Health Law Produces Hospital Savings, But Startup Costs Run Far Higher

The Department of Health and Human Services
issued a press
release yesterday noting that uncompensated care costs—expenses
related to treating uninsured individuals, mostly in hospital
emergency rooms—for hospitals are expected to drop about $5.7
billion this year as a result of expanded health coverage under the
law. The bulk of the reduction, about 74 percent, is expected to
occur in states that chose to Obamacare’s option to expand
Medicaid. 

That’s not nothing, but those supposed savings come at a
significant cost. According to a Bloomberg Government report
released Wednesday, the startup costs associated with the law and
an associated health technology program are much higher than
projected by the Congressional Budget Office (CBO) or talked about
publicly. The startup tab for Obamacare and a related program to
spur electronic health records is over $73 billion so far,
according to the report, an amount “substantially greater than what
the Congressional Budget Office (CBO) initially estimated health
reform would cost by this point,” the report
notes. A little more than $2 billion went to fund the creation of
the federal health exchange. 

Most of the spending accounted for in the Bloomberg Government
report is not related to health insurance subsidies under the law.
But the money that goes to fund expanded coverage, both for exhange
based private plans and Medicaid, is expected to grow substantially
over the next several years. Earlier this year, the CBO projected
that the federal government would spend about $47 billion on
private insurance subsidies, and about $41 billion on Medicaid
coverage under the law, next year. That’s how much it costs to fund
the coverage that HHS is saying is responsible for the $5.7 billion
drop in uncompensated care spending. Now, obviously there are a
variety of other components of the law, including various taxes and
hoped-for Medicare cuts intended to offset the spending on
coverage. But the isolated comparison suggests that expanding
coverage is not a very effective way to reduce uncompensated care
spending. If all we’d wanted was to plug that hole, we could have
done so for a lot less.