Sunday, July 26, 2009

Is Health Care Reform Really Costly?

Here is something I don’t understand. The biggest current issue in the health care reform debate is, how much will it cost, and how can we cover that cost? What I don’t think I understand is this: are we just looking at the cost to the Federal government? If so, that’s a pretty narrow view, I think.

Look at it this way. Currently, about 47 million people are uninsured. When they get sick and are hospitalized, they get astronomical bills, as we all do. Since they are uninsured, they might pay some of it or all of the bill, but frequently pay none of it and/or declare bankruptcy. The hospitals thus don’t receive recompense for their services. The hospitals say that they spread this cost to all those who are insured by keeping their rates high, and collecting enough from insured patients to cover their expenditures for the uncovered.

Now, say that health reform leads to most of the currently uninsured become insured. Insurance money now flows from the Feds and people now required to purchase insurance, to the insurance companies and into the hospitals (and other providers) where it didn’t flow before. That’s more income for the providers. There is no change in utilization from before; the only change is where the money comes from and how it is distributed. The government helped to supply the money for the insurance, but now the hospitals get money they didn’t get before. If the hospitals keep their prices high, they benefit from the transfer from the government. If they lower their prices because they now would have no need to spread their loss, then insurance prices could decline, incomes would increase because of lower health insurance costs, and higher taxes would flow to the Federal government. The problem would be disgorgement of new-found profits from hospitals, not an easy problem to fix, but fixable.

In addition, if it is true that the uninsured now utilize emergency rooms disproportionately, and if they were insured they would switch to doctors’ offices which would be less expensive, we would be looking at a true decrease in utilization and a true decrease in cost.

The point is, it would seem to me quite possible that the true cost to society would be stable or decline if we were to follow the broad outlines of current insurance reform proposals. The problem with costliness would be in the Federal government budget, but the nation’s wealth would either be unaffected or perhaps increase. Looked at this way, it is simply a problem of reclaiming the Federal government’s investment, rather than actually looking at an increase n national expenditure.

Or am I wrong?

Budd Shenkin

1 comment:

  1. A question for Lee Friedman. It seems to me that the assumption underlying the cost estimates for health care reform is insured people access the health care system more than uninsured, even though when uninsured use the health care system they go to the emergency room. There are up front costs and downstream benefits. Now, however, I understand that a large amount of the savings comes from reductions in medicare, which are politically untenable. I am not sure we have a plan that will actually work to reduce costs.