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Obamacare and Effective Government

When historians look back on US President Barack Obama’s health-care reform, they will not focus on its troubled insurance exchanges or its website's flawed launch. They will focus on how it encouraged innovations that tamed a dysfunctional system's spiraling costs, even as millions of people gained access to it for the first time.

BERKELEY – When historians look back on the United States’ Patient Protection and Affordable Care Act (ACA), President Barack Obama’s controversial 2010 health-care reform, we predict that they will not devote much attention to its regulations, its troubled insurance exchanges, or its website’s flawed launch. Instead, we think that they will focus on how “Obamacare” encouraged a wave of innovation that gradually tamed the spiraling costs of a dysfunctional system, even as millions of previously excluded Americans gained access to health insurance.

Innovation is probably the least discussed aspect of health-care reform. Yet it is crucial to “bending” the sector’s cost curve, because it enables the delivery of quality health care in cost-effective ways. Obamacare has provided powerful new incentives for such innovation.

From 1980 to 2010, US health-care spending grew almost twice as fast as the economy, rising from 9.2% to 17.4% of GDP. While many factors contributed to this surge, most experts agree that the single most important cause was a fee-for-service system that rewarded health-care providers for billing as many services as possible, rather than for keeping people healthy and treating their illnesses efficiently.

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