What Has Obamacare Actually Done?

**** I have some links to add to this, but they are on my PC in the office. I’ll add those on Wednesday morning.

Ummm … I hope you get that — informed or uninformed — most people’s opinions about healthcare and healthcare finance are not very sharp.

After several years of Obamacare, there’s now serious research about its effects. The hot new one that economists are talking about is entitled “The Impact of the Affordable Care Act: Evidence from California’s Hospital Sector”.

Obamacare was sold as a lot of different things to different people (it’s a little like the musical “The Music Man”). One important aspect of this that got little attention (or understanding) on the part of the general public is that it required buy-in from the hospital industry. While healthcare is a large part of U.S. GDP, there is always a constant strain of thought that providers are not getting doing well financially, right? So they wouldn’t have signed on without some assurances that the policy was designed to ease their bottom lines.

This is related to the healthcare finance system we had before and after Obamacare. While Obamacare made many modifications, the core principle of the U.S. system remained intact: people seek to attain overpriced private insurance with very broad and deep coverage (often as a job benefit), providers overcharge those customers, and the excess is used to pay for the healthcare of people without coverage. If that excess is not enough, providers have an existential problem. That sort of care is provided for by two types of institutions: 1) county hospitals that must “take everyone”, and 2) hospitals that run on charitable donations.

Discussions of the high cost of the U.S. system tend to miss 3 salient features. First, Americans are not living a comparable lifestyle to most of the comparison countries. This is important because the income elasticity of healthcare is higher than 1 (technically, peoples’ purchases indicate it is a luxury good), so people with more money will buy proportionally more healthcare. Second, healthcare outcomes are better in the U.S. than in other countries: diseases are spotted earlier, and life expectancy after treatment is better (Americans tend to screw up their life expectancy before they get to the doctor). Third, the strong net inflows of “medical tourists” suggest many people are well aware of the second point.

Please note that none of this should indicate that I am an apologist for the U.S. system. I’m just pointing out that the evidence that we get what we pay for, and that we choose to pay for more healthcare because we can, is quite strong and needs to be acknowledged more widely.

So, what did they find?

• Medicaid enrollments are up nationwide. (Medicaid and Medicare are often confused: the former is for the poor, the latter is for the old).
• No increase (in California) in private coverage. In short, the healthcare exchanges were a waste.
• Less people are paying for healthcare out-of-pocket. Combined with the last two, this indicates that all of this change is coming through Medicaid.
• Increases in payments through Medicaid are also heavily substituting for payments that used to be made by county hospitals. Since Medicaid is funded through federal revenues, this amounts to a transfer from counties nationwide that had lower indigent costs to those that had higher indigent costs. In combination with other research, this suggests we are providing more healthcare funding to people who don’t value healthcare very highly.
• The CBO indicates that Obamacare increased federal spending by $120B/yr. That’s a 3% increase in federal outlays (that’s “the budget” that Congress passes), or a 9% increase in federal government expenditures on consumption and investment (the G in Y=C+I+G+X).
• Obamacare has increases access to hospital care, and ER utilization. And people are choosing to go to better quality facilities. However, this effect is not large: utility estimates suggest it is comparable to living 4 miles closer to the hospital.
• No net improvement on healthcare outcomes. Do note that the estimates are positive, but that the variability of healthcare outcomes swamps that and makes it statistically insignificant.
• Hospitals are bringing in more revenue.
• The gains in hospital revenue have gone mostly to those serving more indigent patients (primarily those county hospitals).
• Hospitals do not seem to be spending the increased revenue on improved quality or capital investments. This suggests it is filling holes associated with previous shortfalls.

How can all that best be summarized? How about this: we’re transferring more money from richer to poorer counties, through Medicaid, to provide better coverage to people who didn’t think it was worth the price, but they’re using it, and the hospitals are benefiting, but for the patients it’s a wash.

Trump was notably surprised when he said “Nobody knew hat healthcare could be so complicated.” It seems it may have been more complicated than the Democrats thought when they passed Obamacare too.