Obamacare and the Value of Happiness
The Affordable Care Act has been a resounding success in providing more Americans with medical insurance -- an achievement that will almost certainly improve people's health and happiness. The tough question will be how much we are willing to pay for it.
Some 9.3 million people have gained health coverage through the various channels of Obamacare, including new insurance exchanges, extensions of Medicaid and provisions allowing young adults to be covered under their parents' policies. This has reduced the ranks of the uninsured to 15.8 percent of the population as of March, from 20.5 percent in September, according to a study by the Rand Corp.
So now that all these people are signed up, what will happen to their care, their medical expenses and ultimately their health?
To gain perspective, it's helpful to look at previous expansions of coverage by the government, which over the years has become the major player in the health-care market. Medicare and Medicaid programs now account for more than half of all health-care spending, and tax breaks for employer-sponsored insurance cost an additional $200 billion a year.
Back in 1965, the introduction of Medicare had a profound effect on the elderly Americans it was created to cover. They became more likely to use hospitals and their health-care costs rose -- a pattern visible today in procedures such as hip and knee replacements, which shoot up when people reach 65, the age at which coverage begins. The added spending on care does buy better health: One recent study showed that 65-year-olds who were hospitalized for serious conditions received more care, and were less likely to die, than 64-year-olds with the same conditions.
In the 1980s and 1990s, the federal government required states to expand coverage of pregnant women and poor children under their Medicaid programs. As a result, Medicaid now pays for 40 percent of births, and about half of all children are eligible for coverage under Medicaid or other state programs. Studies show that this expansion increased health-care spending, and in some cases led to unnecessary hospitalizations. But it also improved children's health and saved lives.
What's different about Obamacare is that it aims to increase coverage among adults of working age. This worked pretty well in Massachusetts, which did the same in 2006 under then-Governor Mitt Romney. Research has shown that after the program was in place, fewer people went to the hospital through the emergency room or with preventable conditions, and there were no immediate increases in costs. Low-income people did tend to stay in the hospital longer, but this probably reflected greater access to the care that they needed.
The experience of Oregon, which in 2008 employed a lottery to expand Medicaid coverage of adults, has been quite different. A series of studies have compared the lottery winners to people who applied for coverage but did not get it. After one or two years of being covered, the winners were actually visiting emergency rooms more often. Still, they were much better off: They were less likely to have medical debt, less likely to report symptoms of depression, and more likely to report good health. Perhaps in time they will be weaned away from reliance on expensive emergency rooms and begin to receive primary care in doctors' offices.
The evidence, then, suggests that Obamacare will probably entail some trade-offs. There may well be increases, not decreases, in the utilization of care, and this additional care may not be delivered in the most cost-effective way. So costs are likely to rise, unless policy makers or insurers adopt such measures as higher co-pays, tougher constraints on services provided, or "narrow networks" that place limits on patients' choice of doctors and hospitals. At the same time, the newly covered will probably be happier and healthier.
The ultimate question for policy makers: How much is this health and happiness worth?
(Janet Currie is the Henry Putnam Professor of Economics and Public Affairs at Princeton University and the director of Princeton's Center for Health and Well Being. She also directs the Program on Families and Children at the National Bureau of Economic Research.)
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