How Does Osama Bin Laden’s Death Affect Health Care Costs in the US?

Today’s Managing Health Care Costs Indicator is 9 ½ years

It’s been almost a decade since Osama Bin Laden and Al Qaeda set in motion the plane hijackings that killed over three thousand at the World Trade Center in New York, in the Pentagon in Virginia, and in a field in Pennsylvania.   We’ve been in two wars in the Middle East since the 9-11 tragedy, and we’ve invested billions in increased airport and other security.

And health care costs have kept rising, although they haven’t been rising quite as fast in the fast few years as they did earlier.

The past two days have been full of analysis of the impact of Osama’s death on terrorism, domestic politics, and on the price of oil.  I wanted to take a few paragraphs to muse about the potential impact of Osama’s death on health care costs in the US.

Of course, this is pure speculation, and the actual impact, if any, depends on many factors.

Osama’s death, and the waning influence of Al Qaeda, might lead to better security in the Middle East, which could cause lower oil prices.  This could make transportation less expensive, and could lower the cost of ingredients of some pharmaceuticals.  This will have virtually no impact on the cost of medical care –because transportation and ingredient costs represent such a small portion of total medical costs.  

When large natural disasters like hurricanes and earthquakes lead to big insurance losses, health care reinsurance prices soar. The converse is likely to be true, so as the risk of future terrorist attacks goes down, large reinsurance companies are likely to be very profitable.  Competition in this space will lead to decreased cost of reinsurance – which health insurers purchase to protect themselves from very high claims rates.  This could lower the cost of health insurance premiums, but only an iota.

The US is more likely to decrease its war effort in Afghanistan and continue its pullout from Iraq.  We have substantial medical resources in both countries (and in the nearby seas) – but the redirection of these resources stateside won’t have much impact at all on health care costs.  Aggregate costs could increase as some military physicians return to civilian life, where they have higher billing rates.   We’ll continue to face high costs of returning veterans with head and other severe trauma – and most of these costs will be borne in the Veteran’s Administration.

The two biggest open questions are whether this military success will give Obama  dramatically more political capital at home, and what impact it will have on the overall economic picture.

If this success in the war on terrorism gives Obama a substantial amount of political capital, more health care stakeholders decide to make plans assuming that the Affordable Care Act (ACA) will continue to be the law of the land.  States could push forward aggressively to complete their health insurance exchanges, and perhaps bills seeking to defund implementation of the ACA would languish in Congress.  We could see less objection to the Independent Payment Advisory Board, and some diminution of the arguments against comparative effectiveness research. 

It wouldn’t make any special sense, though, for this to happen.  George W. Bush tried to use his post-9/11 public support to convince Congress to privatize social security – and got little traction.  The Republicans and Democrats have genuinely different views of the cause of health care inflation, and the most effective approach to reform the system.  Osama’s death doesn’t change this.   I suspect that Obama will continue to face vigorous opposition, although it might be easier for him to keep wavering Democrats from straying and supporting repeal or substantial revision of the ACA.

I think the most important question to ask is whether Osama’s death will lead to higher growth rates and overall improvement in the US economy.  

If the US growth rate increases dramatically, unemployment eases, and consumer confidence returns, we’ll have less depression, fewer suicides, and be far better off.  Our health care costs, paradoxically, will increase as we are less sensitive to health care cost.   If, on the other hand, we have continued economic stagnation, it’s more likely we’ll take the tough steps to control the cost of health care.  Challenging economic times are when companies cut back on their insurance offerings, states try to pare back their Medicaid investment, and patients debate whether to get discretionary care.  Challenging economic times are also when new rules and regulations are most likely to force provider system change.

I think Osama’s death is likely to have a small positive effect on both Obama’s political capital (which could lead to more effective approaches to lower health care costs). It will also have a small positive effect on economic growth, which could hobble attempts to control health care spending.  My prediction is that these two factors will wash each other out, and Osama’s death will have little impact on US health care costs.