health careNext year the federal government should spend over $340 on each person enrolled in the federally-run exchanges just to operate these marketplaces. My estimates are based on the new Health and Human Services (HHS) budget and Congressional Budget Office (CBO) reports. It puts per enrollee federal exchange spending at $341 for fiscal year 2014.*

To put this amount in perspective, the average premium for an employer-provided single coverage plan was $5,600 last year, which means next year the HHS will spend roughly 6 percent of the cost of insurance just on helping people select private insurance. The private plans bought on the exchanges will also be allowed to spend up to 20 percent of the actual premiums on administrative overhead.

Even though some of this spending maybe short term the start up costs are still a shocking waste.  The federal government plans to charge $450 million in user fees for what should be less than six million people using the exchanges. That is roughly $78 per enrollee.

By comparison, in 1999 the entire insurance overhead for Medicare was only 3.6 percent and for Canada’s provision insurance plans it was just 1.3 percent. The administrative overhead only for the exchanges — just to help people pick an insurance plan — is greater than what many countries pay to actually administrate their entire insurance program. You can operate a public insurance plan for less than it costs to merely run the exchanges to select private plans, which in turn have even more overhead costs.

Even if the competitive nature of the exchanges marginally reduces premiums it will be hard to make up for the significant added cost of running the exchanges to begin with. Theoretically, next year it would be cheaper to hire an army of lawyers to have one-hour sit down consolations with each enrollee.

The byzantine nature of the Affordable Care Act, which creates needless extra layers of bureaucracy, should help ensure the United States remains a country that spends twice as much as any other country on simply administrating health insurance.

*Analysis

According to the HHS budget it plans to spend $1.977 billion (PDF) on running exchanges in 33 states that chose not to set up their own. Next year $1.527 billion will come directly from federal spending and $450 million from user fees.

The CBO projects nationwide 9 million people will enroll through the new exchanges; 7 million individually and 2 million through employers.

Since the HHS could not provide a breakdown of how many people they suspect will use the federally run exchanges I divided the CBO totals by population. These 33 states contain roughly 64 percent of the population, which should mean around 5.8 million will use exchanges run by the federal government.

Photo by Images Money released under Creative Commons License