Expanding health insurance coverage saves money.
The Obama administration sold the ACA to skeptics on the promise that it would limit health-care cost growth over time. Healthier people need less care, the argument goes. If lack of insurance is a barrier to health care, and if health care improves health, then expanding coverage should improve health. If poor health is costly, then expanding insurance should also lower costs.
Seemingly in vindication, real health spending growth remained historically low for several years after the ACA’s enactment. Compared with the prior decade, when health-care spending grew at an average annual rate of about 3 percent, from 2010 to 2013 annual growth averaged 1.6 percent. But evidence points to the dregs of the recession as the driver of these results, and, as the major insurance expansions took effect in 2014, cost growth again began to climb.
Costs from increased demand for health services overwhelmed savings from improved health (granted, it has been only three years since the major expansions, and health effects may take longer to manifest than budgetary effects). The Rand Health Insurance Experiment — which ran from 1973 through 1981 — and decades of subsequent work have shown that more generous insurance incentivizes greater use of health services and increases costs. Economists call this phenomenon, more generally, the law of demand.
The myth that insurance expansion will save money highlights the fallacy that a program must save money to be valuable. Expanding health insurance is costly, and perhaps costs even more than it saves, but it is also valuable, because it improves people’s access to care, financial stability and overall well-being.