time employees are not offered health insurance by their employer, they are eligible for the financial assistance described in the first bullet point.
Are these reasonable opinions to have about health insurance? Perhaps. But can these complicated, somewhat conflicting feelings be actually be written into a practical law? Absolutely not. These are complicated conditions, and they can only be satisfied with complicated rules. As we go through some of the onerous administrative tasks that must be completed to ensure that all of these feelings are satisfied, you may appreciate the strength of universal eligibility in cutting administrative cost. All of these costs would not be necessary if there was a single health insurer that everyone was eligible for:

How many full time workers do you employ...and are you offering them insurance? According to the law, all employers with more than 50 full time employees are mandated to offer health insurance to all full time employees as of 2014. This, of course, sounds very simple. But it's not. Just because a rule is simple doesn't mean it's straightforward to verify compliance. There is no existing system that tracks every single employer in the United States, noting whether or not they have 50 full time employees, and whether or not they are offering all of their full time employees health insurance. The federal Department of Health and Human Services (HHS) had to build this system from scratch, or existing systems had to be adapted for this new purpose. Obviously, the creation of this infrastructure is an expensive administrative cost, and verifying compliance each and every year for every single employer in the entire country is an ongoing, expensive administrative nightmare. It's also entirely unnecessary in a single payer system, where everyone is eligible for the same benefits, no matter the size of their employer.

Also worth considering--the number of full time employees at a company may not stay the same. HHS has to continually verify that employers with 49 full time employees haven't hired another full time employee and made themselves ineligible for the exemption.

This rule was supposed to be enforced starting in 2014. But the scale of this administrative task proved to be too monstrous for HHS to sort out on time; thus, HHS simply delayed enforcing this part of the law until 2015, though it remains to be seen if a one year delay is enough time to complete the mammoth job of creating the infrastructure to enforce this rule. (Actually, HHS has actually had to delay dozens of rules because the administrative infrastructure needed to enforce Obamacare's many rules was so overwhelmingly complicated that deadlines could not be met on time.)

Is the employee contribution to health insurance more than 9.5% of family's income? Here is where the law starts getting very impractical. It's enough of a challenge to document and verify if each employer is offering health insurance to their employees. But the mandate also stipulates that the employee contribution to their health insurance cannot be more than 9.5% of their family's income.

Obviously, Bob's employer has no documentation of Bob's wife's income, or if Bob has a child or parent living in the same household who also works. Maybe Bob's father-in-law who lives with them and has pension income; maybe Bob's daughter is an amateur investor and has capital gains income. Thus, it's not enough for HHS to query Bob's employer about Bob's income and what his employee contribution to health insurance is. HHS must gather income information for everyone who lives in Bob's household, as well as information about health insurance premiums from every employer that employs someone in Bob's family. If anyone in Bob's household is offered health insurance by their employer where the employee contribution is less than 9.5% of the income of the entire household combined, then Bob's family is expected to enroll in that insurance, and they are not eligible for financial assistance from the government. But if not, the family is eligible for financial assistance and Bob's employer has to pay a fine. Got it?

The original law was even more complicated; in this example, Bob and his family would have been eligible for a so-called "free choice voucher" if their employer sponsored health insurance cost between 8% and 9.8% of their household income, though this part of the law was ultimately repealed.

The administrative burden of enforcing this provision of the law boggles the mind. Obviously, no system exists for employers to report to HHS how much they are charging their employees for employer-sponsored health insurance. HHS needs to find a way to link up to IRS databases to verify everyone's income. But incomes change. HHS needs to know whenever a family's income changes, and this can occur for countless reasons: someone loses a job, leaves their job to go back to school, sells stocks are sold, a family member moves out, etc. This mammoth administrative nightmare is obviously very complicated and very expensive. According to the law, all of these requirements are supposed to be enforced as of January 1, 2014. But HHS was unable to sort this mess out between the law's passage in early 2010 and the scheduled implementation in 2014, so they simply delayed enforcement of the provision until 2015. Only time will tell if a full year is a long enough extension to resolve this complicated, expensive, and needless administrative nightmare.

Again, none of this administrative nightmare needs to exist in a single payer system where everyone is eligible for the same benefits.

