Obamacare Will Increase Healthcare Spending and Increase the Deficit

Healthcare spending went up in Massachusetts under Romneycare because when more people pay into the healthcare system, more people demand more care. (Romneycare: More ER Crowding, Longer Doctor Wait Times)

Even if Romneycare didn't exacerbate existing problems, it did nothing to solve them. (Defending Romneycare (Because Romney Won't Do It))

If you spend more money on something, the cost goes up. Now, if you spend money on capital investments (expand the supply), you can get lower costs in the long-run. Healthcare spending by the government and the push to get more people insured does not lead to higher healthcare supply, however, it leads to increased demand. Any proposal to reduce healthcare costs would simply do one of two things: it will cut demand or increase supply.

11 Pieces of Obamacare Conventional Wisdom That Shouldn’t Be So Conventional

2. Accountable Care Organizations are certain to bring down overall health spending .

The un-obvious reason that we shouldn’t be too confident in the ACO revolution is that bundling payments this way encourages -- in fact, nearly requires -- doctors to band together in much larger practice groups. A small practitioner with a few hundred patients is extremely vulnerable to the possibility that some of those patients will end up requiring much more treatment than their health status classification would predict. A few of those, and you’ve lost money for the year. And what if those patients are also extra-expensive next year? Bankruptcy court looms. So you need a very large practice to make the financials work, so that you can be sure that the extra-expensive patients are balanced out by some extra-cheap ones. This also makes it easier to manage a patient’s entire set of health problems within a single practice.

But as the participant pointed out, consolidation is one of the things that is known to drive up prices in health care markets. When you’re an insurer negotiating with 2,500 individual doctors, you have a fair amount of leverage to keep their fees down. When you’re negotiating with four large practice groups, suddenly you’re not so powerful, because you might lose customers if your policy excludes a quarter of the doctors in town. So it’s not yet clear whether ACOs are actually going to lower costs -- or even work at all.

3. Obamacare works because it gets money from deadbeats who go to the emergency room and then stiff the rest of us for the cost. Actually, hospitals have a pretty effective mechanism for collecting money from the deadbeats: debt collectors. Uncompensated care is definitely a problem, and it will almost certainly fall under Obamacare. But in Massachusetts, which achieved much higher coverage rates than most states will see (90 percent of the state was insured when they started, and they have comparatively few illegal immigrants), such care fell by less than half between 2006 and 2010.

Moreover, this is a relatively small amount of overall health spending -- about $62 billion in 2009, on total health spending in the trillions. Obamacare mostly works by getting young and healthy people to spend more on health care than they otherwise would, thus subsidizing older and sicker people. You can argue that this is unfair, or that it’s merely a down-payment on their own future as old and sick people. But either way, this is the real mechanism for making the insurance expansion affordable to individuals, and the government.

7. Obamacare will reduce the budget deficit

You’re starting to hear noise on the left about getting rid of the employer mandate entirely; it’s proven very difficult to implement, and there’s also fear that it will result in people having their hours cut back, or losing their jobs outright. But that would be extremely expensive. Here’s my colleague Ezra Klein in 2009, describing what an early version of Obamacare looked like without the employer mandate: “It would’ve cost, in other words, 70 percent more and covered 20 percent fewer people.” The difference, he goes onto explain, is the mandate.

10. Obamacare will bend the cost curve.

One more point I heard made at Brookings last week: The consensus about Obamacare among health economists is narrower than the range of opinion among the broader community of public intellectuals, and much narrower than that in the general public. Mostly the experts think that it will be good for the individuals it covers, but that the other beneficial effects promised -- such as bending the cost curve -- aren’t particularly likely. Increasing the demand for a service does not usually drive the price of that service down, especially when supply is constrained, as the supply of doctors is in the U.S.