Why Obamacare won’t really drive down U.S. health care costs

Cost-control measures are wishful thinking, says health policy expert

Supreme Court poised to rule on 'Obamacare'

Ted Soqui/Corbis

Everyone knows health care in the U.S. is very expensive. But what exactly are we talking about when we talk about “health care” costs in a system like the U.S.? Two things mainly: One is government outlays on Medicare, for the elderly and the disabled, and Medicaid, for the poor; the other is private expenditures for health care services. The trouble with both is that they are, and have been for some time, rising faster than Americans’ incomes. This makes the whole contraption, as the wonks would say, “unsustainable.”

How does President Barack Obama’s health care law impact this general trend? I asked Yale University’s Ted Marmor, one of the world’s top experts in this field. His answer, sadly, was: not much.

Obama’s Affordable Care Act (ACA), known among friends and foes as Obamacare, does encompass a number of initiatives meant to keep a lid on health-care costs—the problem is that there is no evidence that they will do so in any significant way. They are all “hopeful things,” in Marmor’s words.

Let’s take a look at the specifics. There are four main cost-control beliefs embedded in Obamacare:

1. Digitizing medical records will help us save. Wrong, says Marmor. Eliminating paperwork from hospitals and clinics nationwide is a very costly enterprise. The U.K. and the Netherlands did it and it didn’t make any significant dent in their health-care costs. That’s because the savings of doing away with piles of paper are offset by new costs tied to acquiring and updating the expensive digital tools you need to go paperless.

2. IT improvements in general will help us save. Wrong again, according to Marmor. This is the idea that you can drive down your costs by substituting machines for wage-earning human beings. The evidence in health care, though, is that technology is much more likely to become an add-on, rather than a substitute, for labour.

3. We’ll save by doing more research into what works and what doesn’t in health care, and by eliminating waste. Nice idea but not a basis for thinking that the overall price tag will shrink. Assuming this actually works as advertised, hospitals will find more efficient things to do with their resources. We might get more bang for every buck spent on health-care services, but who’s to say that hospitals won’t find more services to offer? Without any pressure on health-care providers to trim or contain their budgets, they won’t.

4. By preventing illness you’ll prevent higher costs. This one sounds like a no-brainer. Can it really be a false belief too? Yep, says Marmor, and for much the same reason discussed above. Preventative care, when it is successful, prevents patients (or whoever is paying for them) from running into the higher costs of treating whatever illnesses have been prevented. It doesn’t, however, put a lid on overall costs. Prevention reduces demand for certain health care services, but doesn’t necessarily drive down the aggregate supply of services or their average price.

In short, Marmor argues, all of these ideas are about “substitution rather than reduction” — they might change the composition of services the U.S. health-care system offers, but not its overall cost trajectory. They’re laudable initiatives in terms of improving the quality of care, but they’re not really about cost-control. If you keep in mind that every dollar spent on medical services is a dollar earned by whoever is providing them, notes Marmor, there is little evidence that ACA produces any losers.

Having a healthier, better cared-for American population is certainly a plus, but when it comes to economics, no losers generally means no winners.

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