So your employer doesn't offer you much money do you have? Another key provision of Obamacare is providing sliding scale assistance for people who cannot afford health insurance (and are not offered insurance from any other source), which started in 2014. For households between 100% and 400% of the federal poverty line, the government will pay for a large portion of the cost of private health insurance. A simple formula determines how much the government will pay, depending on a family's income. It's sliding scale, meaning the government pays a higher percentage for households at 100% of the poverty line as they do for those at 400% of the poverty line. But, remember, this rule is dependent on all of the other rules. In the example above, HHS first has to go through the complicated process of deciding if Bob is eligible for financial assistance, or if he must accept employer-sponsored health insurance. After determining Bob and his family are eligible for financial assistance, HHS then has to determine how much financial assistance Bob is eligible for. This depends on family income and the federal poverty line--which in turn depends on family size as well (and there are numerous exceptions--undocumented immigrants, foster children, people between the ages of 18-21 who were adopted as children, etc).

Like the rules discussed above, this rule (and sliding scale formula) may seem simple. But it is very difficult to verify someone's income. A central problem of Obamacare is that it determines eligibility based on last year's income--after that income has already been earned. Applicants can provide HHS with their tax returns for the previous year to verify their income, but if monthly income is substantially different than it was in the previous calendar year (ie, because someone lost their job, went back to school, got a promotion, etc), families have to submit proof: termination notice, a few months of pay stubs with a new pay rate, etc. This translates into an almost unfathomable administrative burden for HHS. If, for example, you were receiving a subsidy and you lose your job, HHS is required to figure out how this affects your income and adjust your subsidy accordingly--and immediately, before the next monthly payment is due.

Single payer systems are designed to avoid the folly of verifying income after it is already earned. For example, the universal American Social Security program is funded by payroll taxes, which are (typically) automatically withdrawn from both employer and employee, each and every payday, before employees even get paid (though a little more complicated, the single payer American Medicare system works in an analogous way). The amount a worker pays into Social Security each year is maintained in a database by Social Security; once a worker retires, this information is used to calculate their benefit. In other words, the information needed to calculate benefits is collected as the wages are being earned, and not afterwards. Unlike Obamacare, the Social Security Administration will never ask you to prove your income for the previous year or supply documentation that your income has changed--because these data are recorded before you actually get paid (ie, the Social Security Administration automatically knows that your income has changed before you get paid at the new pay rate). The simplicity of this model--for both program beneficiaries as well as government bureaucrats--is obvious.

As with the previous rules, administrative complexity is not a theoretical concern. Like the other rules discussed so far, HHS was unable to implement this rule in time. Sliding scale assistance began on January 1, 2014, but it is still impossible for HHS to verify a anyone's income, or if they are offered insurance from their employer. Thus, it is illegal--though unenforceable--to lie about your household's income or insurance status in order to get more assistance than the law entitles you to. Verification of your household's income is on the honor system, at least until 2015--provided a one year delay is enough to time for HHS to sort out this administrative nightmare. (It's not just an administrative nightmare for HHS; from 2015 on, paying your taxes each year will be even more complicated.) Of course, with a single payer system, none of this expensive, complicated process is necessary.

Just how many different benefits are there in Obamacare, and how do we decide who gets what? When these many complicated rules are assembled, it becomes a gargantuan task to determine who is eligible for which Obamacare benefits (if any). For simplicity, I skipped many relevant rules and exceptions for rules, but it's nonetheless clear that the complexity of Obamacare is mind-boggling. This is very striking visually (click to see full size image; this image fills in some of the rules I skipped):

What a complicated mess. Remember, each step of this flowchart has to be verified with supporting documentation, be it a W-2 form for every single member of the family, naturalization papers, information from an employer, etc. All of this incredible administrative waste is totally unnecessary in a single payer system. In a single payer system, everyone is automatically eligible for the same insurance benefits; there is no need for this immense waste of money and resources to sort out eligibility.

*       *       *

Obamacare is such a bloated, inefficient mess that its delayed rules number in the dozens. The centerpiece of the law is the Health Insurance Exchanges (more commonly known as the Obamacare website). The Exchanges are the workhorse of Obamacare. According to the law, every single person in the United States should be able to log onto the Exchange website and find out what they are eligible for, and every single health insurance company should be able to use the Exchange website to sell their insurance plans directly to consumers. This means that all of the complicated rules discussed above (and many other complicated rules not mentioned) must be sorted out by the Exchanges.

The launch of the Exchanges, burdened with complicated rules and mandates to verify disparate data of tens of millions of Americans and thousands of employers, has been unsurprisingly delayed numerous times. The website interface of the Exchanges was supposed to be up and running on October 15, 2013; it wasn't, due to hundreds of glitches. Given the enormous amount of information--income data with the IRS, insurance status data with employers, full time/part time employment status with employers, the cost of insurance policies and those policies' actuarial values with private insurers, and a way to link monthly payments from the federal government and tens of millions of individual applicants to hundreds of different private insurers--it's little wonder the website didn't roll out on time. The decision to delay open enrollment for 2015, supposed to begin on October 15, 2014, was already made back in November 2013. The law states that by 2014, HHS was supposed to create a separate exchange website for small businesses to explore options for insurance coverage for their employees; this task was so administratively complicated that HHS could not meet this deadline and the launch of the small business exchange was delayed until 2015, although it remains to be seen if this goal can be met. To date, massive glitches in the Obamacare website continue.

