Government Health Programs Save Everyone Money: Study

More and more it seems that, when the government subsidizes health insurance, health-care costs go down.

The latest evidence: In the years immediately following the implementation of Medicare and Medicaid -- two programs that dramatically expanded government-sponsored health coverage -- patients’ share of out-of-pocket costs dropped by 40 percent, according to a December paper from Jeffrey Clemens, an economist at the University of California at San Diego. Out-of-pocket costs are what patients are responsible for paying on their own. In the case of insured patients, those costs can include copays and deductibles. Uninsured patients typically have to pay for all of their medical services “out-of-pocket.”


In the charts above, the dotted lines represent the share of various health-care costs paid out-of-pocket by patients, and the solid red lines represent the percent change in the share of out-of-pocket health care costs since 1960.

The explanation for the precipitous drop in patient costs is somewhat obvious, said Clemens.

"The period right around 1965 had such a large drop because a pretty substantial fraction of seniors basically didn’t have insurance against hospital episodes and office visits at that time," he said. "Covering that population just kind of mechanically meant that people were paying way less out of pocket when they had the need to go to hospital."

As Medicaid became more comprehensive, patients' out-of-pocket costs continued to drop, Clements said, ultimately falling 90 percent from their 1960 levels by 1980.

The study adds to a growing body of evidence that these government entitlement programs helped cut health-care cost burdens for struggling consumers. Just 16 percent of funding for personal health care came from out-of-pocket payments in 2003, down from 55 percent in 1960, according to a 2005 study from the Department of Health and Human Services.

And Medicaid alone kept at least 2.6 million people out of poverty in 2010, according to a recent paper in the Journal of Health Economics.

If the pattern holds, the Affordable Care Act, also known as Obamacare, could lead to even more cost savings. Out-of-pocket health-care costs will drop from $1,463 to just $34 per year in 2016 for the 11.6 million low-income Americans who are expected get health coverage as a result of the law’s expansion of Medicaid, according to an October RAND study.

Still, some low-income Americans will be left out, thanks to politics. Republican governors and lawmakers in more than 20 states rejected the Medicaid expansion under Obamacare largely on political grounds.

Though the Medicaid expansion will significantly reduce the cost burden of those Americans covered by it, Clemens notes that it's unlikely to lower the overall share of health-care spending covered by out-of-pocket payments by much.

"It's getting to be about as low as it can get," he said.

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