Economics

What Difference Does Health Insurance Make?

Almost everyone thinks we should insure the uninsured. I don’t recall even a single dissenter. Yet it is precisely when everyone agrees on something that thinking begins to get very sloppy. So let me be the devil’s advocate and challenge the idea.

Why do we want to insure the uninsured? Forget about the costs, for a moment. Are there any benefits? What are they? I can think of four candidates. If people are insured:

  • They may get more health care.
  • They may get better care.
  • They will enjoy protection from the financial effects of catastrophic illness.
  • They will be less likely to be free riders on the charity of others.

The first three items are “it’s for his own good” benefits and, frankly, the case for them is pretty lame — especially in the context of RomneyCare and ObamaCare. If you expand the demand for health care but do nothing to increase supply, people in the aggregate will not be able to get more care. One person’s gain in care will be offset by someone else’s loss. (At least that tends to be the case, when the principal currency patients use to pay for care is time and not money.)  Since the costs of non-price rationing will rise in the process, the whole exercise must make society as a whole worse off.

The same objection applies to the idea of “better care.” Better care for one person must be obtained at someone else’s expense, if the supply of medical resources is unchanged.

[I suppose you could make an additional argument: If we insure the uninsured, they will have a better chance of getting a “fair share” of health care. In other words, care will be distributed more equally. While that argument makes sense in the abstract, it doesn’t work if you segregate the previously uninsured into plans that pay providers below-market rates — as both RomneyCare and ObamaCare do — and cause them be pushed to the rear of the waiting lines. See below.]

As for financial protection, it’s not worth much if you don’t have any assets. If you do have assets, who is to say that health insurance is more valuable protection, say, than flood insurance or homeowner’s insurance?

That leaves us with item four: it’s in our own self-interest to insure the uninsured. This argument has been used frequently by the Obama administration. Here’s Gov. Romney:

The state was giving over $1 billion away in free health care, much of it to people who could’ve paid something but were just gaming the system. You won’t be surprised that a lot of Democrats thought we should give them even more. I took on this problem and hammered out a solution that took a bad situation and made it better — not perfect, but it was a state solution to our state’s problem.

The Washington Post Fact Checker gave Romney three Pinocchio’s for that statement. (See explanation of the ratings.) Here’s why.

Give Romney credit for reducing the number of uninsured. An Urban Institute report found that the number of higher-income Massachusetts residents without insurance — the potential free riders — fell from 5.2 percent before RomneyCare was enacted to 1 percent in 2008.

But the number of Massachusetts residents using private insurance has remained roughly unchanged, as has the percent of state residents who are either uninsured or using public insurance plans. (See page 36 of the report). As the Fact Checker explains:

If one of the goals of RomneyCare was to reduce the state’s burden of subsidizing health care, it failed. Romney’s plan instead shifted much of the free-rider costs to a pair of newly formed government agencies called MassHealth [Medicaid] and Commonwealth Care, which provide free and reduced-price insurance.

The Kaiser Family Foundation offered the following assessment:

Health centers experienced a significant reduction in the number of uninsured patients, but these reductions were more than offset by gains in the number of patients with insurance, particularly MassHealth and the new Commonwealth Care program.

Many of the newly insured patients in fact were health centers’ previously uninsured patients; that is, to a considerable degree, health center patients remained in place while their source of financing shifted from uncompensated care funding to patient-related revenue.

Romney campaign spokeswoman Andrea Saul said the reform still made the free-rider situation better, because people using Commonwealth Care pay at least a portion of their premiums:

“This is good in and of itself — promoting personal responsibility and ownership — and it also means that people are being asked to pay what they can afford, which reduces the free riding problem,” Saul said. “Frankly, there is no dispute that the Massachusetts health-care reforms took the problem of uncompensated care and made it better.”

To which, the Fact Checker responded:

This slight uptick in personal responsibility may be commendable, but that has been accompanied by a rising cost of state-subsidized health care. The Boston Globe projected that the price tag for Commonwealth Care alone would reach $1.35 billion by 2011, up from just $158 million in 2007.

Add that to the $475 million the state spent on its Health Safety Net program (which reimburses hospitals for those who have no insurance at all), and you get more than $1.8 billion for those who can’t or won’t use private insurance. The bottom line is that Massachusetts has continued “giving over $1 billion away in free health care.”

And remember, this isn’t Rush Limbaugh or National Review saying these things. This is The Washington Post! The Fact Checker concludes:

Romney appears to have conflated the fact that his program reduced the number of uninsured with fixing the problem of free riders. He deserves credit for giving Massachusetts the lowest rate of uninsured in the nation, but his state remains saddled with equal or greater costs for those who can’t or won’t buy insurance.

Sign off: People who think that the case for insuring the uninsured is rock solid may want to re-read this Health Alert and consider how weak the case actually is.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

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Insomnia trealment
Guest

Then what do u suggest about it. that we don’t invest money on it.

I think we all should go for health insurance to protect our future.