Again, the universal eligibility of a single payer system makes all of these administrative tasks unnecessary--resulting in a cheaper, more efficient, more user-friendly system.

There is a very real opportunity cost to the administrative waste of Obamacare. For most of these sources of administrative waste, I have not seen any estimations attempting to put a dollar value on the money lost unnecessarily to administration. However, there is very good data on the cost of the Exchanges (including the Obamacare website), since funding is strictly specified by the law itself.

Just to create the Exchanges--which includes the Obamacare website--the federal government spent $5 billion through 2013. This huge sum was just to create the Exchanges; it's unclear what the annual operating costs will be. Despite the hefty price tag--as we saw above--the system barely functions. Why not instead use $5 billion to buy people health insurance? The sheer inanity is difficult to overstate: $5 billion could buy 947,150 individual and 328,969 family policies in the (greatly overpriced) private health insurance market! Again, $5 billion is a fraction of the cost of administrative waste in Obamacare; $5 billion was the cost to create the Exchanges and their website interfaces--not to operate the exchanges year after year, or enforce many of the rules discussed above. Again, none of these enormous costs are necessary in a universal, single payer system. [see update at the bottom of the page for estimates of system-wide increases in administrative costs (which were unavailable when I first wrote this post); the total increase in administrative costs for 2014 to 2022 surpasses a quarter of a trillion dollars]

It's worth repeating--all of the mammoth expenses in this section are only incurred because Obamacare is not a universal program. Each one of these rules specifies a step away from universal eligibility; a universal, single payer system would incur none of the enormous and expensive administrative burdens detailed in this section. As Obamacare teaches us, the incredible amount of money wasted through forsaking universal eligibility should not be underestimated. Most other developed countries realize the folly of trying to ensure nobody gets "too much" assistance and make their health care systems universal.

Obamacare essentially pays billions of dollars to prevent millions of people from getting health insurance
In a single payer system, health insurance coverage is universal. Despite being far more expensive, best estimates indicate that Obamacare will not even cut the number of uninsured in half, leaving tens of millions of American citizens uninsured. Obamacare comes nowhere near universal coverage, and this was known by President Obama and the Democrats when they were crafting this legislation. Leaving tens of millions of American citizens uninsured was part of the plan, not an unforeseen consequence. Because single payer results in universal coverage at a much lower cost, President Obama and Congress essentially chose to pay billion of dollars in order to prevent millions of people from getting health insurance.

Obamacare and automatic enrollment:
Throughout its implementation, Obamacare has struggled with a very predictable problem: the very people the law is supposed to benefit generally have no idea how the law works. In 2012, for instance--a full two years after the Obamacare law was passed--a whopping 78% of people who were to become eligible for health insurance subsidies in 2014 did not know such subsidies even existed! Literally millions of people who are eligible for hundreds of dollars each month of government assistance to pay for health insurance have no idea such assistance even exists. Millions of people who want insurance can't get it--not because they aren't eligible, but because they don't know they are eligible. As we shall see below, this situation has not significantly improved since 2012.

First, some more background is necessary. According to the law, no one can receive a subsidy for health insurance for 2014 if they enroll in a health insurance plan after March 31, 2014--except in special circumstances (ie, loss of a job, birth of a child, etc). To maximize 2014 health insurance enrollment ahead of this deadline, the law set aside huge sums of money to get word out about the benefits of the law, including $54 million for "Navigators" to do community outreach and assist people in filling out applications. However, in 2013, after surveys like the one cited above showed widespread ignorance about the law, HHS realized that $54 might not be enough and increased the amount of money given in Navigator grants to $67 million, or a 24% increase over the initial allotment.

