Are the Uninsured Getting a Free Ride?
A new government report says uninsured patients are generating $49 billion in unpaid hospital bills every year.
Put aside the fact that most of us don’t have much confidence in the way hospitals calculate what we owe and take that number at face value. It comes out to a little more than $1,000 per uninsured person per year.
Does that mean that the average uninsured patient is getting $1,000 of free medical care paid for by you and me? A lot of supporters of ObamaCare would like you to think so. That’s why we need a mandate, they argue, forcing people to buy health insurance whether they want it or not.
Ah…..but not so fast.
httpv://www.youtube.com/watch?v=gI5eT4UmyFY
We just ain’t going to pay no toll.
People who are insured by their employer’s plan are getting a fat tax break. Wages are subject to a 15.3 percent federal payroll (FICA) tax, plus federal, state and local income taxes. Employer-provided health benefits avoid all these taxes, however. That’s a subsidy equal to about 25 percent of the cost of health insurance for most employees.
But suppose you are one of those workers who gets all your compensation in the form of taxable wages and has no health insurance. Then you are paying higher taxes than someone earning just as much as you are but getting part of his compensation in the form of tax-free health insurance.
My back-of-the-envelope calculation suggests that the typical uninsured worker is paying more than $1,000 in extra taxes precisely because he is uninsured. That’s right. The uninsured aren’t really getting free rides after all. They’re mainly paying their own way! And if they are above-average income, they are paying their own way by a good margin.
Now, I know what you’re thinking. The uninsured may be paying more taxes to the government, but you’re paying for their health care. Their unpaid bills make your hospital bill higher than it would have been.
That may seem logical, but it turns out to be mostly wrong. The cost of the unpaid hospital bills is mainly borne by government (and therefore, taxpayers), not by shifting costs to other patients. In fact, George Mason University health economist Jack Hadley estimates that about 75 percent of the cost of free care for the uninsured is paid by government.
There’s more to the story. Roughly one in four uninsured people in this country are eligible for Medicaid or a state Children’s Health Insurance Plan (S-CHIP). In other words, if they signed up and became insured, you would be paying for their care anyway. In fact, you would probably pay more.
Again, health care numbers are so murky it’s hard to know what anything really costs. Still, I take my cue from Parkland Memorial Hospital in Dallas. Staffers at Parkland actually go from patient to patient, trying to get people to enroll in Medicaid right in the emergency room. (Half the time they fail!)
The fact that Parkland goes to so much trouble suggests that the hospital gets more money from the government (meaning you, the taxpayer) for Medicaid patients than it gets for uninsured patients.
Now if you think any of this is a justification for ObamaCare, here’s one more thing to consider. The taxpayer burden for insuring the uninsured under the new health reform law will be about four or five times larger than the amount we are spending on free care for the uninsured right now.
Take a family of four with an income of about $32,000. If they are uninsured and they reflect the average experience, they will generate about $4,000 in unpaid hospital bills this year. But the federal government will pay almost all of the $23,700 health insurance premium that will be needed for family to obtain Obama Care insurance in one of the new health insurance exchanges. The government will also reimburse the family for most of its out-of-pocket costs. According to one estimate, the total subsidy for this family under ObamaCare will reach $22,740.
Even if the uninsured aren’t paying their own way under the current system, you will be paying much, much more for them under the new health reform law.
In a future Alert I’ll discuss the right solution to this problem.
Excellent post. Good points.
This is a complex issue. Some people on the Left believe everyone has the moral obligation to pay into “the system” to offset the costs of those people who need more care than they could afford on their own. In this view, anybody who doesn’t have health coverage, but could afford it (whether using care or not), is free-riding.
A more conservative view is health coverage is asset protection for people with assets to protect. If a person doesn’t have health coverage and pays out of pocket for all the care they need within a given year, it is not free riding because they have costs society nothing.
The U.S. needs a system similar to Switzerland, where people have personal and portable coverage they keep for long periods of time. The bulk of premiums for people who are young (which could be subsidized by employers) should go into a personal health account (like an HSA). As workers age, the proportion of premiums that go into savings would fall. A larger portion would go to pay the higher, risk-rated premiums for a high-deductible health plan. This is sort of like the lifecycle theory of investing for retirement. People set aside funds when you which they plan to use when they retire and cannot work.
I like your musical pairing.