Robert
Guest

I was in a country a few years ago that I will not name. There was a lot of poverty there. While on a tour I ask the tour guide if the poor people had any kind of welfare system to help them. He replied there wasn’t because their government had found out if you give people something for doing nothing it is not long before nobody wants to do anything. How long is it going to take our government to figure that one out.

John Ballard
Guest

I was in a poor country some forty-five years ago that I can name — Korea. There was no electricity or plumbing outside urban areas, many houses had thatched roofs and most of the country at that time still wore the traditional Korean clothing. I was assigned there as an X-Ray Tech in a small Army medical detachment and spent most of my off-duty time working with English conversation programs, including two or three small groups of doctors and nurses planning to go to the US at some time, as well as a group of High School students. Since the… Read more »

Ryan T
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Ryan T

I suspect the majority of people prefer the dignity of living-wage work, and the ability to afford coverage, over needing assistance. But it doesn’t have to be a case of something for nothing. That is, any more than it is now, with policy-holders paying for expensive un-reimbursed hospital care in a society that doesn’t allow people to die in the streets (vs. die slowly from cancer if they can’t afford the treatment). Able-bodied people could be required to pay into the system on a sliding scale if they want coverage from it, or at least commit to some community service… Read more »

Ben Wilson
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Ben Wilson

I am a licensed insurance agent and I have heard all the reasons why and why not to insure the uninsurable. There are pro’s and cons to the debate. If we insure everyone, the cost of private health insurance would sky rocket and many would rather pay a penalty than pay for health insurance. As of June 2010, the industry took a big hit when insurance companies were required to insure ALL children no matter what their medical background. This change was good but tore apart the industry for the agents. The up side is children in need of health… Read more »

A. Jessen
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A. Jessen

“the median net worth of households headed by someone 65 or older was $170,494 in 2009. That’s 42 percent higher than the same-age household in 1984”. And presumably this includes the value of the primary residence. Not surprising that there was an increase (even for those with modest homes) from 1984-2009. But that doesn’t mean there aren’t lots of people below the median, or that most seniors have big bucks to spend when many basics have also gone up since 1984. Like the costs of healthcare. Maybe one reason the number of seniors unable to pay has risen. Regardless, the… Read more »

Nate Ogden
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Nate Ogden

how has the cost of healthcare gone up for seniors? Their premium and deductible are tied to inflation. And they added part D coverage drastically cutting their cost

Median worth of 170K actually does mean most have money

problem can be fixed, get rid of medicare before we turn into Greece, Italy, Spain, EU

Alex
Guest
Alex

You noted that “Prior to Medicare 13% of seniors were unable to pay for the healthcare in their lifetime. After Medicare that is now up to 19%.”

If “in their lifetime” is literal, then that could include before retirement age? Otherwise, I wonder why those 65+ would have trouble if everything is supposedly taken care of, without the need for any additional assistance. I’d think you’d have to look at a person’s collective financial picture, and what income is left over for the premiums and extraneous expenses, even after 65 in some cases.

Nate Ogden
Guest
Nate Ogden

that stat was for people over 65. It was used as a reason we needed Medicare, to prevent the 13% of grandmas that lose the shirt off their back due to medical care

Alex
Guest
Alex

Well, at least the 13% of grandmas who lost their shirt before Medicare, when healthcare was relatively basic and cheap. So until there’s a viable, convincing replacement that wouldn’t result in millions of seniors trying to pay fat premiums and/or substantial out-of-pocket costs, I suspect there’s not going to be much support for eliminating it. Reform to minimize abuse, maximize efficiency, and have wealthier retirees pay more coinsurance, maybe.

Nate Ogden
Guest
Nate Ogden

“45,000 people die annually in the U.S. from lack of health care coverage and INCLUDING rescinsion of policies.” This number is bogus and can’t be supported with any real science. It’s a propoganda study and nothing more. “the Affordable Care Act now prevents this unethical behavior from insurance companies.” There are very very few unethical cases of insurance companies dropping people from coverage. On the other hand there are tens of thousands of cases every year of people lying on applications to either get lower rates then they are entitled to or to qualify for coverage they are not entitled… Read more »

SallySmart
Guest
SallySmart

Mr. Ogden, you don’t have to be rude to make your points . 45,000 people die annually in the U.S. from lack of health care coverage and INCLUDING rescinsion of policies. That was my original statement. If you don’t think rescinsion of policies is a real problem, just look up lawsuits filed by individuals who were dropped when diagnosed with cancer. Fortunately, the Affordable Care Act now prevents this unethical behavior from insurance companies. And in 2014, insurance companies can no longer deny customers because of pre existing conditions. If you have done your research, you know that currently, the… Read more »

John Ballard
Guest

“Mama, he’s staring at me. Make him stop looking at me!”

https://thehealthcareblog.com/blog/2011/05/28/how-to-lower-cancer-cares-cos/comment-page-1/#comment-100531

Hope this helps.

Nate Ogden
Guest
Nate Ogden

“Fortunately, the Affordable Care Act now prevents this unethical behavior from insurance companies.”

