Should Taxpayers Spend $250,000 to Give an Uninsured Person 16 Days of Healthy Life?

ObamaCare spends a lot of money that could be better spent elsewhere:

money-crossroadsSo, even when we combine the most optimistic estimates of gains in mortality and morbidity, the average uninsured person would gain about 16 healthy days a year…As a comparison, 75-year-olds with foot problems prior to chiropody treatment rate their quality of life at .956. For the average uninsured person, having health insurance coverage provides health benefits that are roughly equivalent to averting the foot problems experienced by typical 75-year-olds.

More importantly, even using the most optimistic assumptions, ObamaCare does not appear to be very cost-effective in relative terms. That is, we could attain the equivalent gains in health status for only 4% of the trillions that will be spent on ObamaCare. Conversely, for the same massive expenditure, we could attain up to 27 times as much improvement in health status. In light of this rather egregious squandering of other people’s money, it’s little surprise that opposition to ObamaCare has been so persistent and widespread.

From: Christopher Conover at Forbes.

Comments (27)

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  1. Steve says:

    The excerpt is a little misleading. Chris notes that under standard valuations of health and longevity the Mass. Plan is cost effective (barely) though there is enough uncertainty it could go either way. (Shortcut: VSL*change in risk = 3000000 * 1/830 = 3614 while cost of Health insurance is around $5000 with DWL, so it’s not going to be clear cut either way.)

    Also, no one thinks health insurance is that important for health. No one makes a New Years resolution to get health insurance. It’s always lose weight, exercise, quit smoking or eat more veggies. But whether you exercise and eat broccoli isn’t considered the gov. Business so the highly cost effective “alternatives” to Obamacare aren’t really on the table for most voters.

    • MrFreedom says:

      Yes, this article has plenty of assumptions in it, but the author clearly explains his reasoning and the logic behind those assumptions.

      With that, it is not at all surprising that Obamacare is grossly inefficient. All government-run/influenced programs are, because they place a middle man between the consumer and seller. This law has much less to do with actual outcomes than it does political propaganda. It allows the president and the Left to claim that they care about the plight of the uninsured (in other words, intentions) but totally disregards outcomes. With respect to its inefficiency and failure, it is identical to every other liberal policy.

    • James M. says:

      Health insurance is an “in case of emergency” plan. It should not dictate whether an individual sees a doctor for an annual visit or how much they pay for antibiotics. The whole system is flawed from the start.

    • John R. Graham says:

      Thank you. The article is wide-ranging, so I advise reading the whole source.

      I appreciate your comment that nobody makes a New Year’s resolution to buy health insurance. We resolve to improve our behaviors. So, ordinary people do no think health insurance leads to good health.

      Yet, politicians constantly feed us this line. It is clearly important for the government that we have health insurance. How does it serve the interests of the state? That might be the best way to frame the issue.

  2. Dale says:

    “…we could attain the equivalent gains in health status for only 4% of the trillions that will be spent on ObamaCare. Conversely, for the same massive expenditure, we could attain up to 27 times as much improvement in health status.”

    And yet we allow our grossly inefficient government to pile on the debt while health status gains only increase marginally. Because we have been sold on the rhetoric?

    • Thomas says:

      The cost is so high for such little benefit because of the perverse incentives that are in the policies of ObamaCare. The money could be spent better elsewhere, but the bureaucrats won’t allow that to happen.

  3. Bill B. says:

    “…it’s little surprise that opposition to ObamaCare has been so persistent and widespread.”

    But it is not persistent and widespread enough. Let’s not forget that unless an alternative is drawn up (which is looking highly unlikely), then ObamaCare will be here to stay.

    • Buddy says:

      “Americans deserve more sensible and cost-effective patient-centered reform: the sooner this misguided law is repealed and replaced, the better off we all will be.”

      As a strong as I oppose ObamaCare, quotes like these have been said for as long as ObamaCare was passed. The conservative counterparts have been all talk and no walk. When will a levelheaded politician take the policy ideas from here and run with them to fix our health care system?!

      • Jay says:

        You had me until “levelheaded politician.” These are mythical beings only spoken of in fictional tales.

