Monday, November 09, 2009

The cost of not enacting health care reform

By Linda J. Bilmes and Rosemarie Day
November 7, 2009

MUCH OF the health care debate is focused on whether the country can afford the $850 billion the Congressional Budget Office estimates it will cost. The debate centers on whether the bundle of new taxes, credits, efficiencies, and Medicare spending cuts will be sufficient to offset the new spending so as to deliver health care reform without, in President Obama’s words, “adding a dime to the federal deficit.’’

This debate misses the point. It assumes that doing nothing will cost nothing. It turns out that not expanding health insurance is a pretty costly option, because uninsured people impose big financial and economic costs that are not properly appreciated.

The key question is: what difference does it make if you have health insurance? Several major medical studies have determined that people with health insurance have lower death rates compared to the uninsured, fewer medical ailments, and better all-around health. This means more individuals contribute to the economy for longer. Not having health insurance means these economic benefits are lost.

A number of studies confirm the significance of this impact. For example, a landmark study by the Institute of Medicine estimated that 18,314 Americans between 25 and 64 die each year because of a lack of health insurance. These deaths are largely because of failures to diagnose illness and to limited access to good quality care. However, that study was based on data from 1993. A new study, to be published in the December issue of the American Journal of Public Health, puts the number of deaths among Americans between the ages of 18 and 64 associated with lack of health insurance at 44,789 a year.

The premature death of thousands of Americans can be translated into monetary terms using the economic “value of a statistical life.’’ Government economists use this methodology to help determine whether the cost of new government regulation (stricter pollution controls, for example, or food safety rules) is worth the value of lives saved. Insurance companies also use this approach to help estimate compensation levels for wrongful death. These estimates vary widely, from around $3 million to $12 million.

US government agencies typically use a figure around $7 million to represent the lost economic output from each death. If we conservatively use only half of the government figure, or $3.5 million, it suggests that the annual cost to the US economy of 40,000 deaths is about $140 billion. That adds up to a cost of more than a trillion dollars over a 10-year period - even taking future inflation into account - well above the cost of enacting a health care package.

A second way to estimate the cost of not enacting health care legislation is in terms of life expectancy. US life expectancy - at 78.11 years, ranks around 40th in the world and well below countries with universal health care. If we were to match Canadian life expectancy, for example, that would translate into an extra two years and 1 month of life expectancy for every American.

Economists use another measure for the value of an additional year of life, adjusted for the quality of life. A recent study by Stanford economists has demonstrated that the average economic value of a year of human life is about $129,000. Most insurance companies, and many countries around the world, already use a variant of this concept. They implicitly ascribe the value of an additional year of human life at $50,000 by setting that as the threshold for approving treatments. (Any treatment that costs $50,000 will be reimbursed if it is predicted to add another year of life for the patient).

In Massachusetts, we were able to cut the number of uninsured adults between the ages of 19 and 64 by more than half during the past three years. If the United States as a whole were able to replicate that success, we would insure at least 15 million more Americans. Raising the US life expectancy to match Canada just for these individuals would translate into $150 billion in economic value over three years.

Less health insurance equates to more premature deaths, and shorter life expectancy. It also impairs the quality of life - and hence the productivity - of those who are living. This is evident in comparing the health of Americans who live in states with high levels of insurance with those who do not. We compared the five US states with the highest levels of health insurance among adults age 18 to 64 (Massachusetts, Hawaii, Minnesota, Wisconsin, and the District of Columbia) with the five states with the lowest levels (Texas, New Mexico, Louisiana, Florida, and California).

In the first group, 90 percent of those 18 to 64 are insured. In the second group the figure is just 73 percent. People living in states with the highest insurance levels have better health indicators, including fewer low birth weight babies, lower infant mortality, and lower death rates from diabetes, heart disease, strokes, Alzheimer’s, and some types of cancer (cervical, colorectal). While expanding health insurance is just one component of a state’s approach to improving health, the data are striking. Moreover, the annual death rate for residents of the states with higher insured populations was lower than for those living in the lowest insurance states. It is tricky to put a precise number on the economic loss from poorer life quality, but we can be sure the economic loss is substantial.

All the different health care bills being discussed in Congress would result in a significant increase in the number of Americans with health insurance. In Massachusetts, the combination of mandatory health insurance for individuals (with penalties for noncompliance and subsidies for those who can’t afford it), requirements for businesses to contribute to health insurance, and a health insurance exchange that helps people find insurance - core characteristics of all the proposed bills - has more than halved the number of residents without health insurance. Any serious health reform bill should be able to do the same.

Without health care reform, the economic cost imposed by premature deaths and avoidable illnesses will continue to grow, to the detriment of the economy. As it enters the final debate on health care reform, Congress needs to weigh carefully the substantial cost of doing nothing.

Linda Bilmes is a faculty member at the Harvard Kennedy School, where she teaches public finance. Rosemarie Day is deputy director of the Commonwealth Health Insurance Connector Authority of Massachusetts.

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