Should Taxpayers Pay for Health Coverage that Doesn't Improve Health?



I agree with much of what Bloomberg's Josh Barro writes in his response to last week's big Medicaid study, the first experiment to compare individuals randomly selected to get Medicaid with a control group of individuals who were not selected.

Despite finding that Medicaid beneficiaries have lower incidence of depression and reduced likelihood of facing outsized health expenses, Barro says that the study is "bad news for advocates" of Obamacare's Medicaid expansion. That's because "it did not find significant effects on the physical health measures that were tracked." The study did find some physical improvements, but not at the level of statistical significance. As a result, he writes, "even if Medicaid does improve physical health outcomes, this study suggests the effects may not be large." I am even inclined to agree somewhat with Barro's argument that the study should be taken "as an indictment of medical insurance broadly" instead of just Medicaid; the study tells us more about Medicaid in specific than it does about insurance overall, but it does suggest that there may be a fair amount of over-insurance built into the system.

Yet this leads Barro to conclude that conservatives—and presumably most other critics of the president's health law—should have been more engaged in the process of designing the law that became Obamacare.

Still, the "I knew Obamacare was a waste of money" reactions are misplaced. The financial effect is a big deal. Having Medicaid reduces your likelihood of facing medical expenses that exceed 30 percent of your income by 80 percent. 

…All of this makes me wish even more that conservatives had been productive partners in health reform rather than trolls. If conservatives want a consumer-directed redesign of the U.S. health-care system that forces patients to pay at the margin more often for care — in order to reveal what treatments are useful — they could have gotten it as part of the health-care overhaul. They just also had to agree to include the progressive fiscal reforms that liberals wanted: ensuring universal coverage and transferring money toward poor people who can't keep up with the rapidly rising cost of health care.

So it's worth paying for the high(er) health expenses of Medicaid beneficairies even though those additional expenses don't appear to produce better outcomes? The Oregon experiment clearly showed—as previous studies have shown—that individuals who got Medicaid utilized significantly more health care services, and thus had significantly higher health expenses. One effect of Medicaid, then, is to subsidize the purchase of additional health services while insulating individuals from the cost of those services. But why should taxpayers continue to fund increased use of health services if they do not lead to significantly better health?

Nor do I detect a strong case for why Obamacare critics should have worked with Democrats to pass the health law. Barro writes that the study "is yet another argument for 'some health care for all but not too much.'" I am not as confident that a study showing little to no physical health benefits from health insurance is any kind of argument for publicly subsidizing health insurance. (Again, it's clear that health coverage increases health services utilization, but less clear that it improves health).

But even if it is, there's little reason to believe that Democrats would have been willing to go that route with Obamacare. Barro's financial-risk focused "not-too-much" approach would have pushed the law in the general direction of universal catastrophic insurance, or, at the very least, less comprehensive coverage. But Obamacare's Democratic authors made the law's guarantee of certain broadly defined "essential" benefits a key part of the law. And Health and Human Services Secretary Kathleen Sebelius has made it clear that her concept of meaningful health insurance does not include simple protection from catastrophic health expenses. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said recently at a congressional hearing. "They're really mortgage protection, not health insurance." The clear implication is that health insurance should pay for a bunch of health services, not merely protect one from unusually large health expenses. And sure enough, what the Oregon Medicaid study reveals is that Medicaid pays for a lot of health care expenses—but doesn't, in the process, appear to significantly improve one's physical health.