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Right Turn
Posted at 12:00 PM ET, 06/10/2011

Is health care cost-shifting real?

In the U.S. Court of Appeals for the 11th Circuit earlier this week, the government’s lawyer and the Obamacare challengers’ lawyer faced off on the legality of the individual mandate. The Obama administration’s lawyer was on the defensive, as the Associated Press reported:

Acting U.S. Solicitor Neal Katyal sought to ease their concerns by saying the legislative branch can only exercise its powers to regulate commerce if it will have a substantial effect on the economy and solve a national, not local, problem. Health care coverage, he said, is unique because of the billions of dollars shifted in the economy when Americans without coverage seek medical care.

“That’s what stops the slippery slope,” he said.

As a preliminary matter, this sort of rationale is inappropriate for constitutional analysis. If the Constitution prohibits the government from forcing you to buy something you don’t want, why does a policy argument (cost-shifting) suddenly bestow constitutional legitimacy on the individual mandate? The idea that “because we have a really good reason for doing it so it must be constitutional” is in fact the “slippery slope” personified. The government invariably is convinced it has a really good reason for doing something; it’s the courts’ job to determine if the text and framework of the Constitution allow it to do it.

Yuval Levin has a more compelling rebuttal: The argument isn’t true. He writes:

[C]ost shifting from the uninsured to the insured today is pretty negligible. Cost shifting from Medicaid—which pays doctors very poorly, forcing them to overcharge patients with private insurance—is greater, but it will grow, not shrink, under Obamacare, since the law would vastly expand the scope of Medicaid coverage without reforming the program. Cost shifting does not provide a legal justification for the individual mandate, but it does contribute to the policy argument for repealing Obamacare.

Levin references a Wall Street Journal op-ed by John Cogan, Glenn Hubbard and Daniel Kessler. In that piece the authors explain:

A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study’s authors conclude: “Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance.” For the typical insurance plan, this amounts to approximately $80 per year.

The Health Affairs study is supported by another recent peer- reviewed study that focused exclusively on physicians. That 2007 study, authored by Massachusetts Institute of Technology economists Jonathan Gruber and David Rodriguez and published in the Journal of Health Economics, found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.

The authors argue that the government relied on sloppy, flawed studies to come up with the cost-shifting rationale. They explain:

Specifically, Congress ignored the $40 billion to $50 billion that is spent annually by charitable organizations and federal, state and local governments to reimburse doctors and hospitals for the cost of caring for the uninsured. These payments, which amount to approximately three-fourths of the cost of such care, mitigate the extent of cost shifting and reduce the magnitude of the hidden tax on private insurance.

Moreover, the economics of markets for health services suggests that any cost shifting that may occur is unlikely to affect interstate commerce. Because markets for doctor and hospital services are local--not national--the impact of cost shifting will be borne where it occurs, not across state lines.

If accurate, this is quite a problem from a policy perspective for the defenders of the individual mandate. If the free-rider problem (as Mitt Romney liked to refer to it) is virtually nonexistent there certainly must be cheaper ways to address the problem of the uninsured. And if in the Medicare system Obamacare duplicates the Medicaid problem (“Medicaid payments to doctors and hospitals are so low that the program creates a cost shift of its own”), Obamacare will dramatically increase cost-shifting. As the adage goes, you’ll see how expensive health care will be when it’s free.

The lesson here applies not only to Obamacare. Government schemes to monkey with the marketplace are rarely as precise as their creators would have us believe. Central control is and always has been a poor substitute for real marketplaces in which willing sellers and buyers set prices. When the government forces or cajoles buyers into the market (whether it be to purchase health care or “affordable” housing) it rarely turns out as planned.

By  |  12:00 PM ET, 06/10/2011

Categories:  law, Obamacare

 
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