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The Long-Term Cost of the ACA

By Taylor Marvin

The way I see it, healthcare in the United States is facing three core problems:

  1. The morality problem- In the US, poor people without health insurance receive substandard care, and some die unnecessarily.
  2. The efficiency problem- The US spends a much greater percentage of GDP on healthcare than peer nations, and experiences significantly worse health outcomes.
  3. The fiscal problem- Healthcare costs are rising faster than real GDP growth. If the federal government continues to subsidize healthcare, healthcare inflation will challenge the solvency of the United States sometime in the near future.

The problem with the Affordable Care Act is that even in theory it only attempts to tackle one of these problems. Extending health insurance to all Americans, through the controversial mechanism of the personal mandate, is an attempt to resolve the morality problem, though it’s debatable how well this measure will actually work in real life. The ACA only indirectly attempts to address the efficiency problem, and makes no real attempt to answer the fiscal problem. This is understandable- healthcare cost inflation is a natural byproduct of advancing technology, increased access to advanced care and better healthcare outcomes, and will be very difficult to address while avoiding politically unpopular care restrictions like rationing. However, this is still worrying. Even if the ACA is able to effectively ensure universal health insurance coverage healthcare cost inflation is the only aspect of federal spending with the potential to consume the entire budget. While discretionary federal spending has consistently declined as a portion of the overall budget over the last half century, this drop has been offset by increases in mandatory spending:

Source: Congressional Research Service

Source: Congressional Research Service

Similarly, the growth of mandatory federal entitlements is almost entirely driven by healthcare costs. Contrary to popular conceptions, Social Security projected costs are essentially flat for the foreseeable future:

Source: CBO, via The Incidental Economist

Source: CBO, via The Incidental Economist

Even if the ACA is entirely successful, the new healthcare status quo still isn’t sustainable. The real risk of the ACA is that its controversial passage will make comprehensive healthcare reform that addresses all three of these core issues politically impossible for at least the next 20 years, at which point healthcare costs will have risen so high that the debt will begin to have real negative consequences and will be much harder to address. This isn’t entirely the ACA’s fault- the partisan battle lines in the healthcare debate were well drawn long before Obama was elected. However, the attention the ACA’s passage drew to the healthcare debate in general will make it much harder to actually pass a broadly effective package that will bring US healthcare costs and outcomes more in line with the rest of the developed world. This is an issue that needs to be settled as soon as possible, and barring major reforms in the structure of the Senate it will likely require some type of partisan consensus to pass. Before the ACA, most Americans had fairly flexible perceptions of the healthcare debate- in the past Republicans have sponsored bills that included and individual mandate, and liberals have historically differed on the value of a single-payer type system. However, the controversy the ACA attracted has made healthcare policy a type of ideological litmus test for activist party bases on both sides, significantly reducing the chances for future cooperation. The ACA only passed when Democrats controlled both Houses and the Presidency, a historic rarity for both parties. By polarizing popular opinions on healthcare policy the passage of the ACA may actually harm the long-term goal of comprehensive reform.

2 Comments Post a comment
  1. Tim #

    What do you suggest then? The rising costs of healthcare is estimated to be about half due to technology change, which is nearly impossible to control.

    Also check out Joseph Newhouse’s 1992 paper “Medical Care Costs: How much welfare loss?”
    It weighs rising costs against the benefits we are getting.

    March 15, 2011
  2. Tim where can you read Joseph Newhouse’s papers?

    August 8, 2011

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