The Recent Uptick in Health Spending Might be Good News

Recent article in the NYT claims that giving people greater access to healthcare does not in fact save money. The author agrees that this assertion is counterintuitive in the sense that preventive care should and does dodge future spending on costly disease treatment, but since not every person who enjoyed preventive treatment was slotted to be sick in the first place, the initial outlay on care often exceeds future expected spending on diseases treatment. The rationale is that in order to prevent “one heart attack, the healthcare system has to test hundreds of healthy people – and give about a hundred of them cholesterol-lowering drugs for at least five years”. This adds up to the point where the savings from these preventive measures might be questionable.

Indeed, recent research and data released by economists at the Centers for Medicare and Medicaid (CMS) suggest an increase of 5.5% in healthcare spending, which can largely be attributed to the Affordable Care Act (ACA), and the fact that when people have healthcare they actually use it. This is particularly true if preventive care is paid for and some of the tests and examinations are free of charge. A caveat is that 2014 data has not yet been released so we are unable to gauge the full effect of increased health coverage and whether it indeed curtailed some of the spending in other areas.

But the article fails to address three very important issues that are crucial when researchers try to address the true cost and value of preventive care. First, while it is true that preventive care is expensive, it is particularly so in the U.S. where tests are done more frequently than in any other developed country. The U.S. Preventive Services Task Force (USPSTF) recommendations regarding the frequency of mammograms and prostate screening, for example, have largely been ignored resulting in over-spending on these preventive measures. Adopting some of these recommendations might lead to decrease in spending and less bias in the way that we actually measure the benefit of preventive care.

Second, and of more importance, researchers often measure the effects of increased healthcare spending primarily in the context of improved health outcomes. While it is crucial to do so, it is short sighted and done in silo. Healthier workforce is a more productive one and this increased productivity results to greater economic and income growth. The ensuing increase in tax revenue may serve to offset some of the cost from increased coverage. Findings from the Center for Disease Control and Prevention (CDC) research on workplace health promotion point to increased productivity resulting from better health. Healthier people are less sick and hence work more; there is less absenteeism and decreased job-training for replacement employees; healthier workers might translate to healthier families and that has far reaching implications for population health at large.

Lastly, data from the Oregon randomized control trial, which I have written about previously, suggest that increased coverage led to decrease in financial vulnerability from unexpected heath expenditures.  Just in financial hardship alone, the expansion of Medicaid alone in Oregon virtually eliminated out-of-pocket catastrophic medical expenditures (expenditures that exceeded 30 percent of income) and reduced other measures of financial strain, such as reducing the probability of having to borrow money or skip paying other bills because of medical expenses by more than 50 percent. This has far reaching implications for the economy and more research is needed to quantify this this improved financial stability on the economy.

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Categories: News and Analysis

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