Ex­pand­ing health in­sur­ance cov­er­age saves money.

The Washington Post Sunday - - OUTLOOK -

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.

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