Providing insurance to the poor reduces healthcare costs

Enrollment of uninsured patients in a program with benefits comparable to those offered under the Affordable Care Act of 2010 resulted in significant healthcare cost savings, a new study finds. Published in the February issue of Health Affairs, the research sheds light on the potential outcomes of newly enacted healthcare reforms.

“In a case study involving low-income people enrolled in a community-based health insurance program, we found that use of primary care increased but use of emergency services fell, and – over time – total healthcare costs declined,” said study co-author David Neumark, UC Irvine Chancellor’s Professor of economics and director of UCI’s Center for Economics & Public Policy study.

Working with researchers from the Virginia Commonwealth University Health System, Neumark tracked the emergency room, inpatient, outpatient and primary-care service utilization of about 26,000 previously uninsured Richmond residents between 2000 and 2007 whose household incomes fell 200 percent  below the federal poverty level. Qualified enrollees were granted health insurance and assigned a primary-care provider for one year. They were required to proactively re-enroll for subsequent annual coverage.

The demographics of these participants paralleled those of the population that will be affected by changes under the Affordable Care Act of 2010, Neumark said. The legislation is set to extend Medicaid benefits to about 16 million uninsured, low-income adults and children by the end of 2014.

The study found that primary-care visits for patients who enrolled continuously over three years rose from 1.06 in year one to 1.60 annually, while emergency-room visits fell from 1.02 in year one to 0.74 by year three. Costs per visit for both inpatients and outpatients also decreased, as did the length of inpatient stays. On average, total healthcare costs per enrollee per year for this subset were cut nearly in half – from $8,899 in year one to $4,569 in year three. Overall costs per enrollee per year for all participants with at least one year of enrollment declined from $7,604 to $4,726.

“A lot of the debate about healthcare reform surrounds the issue of whether we’re setting up something that’s going to cost us more by increasing use of medical services or something that will cut costs through more appropriate and timely use of medical services,” Neumark said. “Our research shows that, over time, costs can be reduced through increased use of primary care and reductions in emergency-department visits and hospital admissions, but it may take several years of coverage for substantive savings to occur.”

Co-authors of the study include Cathy Bradley, professor and chair of healthcare policy & research at Virginia Commonwealth University; Sabina Gandhi, who earned a doctorate in economics at UCI and is now a VCU assistant research professor; Sheryl Garland, vice president of health policy and community relations at the VCU Health System; and Dr. Sheldon Retchin, VCU professor of internal medicine, gerontology and health administration and CEO of the VCU Health System.

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