We have identified costs to the private sector to implement these standards. Although these costs are unfunded, we expect that they will be offset by subsequent savings as detailed in this impact analysis.
Most costs will occur in the first 3 years following the adoption of the HIPAA standards, with savings to health care providers and health plans exceeding costs in the fourth year. Five-year costs of implementing the HIPAA standards are estimated at $ 5.8 billion for health care providers and health plans combined. Savings to these entities over the same period in electronic claims processing, other electronic transactions (e.g., enrollments and disenrollments), and manual transactions are estimated at $ 7.3 billion, for a net savings of $ 1.5 billion in 5 years.
The costs to State and local governments and tribal organizations are also unfunded, but we do not have sufficient information to provide estimates of the impact of these standards on those entities. Several State Medicaid agencies have estimated that it would cost $1 million per state to implement all the HIPAA standards. However, the Congressional Budget Office analysis stated that “States are already in the forefront in administering the Medicaid program electronically; the only costs--which should not be significant--would involve bringing the software and computer systems for the Medicaid programs into compliance with the new standards.” The report went on to point out that Medicaid State agencies have the option to compensate by reducing other expenditures and that other State and local government agencies are likely to incur less in the way of costs since most of them will have fewer enrollees. Moreover, the Federal government pays a portion of the cost of converting State Medicaid Management Information Systems (MMIS) as Federal Financial Participation -- 75 percent for system maintenance changes and 90 percent for new software (if approved). Many States are in the process of changing systems as they convert many of the current functions in the move to enroll Medicaid beneficiaries in managed care.