Jonathan Gruber (2008) has a nice review article in the most recent edition of the Journal of Economic Literature. This article is especially good for those who are not schooled in the basic issues of the uninsured. It is also useful for professors wishing to teach students about the uninsured in America.
The article reviews economic concepts such as adverse selection, moral hazard, crowd-out, and risk aversion. Below I will highlight some other key concepts.
- Employers are the source of health insurance for 3 reasons: 1) risk pooling, 2) the tax deductibility of employer-provided health insurance, 3) lower administrative cost.
- The uninsured often receive uncompensated care. ”Under federal law, any hospital that accepts reimbursement from Medicare must treat individuals who arrive in an emergent state, regardless of their ability to pay.”
- Martin Feldstein (1971) proposes a major risk insurance plan, in which individuals would face a 50% copayment on all medical care until they spent 10% of their income on medical care.
- Does higher deductibles lead individuals to forego needed preventive or primary care and lead to more hospitalizations? The RAND Health Insurance Experiment found that this was not the case, higher deductibles lead to lower medical expenditures and no change in hospitalizations. However, a paper by Gruber (2006) found that low income, chronically ill patients will forego needed healthcare with high deductibles and hospitalizations increase.
- Why should we care about the uninsured? Possible externalities from increased probabilities of communicable disease infection, “job lock”, paternalism, and redistributional reasons.
- Administrative costs for private health insurance in the U.S. are 12% of of premiums compared to 1.3% in Canada.
Below are some data on the uninsured.
| Nonelderly Americans’ Source of Health Insurance Coverage | ||
| People (m) | Percentage | |
| Private | 179.4 | 69.0% |
| Employment Based | 161.7 | 62.2% |
| Indiv. Purchased | 17.7 | 6.8% |
| Public | 45.5 | 17.5% |
| Medicare | 6.5 | 2.5% |
| Medicaid | 34.9 | 13.4% |
| TRICARE/CHAMPVA | 7.1 | 2.7% |
| Uninsured | 46.5 | 17.9% |
| TOTAL | 260.0 | |
| Nonelderly Americans’ Source of Health Insurance by Income | |||||
| Income | Total | Employer-based | Individual Plan | Public | Uninsured |
| <$10,000 | 20.5 | 2.2 | 2.1 | 9.5 | 46.5 |
| $10,000-$19,999 | 22.8 | 4.9 | 2.1 | 9.1 | 7.3 |
| $20,000-$29,999 | 25.0 | 9.8 | 2.0 | 6.8 | 7.8 |
| $30,000-$39,999 | 25.6 | 13.4 | 1.9 | 5.5 | 6.1 |
| $40,000-$49,999 | 23.4 | 15.0 | 1.6 | 3.6 | 4.5 |
| $50,000-$74,999 | 48.9 | 36.6 | 3.0 | 5.2 | 6.4 |
| >$75,000 | 93.8 | 79.9 | 5.0 | 5.7 | 6.7 |
| Total | 260.0 | 161.7 | 17.7 | 45.5 | 46.5 |
- Gruber, Jonathan 2008. “Covering the Uninsured in the United States. “Journal of Economic Literature, 46(3): 571–606.
2 comments
October 7, 2008 at 4:27 pm
A Carroll
Please explain how Gruber came up with the 12% figure for “administrative costs for private health insurance in the U.S,” while the more widely-known and accepted figure is 30%-31%. Does he mean to say that private insurers are spending 88% of their income from premiums on paying claims for health services? If so, why would proposals for laws for heatlh “reform”, such as here in PA, require that private insurers spend at least 85% of their premium income on payments? Nobody believes, based on research from various independent sources (as opposed to the industry itself) that private insurers spend 88% of their premium income on paying claims.
October 7, 2008 at 9:19 pm
Jason Shafrin
Gruber cites a paper by Woolhandler, Campbell and Himmelstein (NEJM 2003) which states the following: “In 1999, health administration costs totaled at least$294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance program had overhead of 1.3 percent; the overhead among Canada’s private insurers was higher than that in the United States (13.2 percent vs.11.7 percent). Providers’ administrative costs were far lower in Canada.”