There’s an oft-expressed view that getting all those people covered could actually save the health system money. The argument goes something like this: Once people have insurance, they’ll go to the doctor instead of an expensive emergency room. Or: Prevention costs far less than a serious illness down the road.
…This argument for the cost savings from universal health coverage makes some intuitive sense, but it’s wrong. There’s strong evidence from a variety of sources that people who have health insurance spend more on medical care than people who don’t. It also turns out that almost all preventive health care costs more than it saves.
So begins an informative New York Times article by Margot Sanger-Katz. She points out that the actuaries in 2014 “estimated that health spending that year jumped by 5.5 percent, a bigger rise than the country had experienced in five years. That’s actually not a huge increase by historical standards…But it still marks the end of an era of record-low spending growth in the system.”[ref]The author is careful to note, “Those facts don’t mean that giving people health insurance is a waste of money, since those dollars spent may improve their health and financial security. But there are only a few situations in which giving someone more health care will actually end up saving money.” People of good faith can argue over whether the increased costs are worth it.[/ref] There were three main reasons for this increase:
- Aging of the population and the sickness that comes with age.
- “[T]he improving economy, which will enable more people to afford medical care — or the time off from work it might take to attend to their health needs.”
- Obamacare’s expansive coverage.
It’s the third point that Sanger-Katz spends the article explaining:
There’s evidence about the link between insurance status and health spending from many sources. A famous randomized study of health insurance, started in the 1970s by the RAND Corporation, was designed to answer this exact question. It found that the less expensive you made it for people to obtain medical care, the more of it they used. That follows the pattern for nearly every other good in the economy, including food, clothing and electronics. The cheaper they are for people, the more they are likely to buy.
That finding was echoed recently by researchers who conducted another randomized controlled trial — this one of uninsured low-income people in Oregon. Low-income Oregonians who wanted to sign up for the state’s Medicaid program were placed in a lottery. Only some got the insurance, but the researchers tracked both groups. In the first year, they found that the lottery entrants who were given Medicaid spent more on health care than those who remained uninsured.
This is virtually what Nathaniel laid out over two years ago in his comparison of health insurance to a hypothetical food insurance. This is because the situation is, as noted above, basic economics:
One of the reasons for the political popularity of price controls in general is that part of their costs are concealed…Price controls are therefore particularly appealing to those who do not think beyond stage one…Artificially lower prices, created by government order rather than by supply and demand, encourage more use of goods or services, while discouraging the production of those same goods and services. Increased consumption and reduced production means a shortage…Quality deterioration often accompanies reduced production…Quality declines because the incentives to maintaining quality are lessened by price control. Sellers in general maintain the quality of their products or services for fear of losing customers otherwise. But, when price controls create a…shortage-fear of losing customers is no longer a strong incentive.[ref]Thomas Sowell, Applied Economics: Thinking Beyond Stage One, Revised and Enlarged Edition (New York: Basic Books, 2009), 54-55.[/ref]
Am I reading correctly that most of the evidence cited in the article measures the value of preventative care before the problems thus prevented would have caused the massive health care expenditures the preventative care is intended to prevent would have happened?
By this logic, providing no health care for anyone would save the most money. Currently, many people go without needed medication and visits to their doctor (if they can afford one) because of costs. I suppose that’s saving money. It also costs lives.
But Obamacare is not universal healthcare. And Ms. Sanger-Katz appears to have left out of her equation the enormous amounts of money allocated to what insurance companies spend on advertising, bureaucracy, enormous salaries for CEOs, etc. If we took insurance companies out of the picture and had real universal healthcare, we WOULD save money.
We need to expand Medicare to everyone, as it was originally intended.
Isn’t this a good thing? Yes, it costs money to provide health care. But health care is generally a good thing. Until we see how this affects the quality of life of those who were previously unable to get health care, it’s really unknown whether this is good or bad. Sounds good to me (people who couldn’t (or couldn’t easily) get health care before now can – yay!), but it sounds like, to you, it is a bad thing. If there is no difference in quality of life for those affected, then you would be correct.
Kelsey-
In general, no. First: testing isn’t free. Even if early detection is cheaper, if you have to test an entire population it might not make the testing + early detection cheaper than the no-testing + late detection.
But the bigger problem is that early detection is often not cheaper. The grim reality is that if you wait to the last minute to detect cancer, the cost is very cheap because the person doesn’t live very long. If you find it earlier, you actually will treat it for a much, much longer time because the person is likely to survive much longer.
So, while prevention is often cheaper than fixing something, early detection isn’t actually prevention. It just means starting treatment earlier and having a longer period of treatment. Which is often more expensive.
That doesn’t mean we shouldn’t test. It just means that we should do it for the right reasons (it saves lives) and not for imaginary ones (it saves money).
Victoria-
By this logic, providing no health care for anyone would save the most money.
That is absolutely correct. The only free health care is no health care.
And Ms. Sanger-Katz appears to have left out of her equation the enormous amounts of money allocated to what insurance companies spend on advertising, bureaucracy, enormous salaries for CEOs, etc. If we took insurance companies out of the picture and had real universal healthcare, we WOULD save money.
Typically, about 80% of the money that an insurance company collects goes back out to paying doctors, etc. So out of the other 20%, the insurance company has to: pay salaries, pay for facilities, pay for marketing, etc. Now, the thing is that a government-run insurance company would have the same costs. Government employees are not free. You have to pay their salaries, too. Government buildings are not free. You have to pay their maintenance and power costs, too. And even marketing is required, since a PSA (public service announcement) is also not free: someone has to write it and produce it and then it has to be placed in media ads, etc.
Of course, you probably wouldn’t have very high CEO salaries in a government-run institution, so that’s one money saving possibility. A government agency would also not have to pay dividends to shareholders, so that’s another possibility. There’s not a ton of money to be had here, relative to the scale of the market, because there aren’t that many CEOs and because shareholder profits for insurance companies aren’t very high relative to other sectors. And then you have to consider how terribly inefficient the government is at running much of anything. I mean, have you paid any attention to the VA scandals? The government seems particularly incompetent when acting as an insurance provider. Medicare and Medicaid are also absolutely rife with abuse.
So, you save the cost of a handful of executive salaries and you lose the cost of waste, fraud, and abuse.
Are you really so confident that the government comes out ahead? I am certainly not.
Tanya-
Isn’t this a good thing?
Designing a policy based on something that is factually inaccurate is usually a bad idea. If we choose to do X based on the idea that it will save us money, but it costs us money, it’s always a good idea to fix that incorrect assumption. Of course, we might still decide that X is worth it, even once we realize how much it will cost, but that’s a secondary concern. The first thing to do is get an accurate idea of what we’re actually doing.
Ah, then in that case we’re right on track. We are getting an accurate idea of what happens when people who previously could not access health care are able to. It’s too early for to see the long-term effects, but yes, short term there is a rise in cost.
On a different issue (and this is a sincere question, not a disagreement; I don’t know the answer and figure you might), you said in another comment, “Medicare and Medicaid are also absolutely rife with abuse.” If we had universal Medicare, wouldn’t that drop dramatically? Isn’t most abuse related to people getting care they don’t qualify for according to disability/age/income?