Romneycare's Costs and Benefits

Romneycare's Costs and Benefits

There's a new study -- covered by Cato's Michael Cannon in Forbes in a piece we link in our update today -- finding that Romneycare saved 320 lives per year. Cannon writes:

The authors estimate that "for approximately every 830 adults who gained insurance [under RomneyCare], there was 1 fewer death per year." If we assume the per-person cost of covering those 830 adults is roughly the per-person premium for employer-sponsored coverage in Massachusetts in 2010 (about $5,000), then a back-of-the-envelope calculation suggests that RomneyCare spent $4 million or more per life saved. The actual figure may be much higher if we include other costs incurred by that law. The World Health Organization considers a medical intervention to be "not cost-effective" if it costs more than three times a nation's per-capita GDP per year of life saved. This in turn suggests that RomneyCare would have to give every person it saves an average of nearly 30 additional years of life to meet the World Health Organization's criteria for cost-effectiveness. Given that the mortality gains were concentrated in the 35-64 group, that seems like a stretch.

Sarah Kliff at Vox looks at the numbers differently:

The new Harvard study estimates that for every 830 people the Massachusetts insurance expansion covered, one additional life was saved. This was a 2.9 percent decrease in the mortality rate compared to similar counties that did not have insurance expansions.

Is that worth the extra $91 million that Massachusetts spends annually to continue its insurance expansion? That's a question for policy makers to grapple with.

If $91 million were Romneycare's full annual cost, it would be a great deal for 320 lives, at less than $300,000 a pop. But in the Massachusetts Taxpayers Foundation report Kliff links, $91 million is called the "incremental additional state cost per year" -- it's not the full cost of the law, but the annual growth of state spending caused by the law. (In a weird coincidence, Cannon himself once criticized a reporter for using this number from a different MTF report.)

Here's a chart:

In 2010 (the final year the new study considered), federal and state spending on these programs was about $800 million higher than it had been in 2006 (before the law went into effect). Averaging the extra spending across the 2007-2010 period gives us $696 million.

Divided by 320 lives saved, that's $2.2 million, just over half of Cannon's estimate. With that number his 30-year requirement for cost efficiency would become 17 years. But -- and crucially -- this doesn't include the costs the law imposes on private individuals and employers. As Cannon has noted, these could be more than half of the total, which puts the cost per life saved back up in the vicinity of $4 million.

When economists estimate the total value of a human life, they normally wind up in the $5-10 million range. But it makes more sense to estimate the value of a year of life, as the World Health Organization does, and people whose lives are saved by health care tend to be older. So, assuming the new study's findings are accurate -- and assuming one places some faith in economists' value-of-life estimates -- it's more than possible that Romneycare doesn't save enough lives to "pay for itself." That picture may change, however, if the law has other benefits to residents' health and financial wellbeing.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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