Costs of Government Administration of Health Care to Almost Double in Ten Years

This week’s report by staff of the Office of the Actuary of the Centers for Medicare and Medicaid Services concluded that the last few years of muted increases in health spending will soon be ending. Health spending will resume its upward march:

The combined effects of the Affordable Care Act’s coverage expansions, faster economic growth, and population aging are expected to fuel health spending growth this year and thereafter (5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the average rate of increase through 2023 is projected to be slower than the 7.2 percent average growth experienced during 1990–2008. Because health spending is projected to grow 1.1 percentage points faster than the average economic growth during 2013–23, the health share of the gross domestic product is expected to rise from 17.2 percent in 2012 to 19.3 percent in 2023.

While there was nothing very surprising in the report, there was at least one thing that was underreported by the media: The astonishing increase in “government administration” of health care.

Government administration cost $35.1 billion in 2013 and will cost $66.7 billion in 2023 – an increase of 90 percent overall and a compound annual growth rate of 6.63 percent. To put that in perspective, those costs were $29 billion in 2008, so they grew at a compound annual rate of only 3.61 percent in the subsequent five years. That is: The increase in bureaucratic costs associated with the introduction of Obamacare will pale in comparison with their future costs. Government spending on actual public health will increase by a significantly smaller compound annual rate of 4.84 percent, or 47 percent overall.

The cost of private bureaucracy will also increase. “Net cost of health insurance” will increase from $174.5 billion to $341.0 billion, a compound annual growth rate of 6.93 percent. The rate from 2008 through 2013 was only 4.62 percent. As for spending on actual medical care, that will grow at a slower rate over the next ten years. Spending on physicians and hospitals will grow at compound annual rates of 5.78 percent and 5.95 percent.

Supporters of centralized federal control of health care tout its supposed efficiencies. For that to happen, the costs of administration would have to grow at a slower rate than spending on actual health care. The opposite is happening. Government control of health care has grown well beyond its optimal span and scope.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.