Can’t wait for the “right” solution. Paying almost as much for health care as the family earns is taxation that requires medication.
Up front this report asserts that uninsured can only afford to pay for 12% of the hospital admissions that they MIGHT experience. It discusses how LIKELY the uninsured are to be able to pay their hospital bills if they have to be admitted to the hospital. They use self-reported asset data from MEPS to determine financial resources.
It does not discuss how likely uninsured people are to be admitted to a hospital (they tend to be healthier than average) or even attempt to look at the actual amount of uncompensated care as Hadley et al. did.
Finally, they cite Families USA as a reference.
It sounds like health care reform is creating more free riders and more free riding than we had before!
An interesting take on the issue with information I’ve not seen elsewhere. A also another indicator that the current system, flawed as it may be, is still much superior to the proposed massive government intervention that Obama advocates.
Bravo, John! Well stated. Now if any of our vaunted “decision makers” and “opinion leaders” would actually pay attention, we might get something worthwhile done. I won’t hold my breath.
The numbers are astonishing. According to Milliman, the average health care spending for a family of four with an employer-sponsored PPO is now $19,393, and that doesn’t even include the administrative costs of the insurers, which under ACA would be 15 or 20 percent of the premium. In addition, 60 percent of our national health expenditures are paid through the tax system (that includes plans purchased for government employees and the tax preference for employer-sponsored plans).
With that staggering cost and a median household income at about $50,000 (2009), we really do need a transparent system of progressive health care financing. We can continue with our fragmented, opaque, administratively wasteful method of financing, or we could establish an efficient universal risk pool that is equitably funded through the tax system. The latter would also have the advantage of finally slowing cost escalation through the establishment of our own public monopsony.
Instead of trying to figure out where costs are being shifted, a public monopsony (single payer) would be paying negotiated rates based on legitimate costs and fair profits. The only shifting that would be taking place would be the transfer from higher income individuals that would take place since it is now impossible for low- and middle-income individuals to pay for their allocation of health care.
Or we could leave the health care consumer in charge, but where would the money they would need come from?
(Devon Herrick’s suggestion of HSAs with high-dedcutible plans doesn’t work because these individuals do not have enough income to fund the HSA and to pay the premium that would be required for the very high health care costs that we already face.)
Devon, I thought I heard that the system in Switzerland was starting to be gamed and that the “long periods of time” coverage was kept was getting smaller (I’m not sure). Doesn’t time increase the likelihood of health care mandates being gamed and losing their effectiveness? We need long term solutions that naturally change as time passes.
@ Al,
There are some cautionary lessons from the Swiss system. They have an individual mandate that invites special interests to lobby for mandated benefits. Rather than an individual mandate, there needs to be another mechanism to discourage people from gaming the system. Also, in recent years the Swiss system has slowly been moving towards managed competition. Under managed competition, everyone’s incentives are perverse. John and Linda both wrote about this a year or so ago: http://healthblog.ncpathinktank.org/swiss-health-care-the-good-the-bad-and-the-ugly/
My approach to health care policy has features similar to Switzerland’s and meets the problems raised by Don McCanne.
http://www.bipartisanhealthplan.com/hlthplan.htm
Don,
It is disingenuous to say there would be “negotiations” between providers and a monopoly payer. As for where the money would come from, it could come from the same places it comes from today. That is really not an issue.
But I think you guys are missing a bet by opposing HSAs. I’m surprised it hasn’t occurred to you to combine a single payer high deductible plan with a free market HSA. At least that way there would be some consumer choice, so people could make their own decisions about where to get services, e.g. chiropractors, acupuncturists, etc. without having to lobby for every little change in benefits.
Greg Scandlen
To amplify Greg’s comment, HSA like pilots have worked in Medicaid attendant care pilots.
And Indiana’s SCHIP experiment is set up to partly mimic HSAs. It’s too early to know how it will work long-term though initial results seem encouraging.
Unfortunately the mere prospect of consumer directed experiments so scared Congress, or the activists that actually run its health policy, that the 2009 SCHIP reauthorization bill specifically prohibits any more experiments along HSA lines.
FTA:
“Put aside the fact that most of us don’t have much confidence in the way hospitals calculate what we owe and take that number at face value. It comes out to a little more than $1,000 per uninsured person per year.”
I think this says it all. I would like to know if the 95/5 rule was applied here? If not this is just more made up numbers to support a political point of view.
