ObamaCare Likely To Up Health Usage, Not Control Costs

November 5, 2012

A recent letter sent out by Blue Shield of California shows how ObamaCare's promises of reducing health care costs may prove to be empty rhetoric.

In 2014 people who are uninsured become eligible under ObamaCare for a taxpayer subsidy to purchase health insurance through an exchange.

Anticipating an influx of new customers, Blue Shield of California is trying to encourage providers to sign up for new preferred provider organization plans that it will offer via the exchange in 2014.

The letter told providers that if "you want to keep your current . .. PPO members and attract new ... PPO members in 2014, you should elect participation in the new PPO networks at the 20% to 30% discount levels.

In short, providers will get lower reimbursement but will get access to more patients.

Public Theory, Private Practice Slashing reimbursement rates could affect patients' access to providers who choose not to take part. Many doctors don't accept Medicaid patients, and Medicare actuaries have argued that lower provider payments generally could significantly affect patient access.

Nevertheless, Donald Berwick, former head of the Centers for Medicare and Medicaid Services under Obama, recently wrote that by providing coverage to the previously uninsured, ObamaCare will lower costs by "reducing the 'hidden tax' we're all paying for the health-care bills and emergency-room visits of the uninsured.

Ed Haislmaier, a senior research fellow at the conservative Heritage Foundation, has his doubts.

"Costs will likely go up because newly insured people will have increased propensity to consume more health care than they need or is marginally useful," he said.

Oregon's Health Lottery A recent Medicaid expansion in Oregon is illustrative. In 2008, Oregon established a lottery to open its Medicaid program to 89,824 working-age adults. Researchers compared the new Medicaid recipients to people who remained uninsured and found that those on Medicaid used 25% more health care than the uninsured. There was no reduction in more expensive care, such as emergency room use.

If the Oregon experiment is any indication, getting more people insured via ObamaCare exchanges will increase health care costs.

It's also debatable whether the discounted rates that Blue Shield is offering in its new plans will reduce costs either. A lot will depend on whether providers try to make up for the lower rates by increasing the volume of services they provide patients.

Much research has found that physicians increase the volume of their services when faced with a reduction in Medicare's reimbursement rates. For example, a paper by the CMS Actuary found that when Medicare decreased its prices in the mid-1990s, specialists on average increased the volume of their services 31%.

ObamaCare is supposed to reduce the problem of increasing volume.

Peter Orszag, former director of the Office of Management and Budget under Obama, has defended one of the law's more controversial features, the Independent Payment Advisory Board, by arguing that it will help reduce costs by incentivizing physicians to emphasize quality over quantity.

Whether IPAB will ultimately achieve that goal remains to be seen. In recent months both Republicans and Democrats in Congress have criticized IPAB.

Quantity Not Quality But the Blue Shield letter suggests that policies offered through ObamaCare's exchanges could undermine that goal by encouraging physicians to increase quantity.

If that happens, it could further strain the federal budget.

A recent analysis released by the conservative American Action Forum has found that the Congressional Budget Office has continued to increase the estimated costs of the exchange subsidies. When the CBO released its first estimate in 2010, the exchange subsidies cost about $462 billion from 2014-2019. The most recent estimate finds that the subsidies will cost $574 billion over that period, a 24% increase.

Douglas Holtz-Eakin, president of ACA, attributes the increase to slower income growth for most Americans, which leaves more of them eligible for larger subsidies.