  4. Matthew says:

    “…having health insurance coverage provides health benefits that are roughly equivalent to averting the foot problems experienced by typical 75-year-olds.”

    This is the case because the average uninsured person doesn’t value health insurance high enough to attain it. This is the issue with the individual mandate, in that people healthy enough who don’t value health coverage shouldn’t be required to purchase coverage.

  5. Devon Herrick says:

    Should Taxpayers Spend $250,000 to Give an Uninsured Person 16 Days of Healthy Life?

    Rather than taxpayers, I’d prefer individuals make more of these types of choices, but bear more of the costs. We know that individuals could find much less expensive ways to boost longevity by 16 days than spending $250,000. Indeed, I assume most people would prefer to trade the $250,000 for a nicer home or increased standard of living, rather than spend a significant chunk of their lifetime earnings on 16 extra days of life.

  6. Don Levit says:

    At National Prosperity Life and Health, we plan to provide that option: a percentage of the medical benefit in the form of a death benefit.
    Our ERISA attorney finds no legal problems with offering the option.
    Don Levit

  7. Big truck joe says:

    Face it – in Obamacare, they threw out the baby with the bath water. Instead of focusing (like a laser!) on the uninsured, Obamacare is actually growing the ranks of the uninsured and throwing everybody else in insurance turmoil.

  8. Bob Hertz says:

    Saving lives is an economic luxury, and here is why:

    if an 80 year old receives a surgery that lets them live to age 81, the costs are:

    a. the surgery itelf, paid by Medicare

    b. the recovery, with possible therapy and almost certainly new drugs

    c. an extra year of social security

    d. an extra year of Medicare subsidies

    e. in some cases, extra costs to the seniors’ family.

    In light of all these costs, I continue not to understand the statement by Cutler and others that an extra year of life has a value of $150,000. To Whom?

    I should note that saving lives is not a repulsive or toxic luxury. I would rather spend public dollars on a hospital, versus a B-1 Bomber. But we can only keep doing this because we are rich.

    Let me add an unscientific observation, but one which many readers may share with me.

    I recently looked at a family picture from the 1950’s. There had already been several early deaths, and the elderly survivors looked pretty bent and frail.

    Fast forward to the current day. Another family picture was filled with vigorous looking 80 year olds. This is a Jewish family in middle class Minnesota.

    The years of Medicare have done something more powerful than the tiny changes described in Chris’s article. Not that he is wrong, but universal insurance has had a large cumulative effect I believe.

    • John R. Graham says:

      Thank you. Amy Finkelstein of Harvard University has published excellent scholarly research on Medicare (See NBER Working Papers 11609 & 11619). Her conclusions: It increased overall health spending, reduced seniors’ out-of-pocket costs, but did not improve mortality.

      Prof. Finkelstein examined the early years of Medicare, so we should be careful not to extrapolate recklessly. Plus, you are talking about quality of life (not mortality), which has clearly improved for the elderly.

      Much of this is caused by medical technology. Would this have taken place in the absence of Medicare, or in a dramatically different Medicare?

      I expect that medical innovation would have continued to happen. There has been great advancements in care of premature babies, and neo-natal care, since 1965, and those beneficiaries are mostly privately insured.

      If you read Cutler (or Conover) or a good university textbook on health economics, the marginal opportunity cost of a year of healthy life – and how to calculate it – are well explained.

  9. bob hertz says:

    My impression is that Medicare has been a great stimulus to innovation, because it essentially guaranteed that any new treatment would be paid for.
    (and it still does, by and large.)

    • John R. Graham says:

      However, we do not know what patients would have paid for if Medicare had not existed. For example, Medicare has imposed a significant tax on the economy, which means it has reduced economic growth. We would have been a much richer society without it.

      However, the distribution of income would have been different, so we can’t say seniors would have benefited from the same innovations.

      On the other hand, think of all the innovation in other industries where the government has never guaranteed payment: Telephony, oil & gas, automobiles, etc.

  10. Bob Hertz says:

    You are probably right about innovation happening anyways.

    But I wonder if Medicare has reduced economic growth. Tax money comes from workers and employers, but the money does not leave our shores. The money goes into hospitals and clinics and drug companies, and the persons who work in those institutions have had the greatest salary increases of any profession in the US.

