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.