What’s unethical about cancelling a policy someone lied to get? Most people would say lieing to get the policy was unethical and the carrier is justified in cancelling it.

Should someone be allowed to get an auto policy for a pinto when they drive a Benz then when they get in a crash demand their Benz be fixed?

Or should an 80 year old be able to buy life insurance claiming they are 45 and expect to still get the benefit when they die?

Nate Ogden
Guest
Nate Ogden

Why do we tax young people who make the least when they are just starting their independent lives in order to support seniors so they can protect their assests? Wouldn’t we as a society be further ahead with our young keeping more of their money as they are starting off in life and seniors dieing broke?

Nate Ogden
Guest
Nate Ogden

Maybe its time for Liberals to stop using the broke grandma boogyman?

From SFGate

the median net worth of households headed by someone 65 or older was $170,494 in 2009. That’s 42 percent higher than the same-age household in 1984.

But the median net worth of a household headed by someone younger than 35 was a mere $3,662 in 2009 – 68 percent lower than it was in 1984.

All numbers are based on U.S. census data, adjusted for inflation and expressed in 2010 dollars.

SallySmart
Guest
SallySmart

Before Medicare and Medicaid, people’s savings were wiped out and they were left destitute paying for their medical care. And when they reached the end of their funds, they did indeed die or live in destitution! Should people work their whole lives to become destitute because of needed medical care? Remember disabled and elderly people aren’t likely to replenish their savings by working after high medical costs wipe out their savings. It is a foolish and ridiculous case to make that private charity will do the job that Medicare and Medicaid is doing. Do you not know that over 45,000… Read more »

Nate Ogden
Guest
Nate Ogden

Here comes SallyNotSoSmart again; “Before Medicare and Medicaid, people’s savings were wiped out and they were left destitute paying for their medical care.” Let me correct your latest factual butchering. Prior to Medicare 13% of seniors were unable to pay for the healthcare in their lifetime. After Medicare that is now up to 19%. That is almost a 50% increase. So SallyNotSoSmart, how successful was Medicare when it increased the problem 50%? 45,000 people what? Do you liberal talking points you cut and paste leave that blank so you can just fill it in for the specific argument your trying… Read more »

Nate Ogden
Guest
Nate Ogden

would only providers take care of the poor or would we also rely on the current and historical care takers of the poor? Churches Employers outside of insurance Communities Non Profits Prior to Medicare and Medicaid it wasn’t like we had people dieing in the streets from lack of care. Providers, Churches, and communities did a much better job of providing for the poor and at a fraction of the cost as government has done. To John’s point we can work our way back there. The first step would be to turn all health insurance into high deductible true insurance.… Read more »

John Ballard
Guest

User fees are conceptually okay but at this late stage in the game there are at least three flies in the ointment I can think of (not counting insurance, either mutual or for profit). 1) Payroll taxes constitute the main revenue collection method for medical care, 2) Employee “contributions” to group insurance and 3) HSAs and MSAs (together with co-pays and direct cash transactions with providers) are the only remnants that remain of what might otherwise become your “user fees.” I read somewhere that about fifty cents of every health care dollar “comes from the government” which has little or… Read more »

Bob Hertz
Guest

User fees for food do not work fine. Hunger was very widespread in the USA in the 1930’s, and it would be more widespread today without food stamps. User fees for housing do not work for the homeless certainly, who are not a huge number but are still a tragic group. In this case you somewhat missed the point of my post. My ‘package deal’ would be that doctors and hospitals could set their own fees, if they also organized their own way to take care of the poor. Also the government would not set the standards for taking care… Read more »

Bob Hertz
Guest

None of the posts so far dig deep enough into why insurance of some kind seems so necessary. There are ultimately only two ways to pay for health care: a. The patient pays (i.e. user fees) b. The community pays (i.e. public hospitals with global budgets) Other than in New York City for about 50 years, American medicine has settled on option a – user fees. No one is bothered by user fees for haircuts, because in a pinch you can cut your hair at home and long hair does not hurt you. But user fees for health care do… Read more »

Nate Ogden
Guest
Nate Ogden

hasn’t OWS shown in the matter of a month socialism doesn’t work? How about user fees for housing? Or food and water. Those are both more immediate needs then health care and user fees work fine.

” If everyone has low deductible insurance, then fees do not bother or restrain them.”

But it bankrupts the providers who can’t afford to meet demands, HMOs showed how this plays out. NHS and other socialized systems also show the same, How do you want to ration if you give everyone all the free healthcare they want, or low deductible healthcare?

Jake Weise
Guest

Health insurance is extremely beneficial and necessary. Some places will not attend you without it.

Peter1
Guest
Peter1

“if patients came with what is essentially cash to me (unlike now), then I have the opportunity to offer value as part of the equation and I would be in competition for their business. I would probably make less money on each services provided, but the greatly diminished cost of providing the service would more than make up for it. Win Win.” Nothing, not even insurance companies, is preventing you from providing your services on a cash basis. If you want to “compete on value” accepting only cash you can do that right now, you just have to wean yourself… Read more »