NCPA - National Center for Policy Analysis

Why Health Care Spending Will Explode under ObamaCare

April 2, 2013

If historical trends in Medicare are any indication of the future, health care spending under the Affordable Care Act ("ObamaCare") will rise significantly. Despite repeated claims by President Obama and Democrats that insuring every American will lower insurance, the empirical and historical evidence suggest spending will explode, says Merrill Matthews, a resident scholar at the Institute for Policy Innovation.

  • When the Medicare program was introduced in 1966, roughly 7.5 percent of the U.S. population received health insurance at about the same time through the program. According to government estimates, ObamaCare will provide coverage for about 32 million Americans, equal to about 10 percent of the population.
  • By 1970 Medicare had caused a 37 percent increase in hospital spending.

At the time, the House Ways and Means Committee estimated that projected costs would grow from $5 billion in the first year to an inflation-adjusted $12 billion in 1990, a prediction that mirrored the expected wage growth from 1975 onward.

  • Instead of $12 billion in Medicare expenditures in 1990, costs grew at roughly 2.4 times the rate of inflation and ballooned to $110 billion.
  • One reason health care spending rose so significantly is because people receive additional care they might not have received when they have health insurance.
  • With a third-party payment system, patients have less incentive to be more cost conscious about health care expenditures.

ObamaCare, which it is estimated will provide coverage for about 32 million Americans (equal to about 10 percent of the population), creates more price insulation by furthering a system that has the health insurance system pay the health care providers directly.

  • For example, under ObamaCare, contraceptives are free, meaning individuals have little incentive to choose a $10-a-month pill when there are new products that cost $150-a-month.
  • Spending on hospital care has grown between $30 billion and $40 billion a year between 2006 and 2013.
  • Following full implementation of ObamaCare in 2014, the government estimates that spending may rise by $60 billion to $70 billion per year.

While Obama administration officials continue to claim that costs will go down in the future, Medicare provides an example of how costs can rise unexpectedly. It is clear that costs are already rising and will continue to do so as ObamaCare commandeers the health care system.

Source: Merrill Matthews, "Why Health Care Spending Will Explode Under ObamaCare: Evidence From Medicare," Forbes Magazine, March 22, 2013.


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