Wasn’t Obamacare Supposed to Save Money?

by Veronique de Rugy

“If you like your health care plan, you can keep it” isn’t the only promise about the Affordable Care Act made by the administration and the law’s advocates that didn’t materialize. For instance, we were also told that the law would reduce the deficit, and that increased insurance coverage would reduce the enrollees’ use of emergency departments. As it turns out, neither is the case. As Sarah Kliff reported last week:

As the health-care law expands Medicaid to cover millions more Americans, a new Harvard University study finds that enrollment in [the] public program significantly increases enrollees’ use of emergency departments.

The research, published Thursday in the journal Science, showed a 40 percent increase in emergency department visits among those low-income adults in Oregon who gained Medicaid coverage in 2008 through a state lottery. This runs counter to some health-care law supporters’ hope that Medicaid coverage would decrease this type of costly medical care, by making it easier for low income adults to see primary care providers.

So all the people who claimed that the ACA would reduce the number of visits to the ER were incorrect. There are a few such people named in the article, including Michigan’s Republican governor, Rick Snyder, and HHS secretary Kathleen Sebelius.

The increased number of visits to the ER is guaranteed to add to the cost of an already expensive law. Of, course, that may not be a bad thing if it actually improved health outcomes — but that’s dubious. How much money are we talking about? According to the authors of the study, about $120 per year per additional person covered. ($120 times, let’s say, the 6 million of “new” Medicaid recipients is $720 million per year in “unexpected” expenses.) 

Presumably this means that the law will not be saving as much money as we were told it would, right? Right. In fact, MIT’s Jonathan Gruber, one of the architects of the law and the similar state-level version in Massachusetts, is quoted in Kliff’s story saying that the claims that were made about the law being a money saver were somewhat misleading. Here he is:

“I would view it as part of a broader set of evidence that covering people with health insurance doesn’t save money,” says Jonathan Gruber, a health economist at the Massachusetts Institute of Technology, who has also studied Oregon’s Medicaid expansion but is not affiliated with this study. “That was sometimes a misleading motivator for the Affordable Care Act. The law isn’t designed to save money. It’s designed to improve health, and that’s going to cost money.”

Now they tell us that the law isn’t designed to save money. (This is the same Gruber who very actively promoted the deficit-reducing side of the law before it was adopted and who said this: “The ACA will not solve our health care cost problems, but it is a historic and cost-effective step in the right direction.” He is also the guy whose work was used to create the appearance of a consensus among health economists about the ACA without revealing that he was a paid contractor.)

Incidentally, the point that Gruber is making in that Washington Post quotation (i.e., that expanding coverage cost money), is exactly what my colleague Chuck Blahous has been saying about the law and the tradeoffs it generates (and was copiously attacked for ) in a study of the Medicaid expansion for the Mercatus Center. From that paper:

Some have suggested that expanding insurance coverage could actually save money for the states on balance by reducing their costs of treating the uninsured. While a total evaluation should indeed net such savings against the gross costs of expanding Medicaid coverage, it is unlikely they would fully offset the new costs. . . .

Taking important relevant factors into account, including both the higher amount of health services received by the uninsured and the woodwork effect of newly covering those previously eligible, it appears likely that expanding Medicaid coverage would add substantially to state budget costs.

Blahous adds in an e-mail to me, “Unfortunately, at the time too many ACA advocates refused to acknowledge the fundamental trade-off between expanding coverage and increasing costs, pretending that the ACA would increase coverage and lower costs at the same time. Finally we are seeing some belated recognition of the costs of the decision to pass the ACA in 2010.”

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