Illustration by Matthew Hollister

Obamacare Math Doesn’t Add Up to a Healthier U.S.

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Jan. 3 (Bloomberg) -- Many people in health care saw passage of the Patient Protection and Affordable Care Act in 2010 as an historic achievement, a reshaping of how health care is practiced in the U.S.

In truth, the new law has remarkably limited objectives. Its single goal is insurance expansion. An additional 32 million Americans are to be covered by private insurance and Medicaid. Integrated medicine, best practices and promotion of primary care get only “pilot program” treatment. The ACA doesn’t mandate enough change to have risked the political opposition of industry interests.

Indeed, the law’s most obvious characteristic is its continuity with our existing system. Step away from the sound and fury of politics, and the 2010 health-care law is laid bare as a technocrats’ approach to saving our current system while expanding it to cover more people. At the end of the day, it is unlikely to change much at all.

Americans spend an enormous amount of money on health care -- two and a half times as much as was spent 20 years ago. Medicare and Medicaid represent 23 percent of federal spending, up from 15 percent in 1993. And employers pay an average insurance premium of $15,073 for a family of four, up from $4,404 two decades ago.

We also pay a physical toll for our system’s carelessness. In the past 20 years, medical errors have killed 1 million to 3 million people -- more than have died in all of America’s wars combined.

Familiar Flaws

The fundamental flaws in our system are familiar: perverse incentives that encourage excess treatment, high prices, poor service (even dangerous sloppiness), incomprehensible complexity and a flawed safety net. But to all such problems the new health-care law has the same two answers: more insurance and Medicaid and more top-down cost control.

Supporters may believe that the ACA will be worth it even if it only expands our insurance system to cover many people who are not now covered. But if the law places more of the burden of health care on the poor and the middle class, diverts resources into waste and unnecessary treatments, reinforces an industry culture of dangerous sloppiness and crowds out all other social priorities, then it will have actively hurt the very people it was intended to help.

Nothing better illustrates the flaw at the heart of the ACA than its treatment of Medicaid. There may be no element of our current system more dysfunctional or plagued by runaway costs, quality issues, unimaginable complexity and outright corruption. But the ACA mandates a massive expansion of the program. Indeed, Medicaid’s growth is expected to account for roughly half of the 32 million newly covered.

Medicaid is already very expensive. In 2010, the states and the federal government spent a combined $405 billion on their Medicaid programs, up from $206 billion only a decade earlier. It doesn’t seem to make sense that a population that is getting richer, that has greater access to better food and cleaner water than it used to have, that works in less physically dangerous occupations, that doesn’t smoke or drink as much should need so much more health care. But Medicaid’s growth is an inevitable consequence of the undisciplined demand for care that pushes up prices.

Furthermore, Medicaid coverage is already no guarantee of actual care; because of low reimbursement rates, many physicians refuse to treat Medicaid patients. A Medicaid card may provide “access” to high-volume procedures, but not to the more time-intensive care, such as primary services. All health care is not equally valuable.

For proponents of the ACA, expanding our insurance system is a simple moral issue; they believe it will keep people alive. But the reality is far more complex; we cannot even be sure that when you consider all its effects, the uninsured are more helped than hurt by the ACA.

Uninsured Populations

Keep in mind that the uninsured are not a monolithic group. The most recent estimate is that about 50 million people lack insurance at any one time. (This number is expected to shrink to 18 million under the new law.) But “at any one time” is not the same as permanently. Almost 20 percent of our population lacks insurance at some point during a given year, but 40 percent of these people are uninsured for less than a year.

In addition, people aged 18 to 30 make up about a third of the uninsured. They are less likely to have jobs with coverage and more likely to consider insurance an unnecessary expense. Remember that virtually no senior citizens are uninsured, because they receive Medicare, while most of the uninsured who suffer disabilities become eligible for Medicaid or Medicare. Strangely, then, the uninsured may be healthier than the general population; 90 percent of them describe their own health as good to excellent.

