Unbiased Analysis of Today's Healthcare Issues

The uninsured don’t want health insurance?

Written By: Jason Shafrin - Aug• 18•08

Economists often state that uninsured individuals do not “want” health insurance. Joe Paduda claims that this is not the case; most uninsured do want health insurance. Mr. Paduda cites a Washington Post, Kaiser Family Foundation and Harvard University survey which shows that “when asked why they don’t participate in their employer’s program, 1% of survey respondents said it was because didn’t think they needed insurance.” Most people decide to not to purchase health insurance–not because they do not want it–because they can not afford it.

This is where economic terminology can create confusion and also clarify the situation. Let me give you an example of what “want” means to an economist.

I want an Audi R8. However, the cost of this car starts at $112,500. Thus, I prefer to drive a 2003 Toyota Matrix and have some money left over to buy food, pay for rent, etc. Although I do “want” the sports car, I want more to not owe a huge amount of debt and instead be able to afford for other goods that I desire.

Similarly, for economists, if an individual is uninsured, it must be the case that this is because they prefer this situation. This may seem like a tautology, but what it means is that an individual who is uninsured would rather be uninsured than pay $12,100 and be insured. The $12,100 that would have gone to health insurance, can be used for food, rent, etc. Further, if you are young and healthy, the probability that you will become sick is probably fairly small compared to the average insured individual and thus you will be paying more for insurance than the expected value of your medical costs.

Those who argue that all individuals should have health insurance can argue this based on equity goals. However, in order to make health insurance more attractive, one must either 1) lower the price of health insurance, or 2) increase the after-tax incomes of low income workers. The first can be done with more flexible insurance arrangements, offering more basic health insurance coverage, improving the efficiency of the health care sector and by man other means. The second means to increasing insurance can be accomplished by either increased economic growth or a more redistributive tax policy.

Nevertheless, nothing in this world is free (especially health care). Everyone would want health insurance if it were free; but because it is so expensive, other wants come to be more important than health insurance and thus individuals become uninsured.

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6 Comments

  1. Dan R. says:

    There is some small but quantifiable percentage of those without health insurance who can’t get it at any price due to pre-existing conditions.

  2. Thank you for this – reminding me why I love economics (no degree in it, but I did minor in econ as an undergrad). Definitely differences between realistic wants and pie-in-the-sky wants. Sad that health insurance has to fall into the second category, but you do a beautiful job spelling out the economic concept behind it.

  3. Julio Bonis says:

    > However, in order to make health insurance more attractive, one must either 1) lower the price of health insurance, or 2) increase the after-tax incomes of low income workers.

    Or 3) consider health insurance as a citizens right and a social duty. nobody can reject to support the costs of police or defense (army). Following your arguments I could say: “As I live in a castle I prefer not to pay taxes to support the costs of police that fights against crime”. You can consider healthcare being as defense or courts. In Spain, for example we have that model, we spend much less in health-care and our health outcomes are at least similar to those in USA.

    >Everyone would want health insurance if it were free; but because it is so expensive, other wants come to be more important than health insurance and thus individuals become uninsured.

    This thinking works fine when you should select between having a Ferrari or having health insurance. The problem is when you have to select between housing or health-care insurance. The question again is: do you consider health-care as a right? or as a consumer-good?.

  4. Anon Forthisone says:

    Thank you for voicing reason on this. I’ve lived in Europe for a while, and a lot more people fall through the cracks of “socialised medicine” than we Americans would like to think. Once one’s “fallen through” – in my case, due to insurer error – it’s often expensive or impossible to get back in.

  5. jim says:

    About 40% of the uninsured could be covered by some governmental progam but chose not to enroll..this has nothing to with the allocation of their pay check..Massachusetts has gone to universal healthcare and found that most of the uninsured could have been covered prior to the program and they are having a difficult time getting these people to maintain their enrollment…what incentive do they have to enroll?..they can go to any emergency room and be treated and NOW not pay the bill because of the charity care policies of most medical centers..this is one of the unintended consequences based on the activities of patient advocacy groups,state legislation and the IRS..it was already difficult to enroll and keep a person enrolled and now we have created further incentives not to enroll..

    we are actually seeing patients who have insurance telling us they don’t have it so they can be classified as charity and get rates below their co-pay and receive prescriptions as if they were charity…

    A person who takes advantage of charity care is only hurting themselves because it is not preventive as it relates to their coverage and ability to see health care providers..