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.

Links worth reading: Jacobin edition

Jeff Bryant on the (predictably) broken promises of the charter school movement

Glenn Greenwald on the American political class's lurching from supporting dictatorship, then democracy, then back again to dictatorship in Egypt

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The next issue of Jacobin is due out very soon. It sure seems longer than 3 months since the last issue of Jacobin was sent out. To hold you over until the next issue, here are some of my favorites from Jacobin so far:

Megan Erickson - The Strike that Didn't Change New York
Llewellyn Hinkes-Jones - Bad Science
Pankaj Mehta - There's a Gene for That
Seth Ackerman & Mike Beggs - Don't Mention the War
Gavin Mueller - The Rise of the Machines
Penny Lewis - The Myth of the Hardhat Hawk

U6 Watch: September 2014

Vox has two articles on the labor market worth reading, both highlighting recently released data that confronts the misleading U3 unemployment rate. A drop in the U3 unemployment rate is not an entirely positive development because:

• Some of the drop in the U3 unemployment rate continues to reflect a drop in the labor force participation rate. This disproportionately affects female workers and is still vastly underestimated by policy makers and commentators.

The development of early maternal health policies in Finland

Note: This post was created to supplement a different post on the Finnish welfare state. For clarity, a long blockquote I wanted to include in that post is instead published here.

The book Birth by Design details several countries' transition to a healthcare system in which childbirth occurs in a hospital, instead of in a family's own home. Lacking hospital infrastructure, impoverished Finland had an additional, intermediary step. Before transitioning to birth in hospitals, the Finnish government expended significant effort to provide professional birth attendant services for in-home births. The the innovative strategies to that ultimately overcame the many difficulties of this process make this decades-long event a classic example of social policy design:

Social democracy succeeds on the strength of its policies, not because of cultural superiority

Image: Flickr user Visa Kopu snaps a photo of her maternity benefit (or "baby box"), sent to every pregnant mother in Finland shortly before her delivery. (source)



This series examines commonly held, racist views on social policy. Part 1 examined the racist idea that social democracy can only work in society that is already harmonious, wealthy, and egalitarian. Even a cursory look at the history of Finland in the early 1900's--desperately impoverished, war-torn, oppressed by occupying armies, society shattered by a brutal civil war--quickly makes these arguments untenable. It also exposes them as racist. Part 2 examined the racist claim that social democracy only succeeds in a homogeneous society. This claim is made untenable (in part) by the experiences of Sweden, which is--by many measures--one of the most diverse nations in Europe. Clearly, minorities are not so evil that their mere presence destroys welfare states. Rather, this view reflects our own racism; when we see statistics that the Swedish educational system is among the very best in the entire world, we assume that there cannot be any students there who aren't white.

This post--part 3--begs the question: If racial, cultural, or genetic superiority cannot account for the success of social democracy--what can?

For this post, we will focus on social democratic child welfare policies (especially infant mortality and childbirth attendance) as an instructive example.

Why do these policies work?
As I've written before, there is no question that social democratic policies are successful. The social democracies as a group have led the developed world in all quality of life indicators, particularly infant mortality and life expectancy, while simultaneously (as a group) leading the developed world in low unemployment and high rates of economic growth. There's no question that the policies work. The question is: why?

The "why" question is of the utmost importance because the conditions of the Scandinavian social democracies in the first few decades of the 1900's--especially Finland--resemble underdeveloped countries in Latin America, Africa, and Asia today. Though prosperous now, the Scandinavian social democracies had endemic poverty and catastrophic quality of life indicators in the early 1900's. For example, Finland's infant mortality rate peaked in the 1930's at a staggering 90 deaths per 1000 live births, which is comparable to the worst infant mortality rates in the world today:


At three deaths per 1000 live births, Finland currently has one of the lowest infant mortality rates in the world. Indeed, the Scandinavian social democracies today have some of the best quality of life indicators in the entire world, even though much of the rest of the developed world had a head start. Is there some reason why policies that worked so well in Scandinavia could not work in the Central African Republic or Mali?

Links worth reading: Obama's very busy week

Obama destroys lives of 70,000 people in exchange for a few votes from white people

• [O]ne longtime activist burst into tears when asked how the decision might affect his friends and family.
• To wait nine more weeks means the President has agreed to deport more than 70,000 people, more than 1,100 every day, and continues cementing his legacy as the Deporter-in-Chief.

3 more years of war in Iraq

• For those who favor air strikes: if, as most regional and military experts predict, it turns out that airstrikes are insufficient to seriously degrade ISIS, would you then favor a ground invasion?...For those who keep running around beating their chests talking about the imperative to “destroy ISIS”: will that take more or less time than it’s taken to “destroy the Taliban”? Does it ever occur to such flamboyant warriors to ask why those sorts of groups enjoy so much support, and whether yet more bombing of predominantly Muslim countries – and/or flooding the region with more weapons – will bolster rather than subvert their strength?
• Is Obama’s new plan something he genuinely believes in? Or does he recognize it’s stupid, and is just doing it for the optics? There’s a dismal precedent for the latter option: His decision to extend what he knew was a dead-end war in Afghanistan for two years because of the bellicose promises he’d made in order to look tough during his first political campaign. That time, he traded about 1,300 American lives for optics.

Economies of scale, avoiding administrative problems, and automatic eligibility: why social democratic/single payer systems are more efficient

Image: source

Update: Part 3 can be found here

Social democratic programs can provide social welfare services more efficiently--higher quality at a lower cost--than other types of public social welfare programs, as well as the private market. My first post on this issue dealt mostly with actuarial values, and for good reason. For all social welfare services--from health insurance to child care--actuarial values are of primary importance; for disability insurance and defined benefit pensions--a category that includes Social Security--actuarial values are the entire story (much more about retirement benefits in the first post on this issue, as well as here and here).

But in my excitement over actuarial values (I'm not like most people), I failed to elaborate the other factors that make social democratic programs more efficient than other program designs and the private market: economies of scale and other administrative issues, mostly centering around eligibility.