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Study: Obamacare increased overhead spending for health insurance

Federal spending on Obamacare pushed overhead spending up to $893 per insured person, according to a think tank study. (AP Photo/Rich Pedroncelli, file)

December 21, 2016

Administrative spending doubled under Obamacare to get people insured, despite provisions in the law aimed at lowering overhead costs, a new analysis says.

Private insurers did reduce their overhead spending per person because of the law, but those savings weren’t nearly enough to offset a big increase in federal spending on healthcare.gov and assistance for some states to run their own marketplaces, according to a paper provided to the Washington Examiner by the American Action Forum.

Insurance companies spent $414 to insure one person for one year in 2013, before the Affordable Care Act’s main provisions went into effect. Insurers’ overhead spending fell the following year, to $265 per person, under a provision in the law capping how much insurers can spend on overhead costs.

But as insurers reduced their overhead spending, the federal government spent $3.63 billion creating and running healthcare.gov and another $6.12 billion on grants to states to help set up their own online marketplaces. When that federal spending is taken into account, overhead spending rose to $893 per insured person.

President Obama’s healthcare law tried to stretch healthcare dollars further by requiring insurers to spend at least 80 or 85 percent (depending on their size) of premium dollars on actual healthcare services, rather than administrative costs. The provision is known as the medical loss ratio, or MLR.

But the law resulted in more overhead spending by dramatically boosting the federal government’s involvement in providing people with health coverage, concluded the study’s author, Robert Book, a health economist and research director at Health Systems Innovation Network.

“Despite the promises of the [Affordable Care Act] proponents, implementing a system of government-run health insurance exchanges did not reduce overall administrative costs, nor did it reduce premiums,” Book wrote.

The paper was published by the conservative-leaning American Action Forum, a policy think tank headed by former Congressional Budget Office Director Doug Holtz-Eakin.