Don't blame the uninsured

Don't blame the uninsured
By John R. Graham, director of health care studies at the Pacific Research Institute
Copyright © 2007, Chicago Tribune
Published March 5, 2007

From Massachusetts to California, politicians seem to think they've discovered a groundbreaking solution to the problem of the uninsured: use the law to bully everyone into becoming insured.

California Gov. Arnold Schwarzenegger has made this idea the centerpiece of his second term. Former Massachusetts Gov. Mitt Romney thought he had a solution too, but now that he's campaigning for the presidency, he's trying to avoid responsibility for a new government bureaucracy that's driven premiums up to almost twice what he had promised.

Covering the uninsured is certainly a worthwhile goal. But simply mandating coverage won't necessarily bring it to those who lack it.

Just look at auto insurance. Even though it's against the law to drive without it in California, 25 percent of the state's drivers are uninsured. Why are they breaking the rules? Because they don't expect to be in an accident.

The same rationale applies for those without health plans. Just as they forgo auto insurance, many people choose not to buy health insurance, even if they have the means to do so. Not even Mr. Olympia himself could strong-arm all Californians into buying coverage.

But leaving aside the fact that insurance by force simply cannot happen, there's another problem behind this drive toward "universal coverage." It's predicated on the flawed notion that the insured subsidize the care of the uninsured. While appealing, this idea doesn't pass muster.

Consumer-advocacy groups, such as Families USA, estimate that the uninsured used about $29 billion worth of health services nationwide in 2005, which the privately insured paid for through higher premiums. Once everyone has insurance, the argument goes, fewer people will use expensive options such as emergency rooms for their primary care.

But the uninsured are not the primary reason for spiraling health costs.

They consume far less care than the insured. In 2000, just over half of the total uninsured population had any medical expenses at all. By contrast, more than 80 percent of those with insurance had medical expenses during the same period.

Or consider this: Of the 1.9 million California children who visited emergency rooms in 2003, only 80,000 were uninsured, according to UCLA's Center for Health Policy Research.

Simply put, the uninsured population is too small to have a significant impact on the premiums of the insured, as consumer advocates claim. Those proposing to contain soaring health-care costs by "covering the uninsured" are trying to squeeze a lot of blood from a small stone.

On top of that, there's another problem with the argument that those with health insurance subsidize those without. Many uninsured Americans pay extra taxes because their income is not sheltered by insurance-based tax breaks.

In fact, the uninsured pay about $60 billion in additional income taxes by forgoing those breaks. That explicit figure swamps the so-called hidden tax of the uninsured.

Ironically--and counterintuitively--the real problem behind out-of-control costs is "overinsurance." Across the country, many of those with health insurance are consuming far more health care than they actually need.

Insured Americans use health services twice as much, per person, as the uninsured. Sen. Tom Coburn (R-Okla.), an obstetrician, estimates that as much as one-third of health care is wasted because almost nobody has the right incentives to use it wisely.

Further, the concentration of health expenses is almost identical among both the insured and uninsured populations. That means that about half of each group has little or no health expenses, while just 5 percent of each population incurs 50 percent of its group's health care expenses.

In other words, compulsory insurance won't magically transform the incentives for the uninsured to consume health care. Instead, it will simply move them onto a higher spending baseline.

The real "hidden tax" in today's health-care system is levied by the insured on their fellow insured. Most politicians have no interest in talking about this tax. Asking the millions of insured Americans to willingly consume less health care is a path to electoral defeat.

Until someone has the courage to tackle this real problem, Americans can expect to be deluged with proposals for mandatory health insurance that are unhealthy, unwise and expensive. And if instituted, the proposals will do nothing but drive our costs even higher.

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John R. Graham is director of health care studies at the Pacific Research Institute.