Why the Affordable Care Act is already so expensive

The year was 1965. The U.S. government’s war in Vietnam was increasingly unpopular, especially among the young people being drafted and sent there. The movements of oppressed peoples for liberation were also growing, often inspired by the anticolonial struggles and the resistance of the Vietnamese.

In the U.S., Lyndon Johnson, whose presidency had begun with the Kennedy assassination and all the skepticism that it aroused, was trying to win popular support with what he called a War on Poverty. Congress, under the same pressure to be seen as releasing funds for some butter along with the guns, passed a bill supported by Johnson that set up the Medicare program. It used the power of the federal government to ensure that the elderly, no matter how poor, would have access to health care and added that those using the program could not be discriminated against on the basis of race.

One year later, on July 1, 1966, the Medicare program was rolled out. In that year, “Medicare started paying bills for 18.9 million seniors (99 percent of those eligible for coverage) just 11 months after President Johnson signed it into law.”

The quote is from a revealing article written for the Health Affairs blog by Drs. David Himmelstein and Steffi Woolhandler and posted on Jan. 2 of this year. The authors contrast the cost involved in rolling out Medicare with what is anticipated for the Affordable Care Act.

Their conclusion? That the ACA will cost hundreds of billions of dollars extra to provide insurance for fewer people — because of the complex and confusing rules demanded by the for-profit health care industry.

Looking at the various expenses involved, the authors estimate that getting the ACA’s health exchanges up and running and hopefully enrolling 7 million people will cost more than $6 billion in its first year.

By contrast, Medicare, which was set up under the Social Security Administration, cost $120 million ($867 million in 2013 dollars) and enrolled 18.9 million seniors in its first year. This included the cost of medical treatment for those enrolled. The costs incurred in setting up the ACA are only for the health exchanges themselves. Once people sign up for the new insurance, most will be paying for it out of their own pockets, although there will be subsidies for the very poor.

“Signing up most of the elderly for Medicare was simple; they were already known to Social Security Administration, which handled enrollment,” write Himmelstein and Woolhandler. “To find the rest, the feds sent out mailings to seniors, held local meetings, and asked postal workers, forest rangers and agricultural representatives to help contact people in remote areas. The Office for Economic Opportunity spent $14.5 million to hire 5,000 low income seniors who went door-to-door in their ­neighborhoods.

“Despite predictions of chaos, and worries that the newly-insured seniors would flood the health care system, there were few bottlenecks. Hospitals continued to operate smoothly and no waiting lists materialized. The only real ‘glitch’ was that many hospitals in the Deep South initially refused to integrate their facilities — which Medicare required for certification and payment. But by the end of the first month, 99.5 percent of hospitals had signed on.”

What has made the rollout of the new plan so expensive?

‘Single payer plan could save billions’

The authors say that “complexity is ‘baked in’ to the design, just as simplicity was ‘baked in’ to Medicare. [The ACA’s] exchanges must coordinate thousands of different plans, with premiums, co-payments, deductibles and provider networks that vary county-by-county; Medicare offered a single, uniform plan. The exchanges must calculate subsidies for each applicant after first verifying income, family size and immigration status; Medicare offered free hospital coverage, with a minimal ($22) uniform premium for doctor coverage. Instead of setting up a new bureaucracy to collect premiums from millions of enrollees and funnel them to private insurers, Medicare relied on the existing payroll and income tax system to garner funds.”

The ACA’s “byzantine complexity reflects the contortions required to simultaneously expand coverage and appease private insurers. And private insurers will exact a steep ongoing toll. Medicare’s overhead is just 2 percent, vs. an average of 13 percent for private plans (on top of the Exchanges’ costs, roughly 3 percent of premiums). A single payer plan that excluded private insurers could save hundreds of billions in transaction costs.”

Single payer is not socialized medicine — that is, free, universal health care like what exists in Cuba and other countries that have overthrown capitalism. But it would be a lot better than the ACA, which in turn may be better — for most people — than no insurance at all. But the health-for-profit industry is the main winner, so far.