The Healthcare Mandate's Impact On Healthcare Costs

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I read Goldman Sachs’ recent report on Election Outcomes and Potential Impact to Healthcare Stocks earlier this week.  Basically the report outlines what’s likely to happen to the different healthcare verticals in the event of a Romney win or an Obama reelection.  The vertical that will be most impacted by the election seems to be hospitals and health systems.  The reason is that the universal healthcare component of Obama’s Affordable Care Act will dramatically change the payer mix for most hospitals.  Suddenly 30 million people will have insurance on one day that didn't have insurance the day before.  That means that people who weren't inclined to get care are more likely to get care (more hospital revenue) and, perhaps more significantly, hospitals will get paid for the care that they give to patients that don’t have insurance (more hospital revenue). In addition to helping hospital stocks, the conventional thinking seems to the be that the healthcare mandate will also lower overall healthcare costs.  To illustrate that point, here’s a vicious cycle that’s currently driving up the cost of care that may be disrupted significantly with the roll-out of the mandate. Let’s use an imaginary uninsured patient named John:

    1. John doesn't have insurance.
    2. John gets sick.
    3. John doesn't want to pay for care out-of-pocket so he delays seeing a doctor.
    4. His condition gets worse.
    5. His condition eventually gets so bad that he shows up at the emergency room and gets lots of acute (and expensive) care.
    6. He doesn't have the money to pay the hospital so the hospital loses lots of money.
    7. To make up for this lost money, the hospital charges its insured patients more for their care.
    8. To make up for these price increases, the insurers raise their premiums.
    9. Because of the high premiums, people drop their insurance.
    10. Repeat.

By requiring John to get insurance, he’s more likely to seek care earlier, thus reducing the costs and losses to treat him, thus allowing hospitals to lower costs, thus allowing  insurance companies to reduce their premiums, thus allowing more people to afford insurance.

Of course what sounds good in theory may not work in practice. But it’ll be interesting to see how the mandate will impact healthcare costs should Obama win in November.