Unbiased Analysis of Today's Healthcare Issues

Covering the Uninsured

Written By: Jason Shafrin - Oct• 06•08

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%
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

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  1. Jason Shafrin says:

    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.”

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