Health Care Costs Continue to Increase as Percentage of GDP

Published August 16, 2018

Americans now spend 17 percent of the nation’s Gross Domestic Product (GDP) on health care, a June 2018 Senate report states.

The Senate Homeland Security and Governmental Affairs Committee report states the cost of Medicaid alone has risen from the original $222 per user in 1965 to $7,973 in 2016, a 3,491 percent increase. The report, compiled by committee staff, attributes the increase to government intervention in the health care sector through Obamacare, plus widespread fraud. “The ACA worsened the problem of Medicaid fraud and overpayments by giving states incentives to declare people newly eligible to receive 100 percent federal reimbursement during the Medicaid expansion’s first three years,” the report said.

The ACA, which expanded Medicaid eligibility to include adults under 65 with incomes up to 133 percent of the federal poverty level, led to much of the recent growth of Medicaid, the Washington Examiner reports. CMS underestimated per-enrollee spending on those new Medicaid recipients and acknowledged in its 2018 Program Integrity Report to Congress “the heightened potential for waste, fraud and abuse in states that chose to expand their Medicaid program under the [ACA].”

Feature, Not a Bug

Jesse Hathaway, a research fellow at The Heartland Institute, which publishes Health Care News, says the skyrocketing costs are a fully intended consequence of ACA.

“In 2007, Barack Obama addressed the Service Employees International Union’s New Leadership Health Care Forum,” Hathaway said. “In that speech, he said, ‘I would hope that we could set up a system that allows those who can go through their employer to access a federal system or a state pool of some sort, but I don’t think we’re going to be able to eliminate employer coverage immediately. There’s going to be potentially some transition process.’ ACA was designed to collapse under its own weight as that ‘transition process,’ at which point a single-payer system would be offered as the answer to the manufactured crisis.”

‘Perverse Incentive’

C. Steven Tucker, owner and president of Health Insurance Mentors, an Illinois-based company, says the Medicaid expansion under Obamacare is one of the main factors in the recent rise in health care costs.

“Arguably, the most immoral provision in Obamacare is the expansion of Medicaid to anyone,” Tucker said. “Historically, Medicaid was a safety net for single mothers and children of the poor. Today, anyone with or without dependents can enroll in Medicaid, and the reimbursement rate their medical providers receive is 90 percent. At the same time, medical providers who treat those who qualified for Medicaid under the old system only receive a reimbursement rate of 50 percent. This creates a perverse incentive to treat new Medicaid recipients over traditional Medicaid recipients.”

‘Immoral’ Neglect of Vulnerable

Expanding Medicaid to relatively healthy individuals has weakened provision of critical health care to the truly needy, traditional Medicaid recipient as the influx of new recipients creates waiting lists for those desperately in need of immediate care, Tucker says.

“The most immoral part is traditional Medicaid recipients are oftentimes those who cannot help themselves, such as the blind and the developmentally disabled, whereas many of the new Medicaid recipients are simply those who have incomes less than 138 percent of the federal poverty level,” Tucker said. “Whether they have special needs or dependent children is wholly irrelevant.

“We have proof of this preferred treatment provided for new Medicaid recipients, as there are currently 19,354 vulnerable kids and adults with developmental disabilities in Illinois that are languishing on our state Medicaid wait list, waiting for state-promised funding and services,” Tucker said. “Each month for a decade now, 16 of our most vulnerable are dying on the Medicaid wait list, which is ironically referred to as the Priority of Urgency of Needs list. Certainly we can do better.”

Incentives for ACA Fraud

Hathaway says Medicaid is rife with fraud and in fact there are built-in incentives that make it quite profitable to game the system.

“Fraud is prevalent in the ACA system because ACA is little more than an expansion of the Medicaid program writ large,” Hathaway said. “The legislation used the lure of ‘free money’ to cajole states into expanding Medicaid eligibility, after the Supreme Court ruled that states could not be forced to do so. According to the nonpartisan, nonpolitical Government Accountability Office, improper Medicaid payments—a diplomatic expression for ‘fraud’—exceeded $29 billion in 2015.

“It’s axiomatic: the bigger the government program, the bigger the reward for fraud and graft,” Hathaway said.

‘They’re Wrong’

Hathaway says market forces were not what caused the rise of health care costs before Obamacare. Instead, he says, it was the very lack of market incentives and competition that drove prices up initially and continued to do so at a greatly accelerated rate after the ACA was passed in 2009.

“When people say health care is a market failure and we need government to save us, they’re wrong,” Hathaway said. “The only failure is that we haven’t tried to apply free-market forces to health care. Reducing the cost of health care for people can be accomplished through the same means as reducing the price of any other good or service. One never hears calls for the nationalization of grocery stores to lower prices.

“Instead of pretending that health care is a singularity in the otherwise grand unified theory of economics, lawmakers should do what we know works for other classes of things: more competition, fewer regulations, and the removal of middlemen,” Hathaway said.



“Shock Report: Medicare Eats 17% GDP, Medicaid Up 3,491%, Fraud, Obamacare Blamed,” Washington Examiner, June 20, 2018: