Health Economics: One Expert’s Take on Obamacare & National Health Objectives
A healthier nation is a more productive nation. According to a study published in Social Science and Medicine by Dollard and Neser earlier this year, there is a direct link between health, mortality and GDP. The authors advise governments to account for population health when considering economic goals. The Nobel Prize winning economist, Paul Krugman, has been advising this for years whenever the focus of central government has been on the poor economy.
Given the attention to health care policy – I believe revealed preference suggests we are in agreement in the US that we would like to be healthy. How healthy, who gets to decide, how we will produce that level of health, and who gets what – those are the questions that need to be addressed in health care reform.
With the passage of the most significant health care reform since Medicare, we can expect an impact on our national economic well-being (GDP, unemployment, debt…) through health. The goal of health care reform has not necessarily been to maximize population health - which would be consistent with a goal of maximizing GDP, or economic well-being. That’s fine since GDP is not everything, and the United States is already one of the most productive nations in the world given our work ethic. Despite the fact that we lag in key health outcomes like infant mortality and life expectancy compared to other developed countries, and even after netting out the 17+% we spend on health care inefficiencies, we may prefer a focus on well-being over population health – which is not necessarily the same thing.
The point is – the focus of health care reform has always been on the consequences of failure rather than a common objective. It has become a debate about which policies will “fail less” on things like efficiency and equity rather than effectiveness. We can’t talk about effectiveness without defining it. And effectiveness is defined by how well the policy meets our goals. We focus on cost and access – while “maintaining quality” – whatever that means. I suspect quality is defined by health gain – but could be defined by quality of life and well-being. It is kept deliberately vague. But it really is the root of the discussion and what should be driving the debates and the “sides”.
We would not necessarily produce the same delivery system that produces the same allocation of health care resources for a society that seeks to maximize well-being as one that seeks to maximize population health. The maximization of population health would involve rationing resources based on health gain, and the expert provider/supplier of medical services would play a larger role in decision-making (principle-agent framework). The maximization of well-being involves taking preferences which are based on personal circumstances into account when making treatment decisions. This becomes more “patient-centered consumerist” decision-making. The delivery system and subsequent rationing mechanism given this objective would be different.
BUT we have the Affordable Care Act (ACA), which we know aims to guarantee access to most Americans. And standards are imposed – to meet the “quality” criteria – which has led to the accusation of “lies” because people who thought they could keep their plans lost them based on these criteria. Perhaps we are defining quality in a way that is not allocatively efficient (not what the people want or expect).
So what should we expect for 2014: It’s hard to predict given the various Band-Aids that the 2600 pages of reform represent on the current system. Everyone is watching to see if the mandate of coverage will indeed resolve the adverse selection problem. If it does, premiums will equilibrate downward and we should experience improvements in the economy (growth and stability). Employers will be free of the health insurance expense. It won’t be a big difference in 2014 while insurance companies keep a cushion against the adverse selection problem. The decline, if any, would happen later in the year.
If younger, healthier people opt out and pay the penalty, we will have a problem. The penalty will not cover the subsidies necessary to keep premiums down for the high-risk consumers that will want to participate in the exchange. This will contribute to national debt and be a burden on those who are participating in the exchange given the higher premium burden will be shared with the insured.
What about health outcomes? If you look at the utilization patterns of the previously uninsured as they enter Medicare – you will find they are costlier than those who were consistently insured for some time period until it converges (some die off since the uninsured die younger on average). We can anticipate an increase in utilization and cost not associated with moral hazard, but with new real diagnoses. Short-run costs will rise. In the long run, preventive care will exceed acute care utilization and costs will come down. For 2014 – expect higher premiums and higher costs. Longer run is beyond 2014.
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