mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Prices Prices Prices
Obamacare's Naive Bargain with Hospitals

When Obamacare was first debated, many supporters argued that it would do as much to make health care more affordable as to expand access to insurance—hence, as Nancy Pelosi still insists, the name the “Affordable Care Act.” But there’s was also a class of supporters who realized this was misleading, and sought to cast Obamacare as what it is: a program that expands insurance but does little to bring down costs.

Now that position is getting more and more traction. Vox has a helpful listicle up on what insurance can and cannot do. Though in the end it’s intended as a defense of the ACA,  the piece does a good job summarizing a lot of the research on health insurance. It points out the insurance has costs and benefits: it can help financially struggling families, but it also increases unnecessary ER use and inflates health care spending. Most importantly: expanding it does not, on the whole, reign in costs.

There are some omissions throughout. Oddly, the article mentions the Oregon Medicaid study twice early on but fails to note that study’s most controversial finding: that there were no significant physical health differences for those with Medicaid and those without it. But overall it’s a useful primer on insurance—until you get to the end. Item number 11 (the last item in the listicle) is entitled “we needed to increase insurance coverage before we tried to restrain health spending.” Here’s the argument for why, which the piece quotes from an earlier article by Len Nichols:

Fiscal hawks will still ask why we can’t contain cost growth first and expand coverage later. This is a fair question — although the Congressional Budget Office has determined that both the House and Senate health care bills reduce the deficit, and a choice that forces the growing number of uninsured to wait another decade would, in my view, be immoral. Nevertheless, the simple answer to the hawks’ question is that it is not feasible to tackle costs without tackling coverage. Our delivery system could not withstand the stress. Two thirds of hospitals lose money on Medicare now. Virtually all lose money because of Medicaid underpayment. To impose serious delivery reform and incentive realignment while leaving hospitals on the hook for the mounting billions of dollars in uncompensated care would bankrupt many and strain most to the breaking point. With expanded coverage, we’ll get absolutely essential hospital cooperation. Without expanded coverage, hospitals will have to protect themselves from change, and their local communities will want them to.

This, in essence, is the argument: if we force more people to use hospitals, hospitals will return the favor by lowering costs. There’s a lot to say about this, but will content ourselves just with the following observation.  In 2011 to 2012 hospital prices for basic procedures increased by as much as four times the national inflation rate. And though the FTC appears to be getting more aggressive in breaking up medical monopolies, hospitals continue to merge and absorb private practices, jacking up prices even more. Meanwhile, a small number of doctors are becoming rich off of Medicaid overpayment—and lets not forget the high salaries that hospital CEOs earn and the guild-like behavior that keep salaries for hospital doctors higher than they should be.

The belief that more customers would lure hospitals into slashing prices looks increasingly naive, don’t you think?

Features Icon
show comments
  • Jersey McJones

    I believe the theory goes like this – the hospitals no longer have to be the first line of service, that gets passed over to private practices, so the hospitals will be free to concentrate on other things they should be doing (we do have a large aging population right now), and now we audit them, so we know much more about how and why they spend and can reduce even further there, going after they’re producers, etc.

    It’s too early to see how or whether at all that will work, or how hospitals will fare in the end.


  • Andrew Allison

    Leaving aside the naivete of ACA, this post (like its predecessors on this topic) demonstrates confusion about insurance in general and medical insurance in particular. Insurance has absolutely nothing to do with helping financially struggling families, ACA is about is subsidizing insurance for them at the expense of those marginally better off. This is simple extortion requiring purchase of inflated price insurance by some in order to provide below market insurance for others. While it is hardly surprising that providing subsidized insurance results in abuse, the proposition that it increases ER use is suspect: part of the rationale of the ACA is that the ER (which is required to provide care to all) has been the refuge of the uninsured. If providing insurance increases ER use, there’s something dreadfully amiss.

    • SisyphusRolls

      Oregon saw the same increase in ER usage for Medicaid expansion. People with insurance may have less concern about the costs of using the ER for non-acute problems.

      • Andrew Allison

        True, but (another recording) Medicaid is not insurance but welfare. As such, it is even less popular with providers than Medicare and goes to the supposedly indigent.

  • R. Howell

    Costs are “reined” in, not “reigned” in.

    • M Snow

      True, but with Obama royal references are always appropriate.

  • Gary Hemminger

    Does anyone seriously think that less hospitals + same number of doctors + more regulation + more patients = lower costs? What planet do they live on?

  • ljgude

    Your problem America, should you choose to accept it, is that you went into the ACA at 16%of GDP for healthcare which is double the OECD average which produces the same health outcomes for half the price. The ACA caps increases at 17.5% of GDP by 2017. It has always been going to cost more. I suggest Peter Brill’s Time Magazine article last year entitled ‘Bitter Pill.’ The healthcare system already had unsustainable costs before the ACA. No one is going to rein them in with 1.5% of GDP up for grabs.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service