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Medicaid Expansion Is The Opposite of What We Should Do To Fix Healthcare

March 26, 2013

A major goal of national health care policy makers has been reducing the number of uninsured. This is why Obamacare began as single payer, moved to a public option, and finally settled on Medicaid expansion. This insurance-centric policy push is simply wrongheaded. 

The biggest problem with our health care system is rapidly rising costs. Though it’s tailed off a bit the last few years, health care cost growth still outpaces inflation, and insurance premium cost growth far outpace wage increases, putting a major crimp on household budgets. But simply transforming the government into a giant insurance company doesn’t address those fundamental problems.

The transfer of who pays for health care, whether through private insurance or through government, has been a long process. In 1960 a health care consumer – you and I – paid 48% of our health care costs. Today, it’s just 12%. So who pays for it today? Private insurance picks up 30% of the tab. But the government has been the biggest mover, paying for only 24% in 1960 and rising all the way to 48% today.

Think about that. Government, with its price fixing and rigid treatment plans, accounts for almost half of all the health care purchased in this country. And yet policy makers would have us believe the “free market” is the problem.

Over the last 50 years we’ve flipped how health care is paid on its head, and have seen costs rise exponentially. Shouldn’t that set off alarm bells? At the very least a raised eyebrow?

Perhaps most frustrating is that we were warned. We had the data to predict this outcome years ago.

The largest health care study ever was conducted during the 1970s by the nonprofit RAND Corporation. Researchers studied health care outcomes and purchasing behavior of people with free health care and those who paid varying degrees of their health care out of pocket. What they found is equal parts astounding and quite obvious.

First, the obvious part. The group that paid 95% of their own health care costs spent 30% less than the group who got their health care for free. Which of course makes sense.

But what today’s policy makers would have you believe is that when people pay for their own health care they put off wellness check ups and preventative services which results in more serious illnesses and costs later on. But today’s policy makers are wrong. 

Researchers found that the 95% health care payer group not only spent 30% less, but they were just as healthy as the people who had all their health care paid for. In fact, they were just as healthy, just as happy with their providers, used fewer services, and were actually less worried about their health than people who paid nothing.

Doesn’t that sound like a desirable health care policy outcome? Happy, healthy, stress free patients. And a 30% cost reduction to boot! Not to mention a whole lot less hassling with insurance companies.

Tragically, the ACA and its corresponding Medicaid expansion does the exact opposite. Its overriding goal is adding more layers of insurance companies and government sponsored free health care, locking in that needless, wasteful 30% spending increase.

We’ve spent the last five decades ignoring the science behind spending on medicine, and now we’re stuck swallowing the bitter pill of skyrocketing costs. But there is a cure. We need to refuse the ACA’s mandated Medicaid expansion, unwind the dizzying regulatory health care environment, and promote policies that simplify the relationship between you and your doctor.

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2 Comments
  1. Interesting article about Medicaid expansion, but some counter points to consider:

    - The Medicaid expansion only covers half of the uninsured in this country. The other half will have access to exchanges which opens up competition that was previously regulated. This exchange idea was actually conceived by conservatives as an alternative to Hilarycare (as was the tax mandate) in the 90′s, and used by Romneycare.

    - How much will taxpayers save in emergency room coverage if primary care doctors are available? This needs to be part of your equation in calculating impact. In every decision there is a benefit that is assumed. You might not agree the benefit is worth the decision, but there is still a benefit.

    - The 1960 were a significantly different animal. You could be a brick layer in the 1960′s and make a decent wage to pay for a family of four in a middle class environment. Also, your argument makes the assumption that Healthcare costs were pegged to inflation (even though you call out the change in your opening paragraph). You make the statement that 48% of healthcare costs were paid by you and me in 1960. I would be real interested in seeing what percentage we pay today if Healthcare costs were pegged to inflation these past 50 years. I am guessing it would be pretty close to 48%.

    - You make a stereotype that government thinks free markets are the reason for the explosive growth. I disagree. The lack of free market activity is the problem. In 2003 a Medicare bill was passed that made it illegal for the government to negotiate drug prices. There has also been several laws and legislation passed that protect insurance companies from competition (I will let you look up which party drove these changes). It is free market principles that anchor Obamacare, which is why 13% of the US population does not like this legislation due to it not being liberal enough! I am not pretending that President Obama is a free market patriot, but don’t fall into the trap thinking he is an unabashed socialist.

    - Finally – 60 % of healthcare costs occur in the last 10% of your life. For the vast majority of Americans this is when they are eligible for Medicare. If you can create laws that gives incentives to take advantage of preventative medicine (my mother-in-law had unchecked cancer for 10 years — once she was eligible for Medicare, she received the surgery she needed at a ridiculous, and preventable, cost to taxpayers). This also changes your 1960’s argument. How many individuals were receiving chemotherapy and expensive cancer treatment in the 1960’s? Life expectancy has increased by 10 years since then; this is 10 additional years of high cost medicine. If we said anyone past 70 years old is ineligible for healthcare, taxpayer costs would be dramatically reduced (just to be clear I am not advocating). The median age of cancer diagnoses is 67 – so you can understand why Medicare, and healthcare costs continues to climb.

    You might not like the expansion of Medicaid, and the creation of exchanges to cover the uninsured that currently run up our emergency room costs. But since healthcare costs have been climbing at 3-5x inflation for the past several decades, we need to make access to preventative medicine a crucial part of our policies – which Obamacare does.

    • Hi Matthew, thanks for your comment.

      Rather than going through each of your bullets, I’m going to make a broad argument because I think you’ve missed the fundamental point of my post.

      But first I want to respond to your claim that no one is saying health care is a free market. Putting aside for a moment the vast anti-free market health care rhetoric that got the ACA passed, I’ll share a story that illustrates my point. Just yesterday I spoke with (ok, it was on twitter) a doctor who insisted health care was a free market and that was what is wrong with the system. I wrote that half of health care was paid for by the government, that my employer picks my insurance, my insurance picks my doctor, and I never see a single price for any service I use at the doctor. Which to my mind makes it quite clear it’s not a market based system at all. You know what she replied? That she, as a doctor, didn’t see any prices either, and yes it is a free market system no matter what you say! Which obviously doesn’t make any sense at all, but there you have it. I think when you examine the full measure of the health care rhetoric in this country the evidence is insurmountable that people think it’s a free market failure. It’s the rhetoric used to push for public options and single payer plans.

      Ok, so with that out of the way I want to reiterate what the main thrust of my argument is:

      Insurance itself, whether it be private or government, is the cause of rising health care costs.

      It is not a coincidence that over the last 40 years we’ve significantly increased insurance’s role in our health care and at the same time costs have soared. The RAND study showed that the more we are insulated from the price of the health care services we buy, the more services we end up buying. That seems pretty obvious. The problem is that we’ve bought more services but haven’t gotten any healthier.

      And the ACA just doubles down on this misguided journey towards price insulation. It’s centered around insuring more people, and making insurance pay for more things. That is the exact opposite of what the research suggests we should be doing.

      Now, the most common reply to this argument is to bring up some really expensive disease like cancer and say that people can’t afford to pay for treatment without insurance. To which I reply, of course not. So let’s buy insurance that covers those really expensive things. Just like my home insurance or car insurance. Instead of making everyone have insurance that covers everything, let’s follow the research and use HSA accounts with catastrophic coverage. That will reduce costs, make patients happier, keep us healthy, and still prevent catastrophic illnesses from bankrutping us. It’s a win-win every way you look at it.

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