Center for American Progress

Health Reform Repeal Would Incur Billions in Administrative Costs
Article

Health Reform Repeal Would Incur Billions in Administrative Costs

Repealing the Affordable Care Act would hurt consumers who today buy insurance on the individual market.

Part of a Series

Opponents of the Affordable Care Act are threatening to repeal the new health care law and all the advantages it provides the American people. If they succeed, they would essentially reinstate the individual insurance market as the primary coverage option for those who don’t receive health insurance through their employer. This market has continually failed to provide Americans with affordable, quality health care coverage.

Among its many limitations, the individual insurance market is extremely inefficient. This is largely because individuals seeking coverage on their own have no market strength and are not able to purchase coverage that spreads risk across a diverse group of enrollees, which also makes these policies more expensive. Insurers sell individual policies one at a time, which increases the marketing and paperwork costs for each policy. In contrast, large employers purchasing group policies buy in bulk, have negotiating power with insurance companies, and are able to spread the risk of expensive health care needs across a large population of workers.

In addition, those who buy coverage on the individual market are usually subject to costly screening processes, which insurers use to assess an applicant’s risk. Insurers look at factors such as an applicant’s age and health status to determine whether to provide or deny coverage and how to price the policy based on the applicant’s likely need for health care services. This underwriting process adds to the administrative cost of policies sold in the individual market, and insurers pass these costs off on consumers. Altogether, our $2.6 trillion health care system spends over $160 billion on administration that does not go toward paying for health care.

The Affordable Care Act will reduce these administrative costs by establishing state-based health insurance exchanges by 2014 and creating new rules for health insurance plans. The Center for American Progress estimates that when fully implemented, the Affordable Care Act will result in more than $1.3 billion of annual savings in administrative spending and up to $7.2 billion of savings from 2014-2019 for the 5 million individuals who will likely transition from buying coverage on the individual market to buying it in exchanges, according to the Congressional Budget Office.

For more on this topic please see:

Explore The Series

Previous
Next