Although the introduction of the Medicare program in July 1966 was not without problems, it was cheaper and smoother than the October 2013 beginnings of the Affordable Care Act (ACA)—mostly because of private insurance companies.

Obstacles faced in 1966 included program ineligibility of segregated hospitals in the South, a boycott by conservative physicians, the inability of many senior citizens to prove their age, and an erroneous belief by many seniors that signing up for Medicare would end their Social Security benefits. But rollout costs were not a big issue. In its first year, the program had overhead costs of $120 million ($867 million in 2013 dollars), including both enrollment and claims processing, but other reforms created overhead savings of $376 million (2013 dollars).

In contrast, according to David Himmelstein and Steffie Woolhandler at Health Affairs Blog, the first-year cost of establishing the ACA health exchanges and enrolling millions will exceed $6 billion—a figure that covers only enrollment, not the costs associated with processing claims.

The reason, they argue, is that while Medicare was designed to be simple, Obamacare was made to be complex. While Medicare offered a single, uniform plan based on the sole eligibility criterion of age, the Obamacare exchanges feature thousands of insurance company plans (each with its own premiums, co-pays, etc.) and a system of premium subsidies based on verifying income, family size and immigration status.

As result, Himmelstein and Woolhandler contend, Obamacare overhead costs are expected to run closer to the 13% average of private insurers than to the 2% average achieved by Medicare. That difference of hundreds of billions in transaction costs represents the cost of the political support of the insurance companies, “the contortions required to simultaneously expand coverage and appease private insurers,” according to the authors. 

-Matt Bewig

To Learn More:

Medicare’s Rollout vs. Obamacare’s Glitches Brew (by David Himmelstein and Steffie Woolhandler, Health Affairs Blog)

HealthCare.gov Debacle Reveals Flaws in Contractor Screening (by Neil Gordon, POGO Blog)