No Evidence of Cost Shifting

March 16, 2011

The centerpiece of the court battle over ObamaCare's constitutionality is the law's mandate that most U.S. residents obtain health insurance.  To justify the mandate, the administration and Congress have asserted that people with private insurance pay for care for the uninsured through "cost shifting" -- higher prices charged by doctors and hospitals to recover losses from uncompensated care, say John F. Cogan, a senior fellow at the Hoover Institution and professor of public policy at Stanford University, R. Glenn Hubbard, dean of Columbia Business School, and Daniel Kessler, a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

The government argues that the Constitution permits Congress to require that people get insurance in order to reduce the extent of this "hidden tax."  But how strong is the evidence for this proposition?  The authors' review of the research has found that there is no credible evidence of a cost shift of any substantial consequence, either within state boundaries or across state lines.  Moreover, the new law will likely generate more cost shifting -- the opposite of what its supporters would have us believe.

  • A study published in the journal Health Affairs in 2008 found that so-called cost shifting raises private health insurance premiums by a negligible amount, concluding, "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 published in the Journal of Health Economics that found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.

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, say Cogan, Hubbard and Kessler.

Source: John F. Cogan, R. Glenn Hubbard and Daniel Kessler, "ObamaCare and the Truth About 'Cost Shifting,'" Wall Street Journal, March 11, 2011.

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