    Look at it this way. If Medicare was terminated tomorrow, then all taxpayers would be better off as the 2.90 payroll tax disappears and income taxes are reduced with no Part B subsidies.

    The taxpayers would take the money, and to some extent would buy more products that are made overseas.

    Whereas Medicare pays Americans 100%.

    In my opinion, Medicare and other government programs act as props to the American labor market. While automation and globalization have slashed the manufacturing work force, Medicare creates non-productive jobs that cannot be outsourced.

    And we need those non-productive jobs desperately , to maintain consumer spending.

    I take this from Michael Mandel and William Spence and other economists.

    • John R. Graham says:

      Thank you. What we don’t know is how much of the money currently spent on health care via Medicare would be spent on health care. Nevertheless, we can be highly confident it would be less, because younger people would be spending or saving the money previously transferred to senior Medicare beneficiaries.

      With respect to keeping the money onshore, we’ve had a lot of discussion at this blog about how much money Medicare could save if it paid for medical tourism.

  11. bob hertz says:

    The issue of medical tourism actually illustrates my little irony exactly.

    If Medicare acted a little more like Walmart and purchased medical care abroad, here is what would happen:

    the burden of Medicare taxes on the young would decrease;

    the number of new cars and barbecue grills and cell phones purchaed by the young would go up, creating more jobs in those industries;

    and a certain number (I think a large number) of highly paid medical jobs would disappear.

    What I mean by irony is that the overall American economy could contract, if the drop in consumer spending by laid off health care workers exceeds the increase in spending by the young.

    I would love to know if any one has written about this. I do not have time to cost it out.

    • Devon Herrick says:

      Bob, If Medicare acted like Walmart and shopped for value, seniors wouldn’t have to fly to Costa Rica or India for care. Some probably would. But most would get care here at home once hospitals were forced to compete for their business on price and quality. I doubt if young people would be able to buy more barbecue grills and cars, but the $84 trillion unfunded liability for Medicare would remain static, go down or rise more slowly.

      Economist have long argued that protectionist measures to force consumers to buy locally doesn’t lead to economic growth in the long run. Rather, it protects inefficient industries. Health care is a good example of that: because Medicare, most private insurers, and self-insured health plans have not aggressively tried to outsource costly medical procedures, the prices charged vary tremendously.

      If one-third (or maybe half) of health expenditure (i.e. nearly one-fifth of the economy) was instead given to workers as extra take-home pay instead of health benefits, many of the redundant and unnecessary workers in the health care sector would be employed elsewhere in the economy.

  12. Bob Hertz says:

    All good points, but I might add that most of the economists who praise free trade are tenured professors. They are the beneficiaries of perhaps the most wildly protectionist and inefficient industries in America (higher education).

    They have no problem telling the laid-off steelworker to suck it up and go to nursing school. They do not anticipate that their own job might be outsourced, to someplace that only pays teachers for teaching 5 classes a semester, and worst case they would wind up selling mutual funds.

    When industries become more efficient, there are usually a lot of victims. That may be inevitable, but personally I would like to see the victims get a lot more help in the transitions.

    • John R. Graham says:

      Those tenured professors are at risk, due to the rise of MOOCs (Massive Open Online Courses).

  13. Bob Hertz says:

    I do not think they have much risk actually in the large institutions. There will always be a line of persons who want the in-person Harvard degree.

    • John R. Graham says:

      Plus, those top institutions will likely dominate the MOOCs. It is the non-top-tier institutions that are at greater risk, I think.

      I recently took an undergraduate course on evolution and genetics via Coursera. It was offered by Duke University. It was a very good experience.

  14. Bob Hertz says:

    Duke ran a course like this to get some extra revenue, not to replace its professors. MIT does the same thing.

    I suspect that most colleges will let their tenured professors retire, and replace them with low paid adjuncts. This is already happening. It would happen a lot faster if professors carried less power than they do.

    • John R. Graham says:

      There was no fee charged. But I suspect in the future they will. This is the point: If I can study at Duke or MIT on line, why would I pay tuition to go to a lesser ranked university to which I can go in person?