This increase in Navigator spending did not work. Approaching the March 31 deadline, enrollment was very low; when it became apparent that the Navigators had failed, the Obama Administration simply extended the open enrollment period to try to get more people to enroll. Clearly, the enormous sums of money spent on outreach didn't work. Survey data from earlier this year show that huge numbers of people didn't sign up because they didn't know they were eligible, not because they didn't want insurance:
About half of the people who McKinsey surveyed did not end up buying insuranceeither because they shopped and found nothing they liked, or because they didn't shop at all. When asked to explain these decisions, the majority of these people said they thought coverage would cost too much. But two-thirds of these people said they didn’t know they could get financial assistance. In other words, they assumed they would have to pay the sticker price for coverage, even though federal tax credits would have lowered the price by hundreds or thousands of dollars a year. 
Literally millions of people are without health insurance simply because they do not understand how the law works. These millions of would-be beneficiaries are overwhelmingly among the ranks of the working poor, who are busy with job and family duties, and simply don't have the time to research health insurance options. They want health insurance for their family, but don't realize they are able to get it. While I certainly hope this improves, wouldn't it be better if people were automatically enrolled in programs they are eligible for? A single payer system would automatically enroll beneficiaries, avoiding this folly of Obamacare. No one would be without health insurance, ever. Thus, the millions of dollars spent by the Obama administration on outreach was entirely wasted--it failed, and who needs a Navigator when you're automatically enrolled in a single payer system?

The problems incurred by forsaking automatic eligibility continue apace. For those who were able to obtain financial assistance from Obamacare, around 115,000 people are about to lose their health insurance because they forgot to turn in some paperwork.

Obamacare and actuarial values
As explained in the first post on this topic, enrolling more people in an insurance plan means that the cost of insuring each person falls. More people = lower per-enrollee cost = huge cost savings.

So how well does Obamacare take advantage of this potential for cost savings?

Not very well. Obamacare expands health insurance coverage by providing Medicaid to more people and providing subsidies for people from 100% to 400% of the poverty line to purchase private health insurance. It also mandates some employers to offer their full time workers health insurance and imposes a fine on some individuals who do not have health insurance coverage. All these pieces of the law will increase the number of enrollees in each of America's hundreds of different health insurance payers, which should result in some cost savings--but it doesn't change the fact that America has hundreds of different health insurance payers. By splitting enrollees over hundreds of different insurance companies, the American health care system fails to harness the actuarial strength of the single payer model--a massive insurer that covers the entire population (or providing a workaround like that of Germany or Japan). This is part of the reason why the American health care system delivers middling health care services at twice the cost per person of any other country on earth. By doing nothing to limit the number of payers, Obamacare wastes huge opportunities for cost savings.

Obviously, a single payer system--by enrolling the entire country--maximizes the cost savings based on actuarial strength.

Obamacare and economies of scale
Economies of scale occur when something becomes cheaper as a provider gets bigger. Insurance companies get more bargaining power with health care providers when they have more enrollees, and greater bargaining power translates to lower prices.

Again, the American health care system splits American patients between hundreds of different insurers--meaning there is a lot of wasted opportunity to harness the full cost savings of economies of scale. Obamacare will result in millions more people getting health insurance--so the bargaining power of each of these hundreds of individual insurers will increase--but it should be obvious that none of these can possibly negotiate the prices that a single payer system could. A single payer system would represent the entire country, maximizing the savings of economies of scale.

Obamacare and other administrative issues
The previous post examined some sources of administrative waste in the American health care system. How well does Obamacare fix these problems?

Negotiations between providers and insurers
Part 2 pointed out that the setting and negotiating of prices between insurers and health care providers is an extremely wasteful process that never occurs in a single payer system. Obamacare does nothing to solve--or even improve--this problem. There will still be hundreds of health insurance payers negotiating separate payment agreements with hundreds of health care providers; the administrative waste will continue unabated. If anything, Obamacare makes administration more complicated, since private insurers have to now interface with a Exchanges. As we've seen above, this has been an administrative nightmare, with private insurers unable to connect to this system.

(Private insurance is so complicated that insurance representatives rarely have any idea what they are even selling. My wife and I were both offered dental insurance by our employers. We were offered different plans from the same insurance provider, so I spoke to a representative from the insurer at my employer's benefits fair to obtain a benefits summary to see which plan was better. The representative had no idea what either plan offered and didn't even know who to direct me to. Eventually, the representative and I reasoned that I could contact my HR department and my wife's HR department to see if they knew what the plans offered. Obviously, patient choice is not maximized with private insurance; you take whatever your employer offers you.)

Obviously, a single payer system has no need to waste money on advertising. Under Obamacare, America's hundreds of private insurers will still waste extraordinary amounts of money on marketing and advertising, though Obamacare does take some steps to limit--though not eliminate--these unnecessary costs. Obamacare stipulates that each insurer have a "medical loss ratio" of at least 80%.* This means that for every $1 an insurer collects in premiums and coinsurance, at least 80 cents must be spent on health care; the remaining 20 cents can be spent on anything else (administrative costs, advertising, etc). (It's telling that insurers, who ostensibly exist to serve their customers by paying their medical bills, refer to spending on health care as a "loss".) Single payer's cost savings are due in part to a lack of advertising.

