Why Obamacare Enrollment Didn't Add to GDP

First quarter GDP fell by 2.9%. That's a sharp decline. The popular story is that we got hit by a polar vortex that made it so cold that people stayed indoors to drink cocoa rather than go outside to work or shop. Maybe. But in addition to drops in exports (was the rest of the world too cold to go outside to buy our stuff? How sweeping was that polar vortex?) and inventory (okay, that might be attributed to a drop in spending), one big surprise was a drop in healthcare spending.

Initially, the experts assumed that because so many more people were signing up with Obamacare, spending on healthcare would go up. As you can see in this chart, it didn't. Healthcare spending went down.

Why? Well, one simple reason came from the simple argument for universal healthcare in the first place. There are 300+ million people in the US. They get sick at a certain rate. If we give more people more preventative care, their total health costs will be lower. But the rate at which they show up in emergency rooms is still a function of the size of population, not a function of how many have insurance. Someone bleeding doesn't stay out of the hospital because they don't have coverage.

Insurance was never needed because we were so hardhearted that we would turn people away at the emergency room simply because they didn't have insurance. So healthcare costs were still high - they just had to be covered through invisible taxes, by charging other people more to make up for the people who couldn't pay. Obamacare didn't change that reality. It just made payment more explicit. The total costs of healthcare - the number that would roll into GDP - didn't change. That was a function of injury and illness, before and after insurance.

The net effect? Fewer people will go bankrupt but healthcare costs are unlikely to change much. (In fact, over the next decade or so they may go down as a percentage of GDP, acting as a drag on GDP growth.)

It's funny. This was one of the arguments for Obamacare and yet the experts failed to forecast it. Hmm.