The Incidental Economist passes along an interesting study on the positive net social benefit of increased substance abuse treatment provided by expanded public health insurance:
A new NBER working paper by Hefei Wen and colleagues finds that public insurance expansions increases substance use disorder (SUD) treatment, and that treatment may reduce crime….
The study findings highlight that a relative 10 percent increase in the SUD treatment rate can reduce the robbery rate by 3 percent, reduce the aggravated assault rate by 4 to 9 percent, and reduce the larceny theft rate by 2 to 3 percent. […] A back-of-the- envelope calculation shows that a 10 percent relative increase in the SUD treatment rate at an average cost of $1.6 billion yields a crime reduction benefit of $2.5 billion to $4.8 billion.
Substance abuse treatment seems to produce a positive externality for society. An externality is a benefit that is produced by an actor which is not captured by that particular actor. There are lots of different externalities; Facebook benefits from network externalities as each additional person who goes on Facebook makes the entire network more valuable; I benefit from the externality of having a great bakery two blocks from my house and twenty feet from my bus stop as the fresh bread smell in the morning is an amazing pick-me-up. There are negative externalities as well with pollution being the classic case. Positive externalities tend to lead to the underproduction or underprovision of a good as the cost of production of the good can’t match up with the benefits it providers. Negative externalities lead to too much of something as the producers don’t pay the full cost. That is why there is such a strong argument for either cap and trade or a carbon tax from economists as it corrects a negative externality by appropriately pricing carbon dioxide to the damage it does.
There are quite a few medical externality situations where the insurers don’t capture the full benefit of a treatment through reduced future claims so they don’t provide as much of a medical service as they should from a societal perspective. The classic case is vaccination as a vaccine to an eighteen month old is unlikely to prevent the vaccinated disease within the benefit year. Birth control is another classic example. And now it is looking like substance abuse treatment could fall into this category.
For a society to capture the full benefits of effective treatment, there are a few policy options. The first is to go to a single payer system where the shadow of the future is long and the scope of expenses and benefits are broad. The VA has this incentive structure to some degree as they are responsible for life long medical costs, but their scope of concern is primarily limited to medical costs. The VA can’t care too much about greater social costs.
The second best step would be a quasi-single payer system with massive risk adjustments and transfer mechanisms between plans to discourage cherry picking and preserve a long shadow of the future. PPACA has this to some degree as insurers are operating in a risk stabilized environment with large transfers to minimize cherry picking. A healthier pool for insurer A benefits everyone including Insurer A. However this is insufficeint as it may just bring treatment up to the net medical social benefit level not the net social benefit level. And this is where essential health benefits comes into play. EHBs are mandates that every pays for services that have large social and medical benefits even if those benefits don’t directly accrue to the payer. It removes the stable negative social value equilibrium and should allow for society as a whole to capture the benefits of having more people who need substance abuse treatment get substance abuse treatment.