Government Work Costs 60 Times as Much as Private Sector

Wednesday, 14 Aug 2013 07:43 AM

By Michael Carr

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Health insurance will soon be available through exchanges run by state governments in some states. Fortunately for taxpayers, most states decided to let the federal government set up a single exchange for citizens in their states to use.

Creating websites capable of allowing consumers to buy health insurance will cost at least $3.4 billion for the 17 states that chose to build their own exchanges.

A private company, esurance, was able to build an exchange 15 years ago with about $40 million in private funding. Allowing for inflation, esurance built the functionality of an exchange for about $57 million in today’s dollars.

States are spending 60 times as much to build their own.

It is difficult to see how states can spend so much more for the same functionality than a private company spent.

Private sector companies like esurance need the same level of security the government agencies are providing. An interface to the IRS to determine who gets a subsidy should cost little since the IRS computers will need to do all the work for that calculation. Infrastructure costs should be lower for states that know about how many consumers will use their systems, while esurance had to size systems for unknown usage rates.

Much of the states’ spending is for outreach to tell consumers about the service. For esurance, this expense was called advertising and served the same purpose except waste could not be tolerated in a company driven by a profit motive.

States will also be spending millions of dollars on employees who will help consumers navigate the exchanges. In the case of esurance, complexity was not allowed since consumers would not tolerate it. Again, the profit motive worked to keep costs down while giving consumers what they need.

There is much to debate about the new healthcare law, but the efficiency of government services should be at the top of that list. If all programs are as inefficient as this one, governments will be unable to meet their inflated costs no matter what future tax rates are.

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