Throughout the Obamacare debate — which ended just over three years ago — we heard a lot of talk about how the federal government was so much more efficient at delivering health insurance than private firms are. This argument required a willing suspension of disbelief for anyone who has ever even heard of the federal government, much less its innumerable examples of wasteful spending. But that’s what we were told.
And I was reminded of that line of argument when I read this blog post by health-insurance expert Bob Laszewski about the mounting costs of building the health-insurance exchanges that will be central to delivering Obamacare beginning next year.
In California alone, Laszewski reports, federal grants for building an exchange already total $910 million. In New York, it’s $340 million just for establishing an enrollment and eligibility process. All told, this year the feds have awarded $3.3 billion in grants to build and market exchanges — and that doesn’t include several states, including Georgia, in which the federal government will be building the exchanges because the states declined to do so.
But that $3.3 billion must be super-efficient compared to what a private firm would do. Right? Right??
Laszewski says it ain’t so:
For some additional perspective I took a look at what it cost to launch the private insurance marketing site, Esurance. That company sells not only health insurance but also things like homeowners and auto insurance across the country. When I put my zip code into their system along with my age, they offered me 87 different health plans from all the big players in my area. Now granted, the new health insurance exchanges are more complex because they have to interface with Medicaid and the IRS as well as calculate subsidies. But the order of magnitude difference in what it cost to launch Esurance compared to the California exchange is pretty big.
Privately funded Esurance began its multi-product national web business in 1998 with an initial $5.5 million round of venture fund investment in 1999 and a second round of $34 million a few months later. … Even doubling these investments for inflation still leaves quite a gap.
And doubling the investments for inflation actually overstates things: According to the Consumer Price Index, spending $39.5 million in 1999 would be more like $53.8 million today. Or, if you prefer, it would equal 1.6 percent of what the federal government has committed to replicating essentially what Esurance has already created (albeit somewhat more complicated than Esurance, for the reasons Laszewski outlined above).
Excuse me: That’s the super-duper-efficient federal government.
– By Kyle Wingfield