For the long-term uninsured, the story is likely to be quite different. Roughly half the uninsured at any one time -- 25 million people -- are estimated to be without coverage for three years or more. These people are disproportionately poor, suffering long periods of unemployment and often working in low-wage jobs without health benefits. Furthermore, low-income people are more likely to suffer from chronic health problems relating to lifestyle: hypertension, diabetes and heart disease.

If viewing the uninsured as a monolithic high-risk group clouds our understanding of the issue, viewing them as having no access to care is even more deceptive. A 2008 study estimated that those uninsured for a whole year averaged $1,686 in health-care spending, a little more than 43 percent of what was spent by those privately insured ($3,915). Lacking health insurance is not the same as lacking health care.

Less Care

Overall, the uninsured receive less care than the insured, especially preventive and chronic-condition care -- but certainly not so much less as to explain the cost of the ACA’s efforts to expand insurance. The government has estimated that the law will provide coverage for 32 million at a cost of $200 billion in government funds plus $100 billion of the newly insured’s own money. That’s $6,250 per newly insured person.

Now consider how the uninsured currently pay for their care. Their own money accounts for some of it -- the 2008 study estimated $583 per uninsured person a year (compared with $681 spent out-of-pocket by the insured). And the uninsured receive $56 billion worth of “uncompensated” care annually, the 2008 study found. Mostly, this is treatment provided by hospitals for free.

But this care is at least partially compensated under a variety of state and federal programs. A recent estimate is that hospitals provide $34 billion in uncompensated care and receive roughly $25 billion to help them deal with the burden.

The assumption has been that the hospital and pharmaceutical industries supported the ACA because it will bring them new customers. But a better explanation is that reform will turn their discount customers into full-price ones. A recent investment research report suggests that hospital profits will rise 43 percent with the implementation of the ACA.

Now, I don’t want to get carried away with this; there is no question that many uninsured face an impossible burden in managing certain ongoing conditions and that the ER safety net is not the most desirable option for many kinds of treatment. All other things being equal, I -- and probably everyone -- would rather have insurance.

But all other things aren’t equal. The most vulnerable uninsured are most vulnerable not just because of insurance issues but because of low incomes, financial insecurity and the lifestyle choices and stress associated with poverty.

You may ask, even if the ACA may do more for hospitals and drug companies than for the uninsured, doesn’t society have a moral responsibility to include everyone in our health-care system? So what that we may spend $200 billion more to get our neediest only $70 billion in additional real care -- isn’t it worth it?

Old Questions

As a liberal, I would have answered yes even a few years ago. Now, I suspect, the questions are out of date. Our system no longer neatly divides between the insured and the uninsured. Your odds of getting appropriate care -- rather than excessive and uncoordinated care -- depend more on the professional culture of your providers than on your insurance status. And your chances of avoiding a serious medical error are mainly a matter of luck.

The ACA is just the latest in a long line of laws that drive resources from all other goods into health care. The $100 billion a year in additional government spending could, for example, buy gym memberships for 42 million Americans and pay them $10 an hour to exercise three times a week, or put fresh vegetables on the table daily for every child in the U.S. This doesn’t even include the $100 billion now in Americans’ pockets that the ACA will make them spend on health insurance.

If health-care costs were a reasonable percentage of our economy, then the money-is-no-object argument might make sense. But with these costs making up 18 percent of our economy, the decision to shovel more money into health care will have a powerful impact on job creation, wage growth and disposable income. All of these issues are more important to the well-being of the long-term uninsured -- even to their health -- than more health care.

(David Goldhill is the president and chief executive officer of the cable TV network GSN. This is the second in a series of three excerpts from his new book, “Catastrophic Care: How American Health Care Killed My Father -- and How We Can Fix It,” to be published Jan. 8 by Alfred A. Knopf. The opinions expressed are his own. Read Part 1 and Part 3.)

To contact the writer of this article: David Goldhill at

To contact the editor responsible for this article: Mary Duenwald at