The Patient Protection and Affordable Care Act, popularly known as Obamacare, will go into effect next year amidst considerable controversy and without a clear understanding of what it will do, how much it will cost and how it will change the face of U.S. health care.
In fact, it has pleased no one. It is unlikely that, as matters now stand, it will completely eradicate the problem of the uninsured, who delay being diagnosed and treated and end up relying on costly alternatives, such as hospital emergency rooms.
To get passed, Obamacare also avoided taking on powerful players in the industry: doctors, insurers, for-profit medical and care facilities and drug companies. While failing to boost competition or institute meaningful cost controls, Obamacare will increase budget deficits and create another unwieldy federal bureaucracy.
It is also clear that Obamacare will not be the comprehensive reform package for the country’s health care industry that both Democrats and Republicans claim America desperately needs. Indeed, health care spending has been growing 1.5 times as fast as GDP. Even though in 2009-11 the growth rate slowed, health care spending now stands at $2.7 trillion and continues to rise in relative terms. Its share of GDP will likely surpass 20% by 2021, and projections of recent growth trends forward put it at 50–70% of GDP by 2080.
Moreover, these calculations do not take into account “imponderables.” Long-term projections made in 1960 could not, obviously, foresee the invention of new technologies and drugs, envision successes in treating and curing a number of deadly diseases and anticipate today’s healthier lifestyles—all of which have led to a steady increase in life expectancy for all Americans and boosted health care spending and costs.
Bad for Washington
In the final third of the 20th century, the federal government effectively became the underwriter of the American healthcare system. It provided access to care for many more Americans, especially the elderly, but it was also a crucial factor in allowing medical costs to escalate.
In 1960, when according to the Census Bureau the country spent just $187 billion on health care, 47% of that was paid for by patients themselves. Currently, out-of-pocket spending stands at just over 10%. Naturally, 50 years ago patients had a stronger incentive to shop around for cheaper services and to look over their health care provider’s shoulder to make sure they were not getting unnecessary procedures.
The contribution by the government, on the other hand, nearly doubled. In the 1960s, various public funds from all sources footed the national bill for a quarter of healthcare spending, but today the government pays for nearly one-half. Medicare and Medicaid account for 20% and 15% of total U.S. health care spending, respectively.
The federal government’s spending on health care makes up around 5% of its total outlays (roughly equaling this year’s projected federal budget deficit). However, that share will jump next year, when the ACA goes into effect and overall health care expenditures increase by 7.4%. Current trends suggest that the share of federal spending on health care will surpass 10% by midcentury, leaving less and less for defense, Social Security and other purposes.
Even if we believe the optimistic projections of the Obama administration and ignore its critics, we’ll still be told that sooner or later medical spending will bankrupt the U.S.
However, this may be a wrong way of looking at the issue or, rather, an incomplete one. True, further increases in health care costs will be bad—and possibly disastrous—for government finances. However, they are likely to be good for the U.S. economy and, equally important, for U.S. exports. And, since government finances will depend on the overall health of the economy, the future may not look so dim after all.