Obama’s Logic on the Cost Curve is Bent, and so are his views on Young America


The final bill [will] make sure that people are getting the care they need and the checkups they need and the screenings they need before they get sick — which will save all of us money and reduce pressures on emergency rooms all across the country.

– President Barack Obama, December 15, 2009

Don’t spend your beer money on insurance.

It sounds logical.  We’ve all heard stories, and the President has repeated them, about people who go to the ER to handle situations that could have been treated by a general physician.  Early treatment, the argument goes, reduces the cost of health care by reducing emergency room visits. What we need is a government solution to this problem.  But the problem here isn’t one caused by the health care industry, greedy hospital owners, or “the system.”  The problem is one created by the government. 

The Emergency Room scenario – when people who lack insurance visit the ER to deal with medical problems rather than seeing a family doctor –  is a result of federal law passed in 1986 which requires hospitals (those that receive Medicare funding, which is almost all of them) to treat patients in the emergency room regardless of ability to pay or citizenship status.  The fact that ER costs have increased since the law was passed shouldn’t come as any surprise.  From a mere accounting standpoint the law opened Emergency Room doors to people who previously wouldn’t have been able to afford the expense.  That shouldn’t be construed as an endorsement of a market system that turns away people who can’t pay.  It’s merely an observation that increased access will result in increased expenses.  When you mandate that hospitals provide emergency services for free, people will come.

So now we hear a lot about “bending the cost curve” – fancy language for trying to reduce the amount of money we spend on healthcare as a nation.  It still sounds logical that shifting more people to low-cost preventative care would reduce the reliance on expensive Emergency Room visits, hence lowering overall medical expenses.  Making that argument, however, compares apples to oranges.  Subsidizing the cost of healthcare to individuals doesn’t do anything to control the price of healthcare in general.  The subsidies only offset the out-of-pocket expenses paid by the consumer.

The ironic and unintended consequence here is that by reducing costs to the buyer through subsidies, consumers will tend to demand more of a good or service.  After all, if the government decides to pick up the tab for washing my car, I’m going to get my car washed more often.  This higher demand, brought on by lower personal costs, drives up the overall demand for a good or service.  When demand goes up, so does the cost of the good or service and the total amount spent.  Look at what happened to higher education, where student loans and grants – aimed at helping individuals – had the unintended effect of driving up college tuition.  The same thing will happen in the health care industry.  It already has.

A recent study in the state of Oregon found that people who receive Medicare subsidies to offset the expense of healthcare tend to go the doctor more often.  This initially sounds like a good thing and exactly the behavior the President is counting on.  He wants to keep people out of the emergency room.   But it turns out that when the personal expense of healthcare drops, and people use more of it, the expenses increase rather than decrease. In the Oregon study, the people who received the subsidies actually ran up higher medical expenses – about 40% higher – than the people who didn’t receive the subsidies.  Many of these expenses were generated by – get this – increased use of the ER as well as a primary physician.  That’s because the subsidized people didn’t worry as much about the cost of the medical treatment, whether going to the family doctor or the ER, because their out-of-pocket expenses were reduced.  Whatever gains in preventative care were made, the subsidized coverage made going to the doctor and hospital even more attractive to a whole lot more people.  So yes, more people now have access, but this greater access also means greater expenditures in the health care market. 

OMG! He’s hot. Good thing Obamacare covers the pill.

The very premise of reducing the cost of healthcare to individuals via government subsidies has very little to do with controlling how much we spend on healthcare as a nation.  In fact, it will most likely have the opposite effect.  None of this would matter if everyone were footing their own bill, but that’s not the case.  Subsidies involve moving money around from those who have it to those who don’t.

There is this theory that if the ACA program can force young, healthy people into the exchanges that their contributions will offset the expenses incurred by older, less healthy people. But this has nothing to do with overall spending or reducing how much we spend on healthcare. It only serves to reduce the out-of-pocket expenses for one group of people by taking money out of the pockets of other people – namely healthy, hardworking twenty-somethings – while the overall costs and amount we spend on healthcare will continue to rise.  But to pull off this card trick, Obamacare has to pull in young people.  Hence the nature of the official Obamacare ads.  Apparently the new law is designed to appeal to young adults by treating them like responsible, civic-minded citizens.

It’s a good thing the new insurance also covers anti-depressants.

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