Wasted.

While this working paper from Mark Duggan, Amanda Starc, Boris Vabson is about Medicare Advantage I think its provides some insight into the core problem with the entire design of the Affordable Care Act’s coverage expansion. It looks at what was the result off the government overpaying for seniors in Medicare Advantage, which is an exchange where seniors shop for subsidized private insurance. From the summary:

Our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of Medicare recipients enrolled in [Medicare Advantage] plans. Our findings also reveal that only about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures.

If you spend a lot of money on a Rube Goldberg system with middle middlemen some benefits will trickle down to regular people but huge amounts of money will be eaten up in profits and waste.

I don’t doubt the Affordable Care Act will actually help some people, but at an exorbitantly inflated price because of how inherently wasteful the design is. This creates a needless burden for all taxpayers and premium payers on the exchanges.

Many more people could have received significantly more help for the same cost. Now any attempt to really fix the ACA will require clawing back this overspending on private insurers, who will get to use this unjustified windfall for the taxpayers to lobby the government against any future reforms that would save the taxpayers money.

Photo by thinkpanama under creative commons license