The Economic Impact of the Affordable Care Act

There are all sorts of reasons why you might want to force someone to buy health insurance.  You might see it as a way of providing for the health care needs of poor people.  You might think that the “free rider” problem is a beast needing to be slain.  You might just enjoy making other people do things—you’re just sort of an authoritarian at heart.  

You could also believe, as President Obama does, that the individual mandate aspect of the Affordable Care Act will be a clear economic positive.

Well.

If that’s your conviction, I want to offer a few challenges:

1.     If the “larger pool” succeeds in driving average costs down, it can do so, actuarially, only by shifting costs from those who need health care services to those who don’t.  In essence the individual mandate converts the health insurance industry into a type of pay as you go system, like Social Security.  But even that benefit is only temporary: we have no reason to assume that Americans will on average now desire to live shorter lives, eat healthier foods, exercise more, adopt truly preventative behaviors, experience catastrophic accidents less frequently, sue their doctors less frivolously / be awarded less silly punitive damages, etc.  

2.     The negative impact on the medical device industry can’t be overlooked—how does the excise tax affect capital formation and innovation in what has been one of our areas of comparative advantage?
 

3.      I’m also not clear on the impact on small and mid-sized businesses: maybe they join pools and their premiums decline, or maybe they look at their average total cost per employee (e.g., the employer component of plan premiums) rising and decide to pay the $2k / head fee and drop the plan altogether.  In that case, can we be sure that state Medicaid pools can handle the increased enrollment?  

4.      Finally, hospital stocks were up after the Supreme Court’s decision because they have greater assurance that the ACA solves their bad debts problem.  But pharma was down (increased use of drugs still facing patent expirations + restrictive FDA = zero incremental enthusiasm), as were the insurers (these guys went for the grand bargain ostensibly because they would add a boatload of new low risk customers), and likewise the device manufacturers. 

Societal preferences aside, all of this sums to a murky economic impact at best, in my view. 

Push back--how do you see the economics of it?