Actuarial criteria
Obamacare also requires all private insurance plans to meet certain actuarial values in order to qualify as plans that can be purchased with sliding scale assistance. The nature of these regulations is obviously beyond the scope of this blog post; nevertheless, it is an instructive example of just how complicated the law is. This is an additional job for actuaries at insurance companies to take on; HHS must hire professional actuaries to verify that every single insurance plan offered by the hundreds of different insurers complies with these complicated actuarial rules, and this doesn't happen for free. Median annual salary for actuaries is $94,000 plus benefits. Obviously, none of this is necessary in a single payer system.

For those who receive financial assistance for private health insurance, the government pays some of their cost-sharing (copays, coninsurance, or deductible) according to a complicated formula. Obviously, this adds to the administrative complexity for both HHS, insurers, and beneficiaries. None of this cost is incurred in a single payer system.

If you've made it this far, I commend you. Few things are more boring than social policy administration--yet the importance cannot be overstated. The cost savings single payer has over Obamacare are staggering.

Unfortunately, I'm not aware of much single payer advocacy in this country. Single Payer Now is active in California. Much of the best research on the advantages that single payer health care systems have over the American health care system comes from Physicians for a National Health Program, but membership is almost exclusively physicians (who are increasingly supportive of single payer).

UPDATE (10/30/2014): I hadn't come across data on the change in uninsurance rate in 2014 due to the implementation of Obamacare until after this post was published. The New York Times created an interactive based on Enroll America data that show that the American uninsurance rate fell from 18% to 13% in 2014 as a result of Obamacare; in other words, about ten million more people have health insurance as a direct result of Obamacare, and this tally would be slightly higher if every state had implemented the Medicaid expansion as the law originally intended.

This has led to many overheated proclaimations of the law's success; for example, Sarah Kliff gushes that "Obamacare is becoming a huge weapon in the fight against inequality."

As I made clear above, any drop in the uninsurance rate is a welcome development. But it's difficult to be impressed with a law that was passed in early 2009 and only started reducing the uninsurance rate in 2014. Single payer would have achieved full universal coverage in a much shorter period of time at a much lower cost. Single payer would have been a much stronger weapon against inequality. As discussed above, universal coverage was never a goal of President Obama or the Congressional Democrats who drafted the legislation.

Obamacare only looks like a success in comparison to our system before the law's key reforms were implemented. But we should not forget that single payer would easily surpass each and every positive effect of Obamacare.

*The 80% medical loss ratio is actually very misleading, for three main reasons:
  • First, it's worth pointing out--as I did in part 2--that single payer health insurance systems have far higher medical loss ratios, over 90 or 95%. 
  • More importantly, part 2 also presented evidence that private insurers are unable to negotiate the low prices of single payer systems; if a single payer insurer pays $7,000 for a surgery that a private insurer pays $10,000 for, then the medical loss ratio becomes a secondary concern. Obamacare supporters may bluster about being tough on insurance companies with medical loss ratio reform, but it is no more than a secondary concern. 
  • Finally, while the term "medical loss" may seem to imply money that is only spent on medical care, much of the "medical loss" is still lost to administration--because any administrative cost incurred by health care providers is counted as medical loss. As part 2 explained, health care providers in multiple payer systems can have up to ten times the administrative burden as providers in single payer systems. By failing to reform administrative waste on the provider side, the medical loss ratio reform is again a secondary concern.

UPDATE (July 2015)
Himmelstein and Woolhandler use CMS estimates to calculate expected increase in administrative costs caused by Obamacare for 2014-2022:
“Between 2014 and 2022, the ACA will add $273.6 billion in new administrative costs over and above what would have been expected had the law not been enacted,” said Himmelstein. “That's equivalent to $1,375 per newly insured person per year, or 22.5 percent of total federal expenditures for the program.”
Himmelstein and Woolhandler write: “Nearly two-thirds of this new overhead – $172.2 billion – will go for increased private insurers’ administrative costs and profits,” while the rest of the added overhead “is attributable to expanded government programs, i.e. Medicaid. 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.”
They observe that while insuring 25 million additional Americans, as the CBO projects the ACA will do, “is surely worthwhile,” the administrative costs of doing so “seem awfully steep, particularly when much cheaper alternatives are available.”
By way of alternatives, they point to traditional Medicare, which runs for about 2 percent overhead. Were the 22.5 percent overhead figure associated with the ACA to drop to traditional Medicare’s level, the U.S. would save $249.3 billion by 2022, they say.

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