Center for Studying Health System Change

Economist Testifies About 10 Myths of the Uninsured

Significant Expansion of Health Insurance Coverage Will Require Considerable Public Investment

News Release
March 9, 2004

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ASHINGTON, D.C.—If members of Congress want to make a "serious dent" in reducing the number of Americans without health insurance, they will have to "claim and redirect a considerable amount of public resources," economist Len Nichols, Ph.D., vice president of the Center for Studying Health System Change (HSC), told a congressional committee today.

"The single most important reason people are uninsured in this country is they are not willing to pay what it costs to insure themselves, and their unwillingness to pay is highly but not perfectly correlated with low income," Nichols testified at a hearing of the U.S. House of Representatives Ways and Means Subcommittee on Health.

"If policy makers really want to increase coverage, they’re going to have to subsidize people, probably quite substantially, since most of the uninsured have incomes below twice-times poverty," Nichols said.

A copy of Nichols’ testimony is available here. HSC is a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

As Congress debates various options for expanding health insurance coverage, understanding who the uninsured are and why they are uninsured will be essential to designing effective policies, Nichols said. To that end, Nichols provided testimony about 10 myths of the uninsured:

Myth No. 1: We know how many people are uninsured. Forty-four million is the "official" number from the most recent Census Bureau Current Population Survey (CPS), but the truth could be (and is) on either side. The CPS asks: Did you have health insurance at any time in the 12 months ending two months ago? Even if answered perfectly, this concept omits quite a large number of people who lack insurance for a period shorter than 12 months, so the truth is that far more than 44 million people are uninsured for a period shorter than 12 months in a given year. On the other hand, other surveys make clear that the 44-million number overstates by as much as a factor of two the people who were uninsured for all of the prior 12 months. The bottom line: pay attention to time frame. The longer the period of time, the smaller the number of people who are always without health insurance and the larger the number of people who are without insurance for some of the relevant time period.

Myth #2: The uninsured are all alike. This is manifestly false. The uninsured tend to be somewhat lower-income and in somewhat poorer health. But because there are so many uninsured, there are many who are young and healthy and many who are not; many who are reasonably well off and a sizeable fraction below the poverty line who are also sick. Because the uninsured are so diverse, policy makers would probably want to be careful and clever in making limited funds go as far as they can toward expanding coverage. In addition, there are inherent trade-offs in choosing a target population, for example, in extending lower cost coverage to a larger number of relatively healthy uninsured vs. extending higher cost overage to a smaller number who are likely to have more health risks.

Myth No. 3: Coverage is Coverage is Coverage. Not all coverage is equal; designs of insurance policies really do matter. Insurance differs in terms of the kind of financial protection it offers. To put it slightly differently, imagine a policy that gave every American as much insurance as $100 could buy. Every American would then have insurance, there would be zero uninsured, but we wouldn’t really be that much better off than we are now.

Myth No. 4: Health insurance would improve the health of all the uninsured. This is among the more complicated and emotional disputes in health policy analysis. Standards of proof of causation in this area have not been as high as they should have been. When appropriate standards have been met, the bulk of the evidence suggests that health insurance does indeed have positive effects on the health of certain populations, and indeed, those most often at the center of policy debate: the poor, the elderly, the truly sick and children. What has not been proved by this standard is that universal coverage would improve the health of all of the uninsured.

Myth No. 5: Individuals without insurance choose to be so. In some general sense this is true. No law prohibits people from buying insurance, and most could buy individual insurance, although if you are a very high-risk person you might find the price quoted to exceed what you expect to get back in benefits, and a small fraction of people are outright denied access to insurance at any price. But, more generally, if we think of realistic choice or reasonable choice for low-income people or for people at high levels of risk, if they don’t have insurance now, obtaining insurance voluntarily without further subsidies is probably not a realistic option.

Myth No. 6: U.S. employers spend $400 billion a year for workers’ health care. The answer that economics gives is no. One way to think about why the answer is no is to think about why employers offer health insurance. For most the answer is, "Well, we need to offer health benefits to be competitive in the market for workers, to be able to attract and retain high-quality workers." Economists’ theoretical logic—and some careful empirical work—tells us that (most) employers actually do not pay for health insurance (and by the way, then, health insurance costs are not what makes U.S. products noncompetitive internationally). Economists believe that ultimately most workers end up paying for health insurance in the form of lower wages.

Myth No. 7: The decision to remain uninsured has no effect on anyone else. An overarching feature of modern labor markets is worker diversity; we all differ in many important dimensions, including our preferences for health insurance arrangements. Some workers’ willingness to work at jobs without health insurance—while this may be a minority—has important consequences for the rest of us. First, it means employers have a choice about whether to offer health insurance, and they will make this decision largely based on the preferences, expectations and productivity of the dominant type of worker they need to produce their products and services, as well as on their own unique costs of delivering health insurance to their workforce. As a consequence, many workers—even some who do value it—will not be offered insurance on the job.

Myth No. 8: Workers used to be afraid to switch jobs because of health insurance, and HIPAA (Health Insurance Portability and Accountability Act of 1996) fixed that. "Job lock" is the shorthand term economists applied to the phenomenon of workers remaining with less productive jobs than they could get because they fear losing health insurance if they were to switch. Research indicates two broad reasons to believe that many workers are still reluctant to switch jobs for health insurance-related reasons, even after HIPAA: They stem from Myth No. 3, coverage is coverage is coverage. First, workers could have more generous coverage on their current job than HIPAA requires, in terms of pre-existing condition waiting periods, actuarial value or access to preferred providers. Second, insurance in the individual market costs more per dollar of coverage, so that higher wages—exactly equal to what the previous employer "paid" toward health insurance, for example—may not be able to make one whole. Thus, workers are often reluctant to leave a job with health insurance for a job that might pay higher wages but does not have health insurance attached.

Myth No. 9: Economists don’t know anything about why people are uninsured. There are three things most economists actually do believe about the lack of insurance coverage:

(1) The single most important reason people are uninsured in this country is they are not willing to pay what it costs to insure themselves. This unwillingness to pay is highly but not perfectly correlated with low income. Thus, if policy makers really want to increase coverage, they’re going to have to subsidize people, probably quite substantially, since most of the uninsured have incomes below twice-times poverty.

(2) The prices people are required to pay for health insurance vary a lot across different circumstances and insurance markets. Workers at large firms probably face the lowest prices, and they, correspondingly, have the highest offer rates and the most generous policies on average. Thus, to economists, price really, really matters.

(3) Even though price really, really matters, most people and firms have fairly inelastic demands for health care and health insurance. That is to say, those of us who can pay quite a bit more would pay more than we have to now before we would go uninsured, and those who do not buy it now will require substantial subsidy before they will buy it voluntarily.

Myth No. 10: The combined research evidence supports doing nothing to address the problems of the uninsured today. Economists and health policy analysts cannot tell you—as a scientific matter—that you should implement new subsidies and other policies designed to reduce the number of the uninsured. We can—when we’re at our best—articulate and help you see the trade-offs involved, but only you who have been entrusted with the power of our people can decide if the opportunity cost is worth it, i.e., which competing priorities will and should get less attention and fewer resources. Still, the case for some kind of significant coverage expansion seems strong to many health economists and health policy researchers today, though science cannot tell policy makers the best particular way to accomplish this for that would require political value judgments.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and affiliated with Mathematica Policy Research, Inc.