Another Problem Obamacare Won't Solve: Health Costs

Great post by Megan McArdle. Excerpt:

"When I talk to smart, educated, well-read people about Obamacare, I generally hear three major points advanced in its favor: first, that it means that people with pre-existing conditions will finally be able to buy insurance for the first time; second, that it prevents young people from free-riding by going without insurance and then sticking the rest of us with the bill for uncompensated emergency room care; and third, that it will allow poor people to go to a regular doctor rather than relying on expensive, unnecessary ER visits. All three rely on a folk conception of how the health-care system works that isn’t quite right.

Take pre-existing conditions. It’s not that this isn’t a problem -- it is. But it’s not nearly as large as so many people I meet seem to imagine. In fact, it doesn’t even seem to be as large as health-care wonks thought, prior to 2010. The health-care law created high-risk pools to take care of this problem, allowing this group of people to buy insurance at subsidized rates. It was projected to cover almost 400,000 people, but ended up covering about a quarter of that number -- and in order to get that many, administrators had to engage in aggressive promotion and relax the qualification requirements.

In part, that’s because we already passed a law to deal with pre-existing conditions, the 1996 Health Insurance Portability and Accountability Act. The law covers a lot of ground, but one of the things it does is ensure that you’ll be able to keep buying insurance if you already have it. Even before that, individual policies often had a feature called “guaranteed renewal,” which allowed you to keep renewing even if you got sick.
And in many cases the problem for people with pre-existing conditions was not necessarily that no one would sell them insurance, but that the insurance people would sell them cost more than they wanted to pay. That’s a very different problem from “can’t buy it at any price” -- but the latter is the problem that most people thought we were solving with Obamacare.

Or look at uncompensated hospital care, another area where Obamacare was supposed to make a big difference. Like pre-existing conditions, uncompensated care is a real problem. But it too, is much smaller than people imagine. The American Hospital Association estimates that uncompensated care cost $41 billion in 2011. This in a nation that spends more than $2 trillion a year on health care. Reducing this cost would make hospitals happy, but it is not going to noticeably lower health-care costs, or transform American health care.

And then there are the uninsured people who use the ER, from whom we hoped to glean fabulous health-care savings. Oregon suggests that insurance status isn’t the main reason that people are using the ER for less severe conditions. And if you think about your own life, is that such a surprise? I have resorted to the emergency room more than once for something that I theoretically could have gotten treated by a primary care physician, and insurance was never the driving factor; I went to the ER because I was traveling far from home, because it was outside of normal business hours and I didn’t have a regular doctor I could call, or because I tried to nurse along an infection that turned severe. The cure for this was not to change my insurance; it was the myriad urgent care options that are flowering across the U.S.

This is true of most of the middle-class people I know. Why did we assume that the poor were any different? 

Obamacare mostly solved a quite different problem: the fact that health insurance and health care are expensive. It probably isn’t going to lower costs, or dramatically alter mortality rates, or turn obese diabetics into marathoners. On the other hand, it probably will improve the financial stability of a lot of low-income households, while raising costs (and taxes) on the more affluent. As Finkelstein said to me: For an economist, insurance is a financial product, health insurance as much as life or auto insurance. Auto insurance probably doesn’t improve your driving much, but it does protect your assets if you’re in an accident. It may not be what we expected Obamacare to do ... but it’s probably what we should have expected."