@Don
“…an efficient universal risk pool that is equitably funded through the tax system.”
“public monopsony (single payer) would be paying negotiated rates based on legitimate costs and fair profits”
Are such things possible? Key elements are “equitable” funding through the tax system, “legitimate” costs and “fair” profits. Who decides the practical definition of these adjectives – politicians? bureaucrats?
The “free-rider” argument is one of the worst zombies in the health care debate: No matter how many times we kill it, it returns from the grave.
If the government gave the tax preference to the individual, instead of his employer, it would be more apparent to people that the uninsured as a class pay their way. The high-income earner who does not have insurance voluntarily pays extra taxes, as Dr. Goodman points out. However, this is not transparent. If the individual received a tax deduction or credit for buying a qualifying health plan, then the total cash value of unclaimed deductions or credits could be easily reckoned and divided amongst the states to fund the “safety net” for the uninsured.
This is not to say that every uninsured person will take “personal responsibility.” The high-income uninsured will subsidize the low-income uninsured. Nevertheless, the “problem” of the uninsured will be contained within the class of uninsured people.
This is an interesting analysis of a complex issue.
That said, the problem with this spin on the problem is that it looks at a problem that really should be considering the lifelong (not annual) costs of healthcare interventions, which is really an accrual accounting problem, from a cash accounting viewpoint. Cash accounting is not going to give the right answer.
While I personally support the maximal use of free market principles to help control healthcare expectations and therefore costs, there are some things that even a completely free market society (which we are not) will not permit, like citizens dying like dogs in plain sight in front of closed hospital doors. Given this, ultimately we have to accept that we will be public funding to spare us these unsightly experiences. Therefore, the way to control how much we pay for the care of those who cannot pay for themselves will need to be defined by some sort of societal agreement to what constitutes basic care that we are compelled by our human nature to provide to all. Any other approach is contrary to human nature and therefore politically unrealistic.
Currently we essentially allow anyone eligible for public care (which ultimately could include all of us if our need for healthcare eventually makes us medically indigent) to demand every increasingly expensive desired intervention that is invented regardless of whether or not it is scientifically validated. The mortality for human beings will continue to be 100% into the near future, and if we cannot all accept this in a rational way, and make decisions accordingly, we will continue to allow millions in public money to be spent to save days of existence in persons without any quality of life. This will absolutely bankrupt the country regardless of any other policies or reforms that we put into place. It is a mathematical certainty.
Frank,
Equitable financing, legitimate costs and fair profits are features of health care financing systems in all other industrialized nations, each of which has universal coverage at much lower costs. If not organized as a national health service, each at least has some form of social insurance, even if administered through private plans. So, yes, not only are these possible, it is happening all over the world.
Greg,
Stewards of well functioning health care financing systems do interact with components of the delivery system to make sure that payments are adequate to cover costs while preventing egregious profits. You can label that whatever you want, but “negotiation” communicates the message.
Regarding free market HSAs for non-covered services and products, it would be inappropriate to use taxpayer subsidies (tax-prefferd status) to pay for such care. But anyone should be free to use their personal savings as they wish, outside of the system.
Regarding HSAs for services covered by the program, we are far more impressed with the literature that supports first dollar coverage. Price sensitivity applies to a relatively small percentage of our total health care spending (80/20 rule), yet it clearly causes people to forgo care that they should have. Other nations with first dollar coverage do not have the high costs that we have.
@ Bob Suter
Good points, but if we are going to get into the nuances of accrual vs. cash accounting as it concerns the subject of how to fund public health care, maybe we should also consider the real long term costs of encouraging (if not requiring) certain lifestyle behavior modifications in conjunction with the nanny state benefit hand out.
Discussions of how to globally control health care costs should make us all very uncomfortable because
At some point it will become painfully obvious to the bureaucrats de jour that it is costing a lot more money to keep people alive for many extra years than to have allowed them to have smoked, lounged and eaten themselves into the cardiac big one at a relatively young age (preferably right after they stopped paying a lot of income tax). That should present some interesting “spin” for the health care Politburo to concoct in order to convince the Great Unwashed that they are still looking out for them after the real death panels start operating. I mean heck, we gotta keep the health care budget under control don’t we? “Soylent Green” anyone?
It seems to me the simplest and most effective cost control mechanism is somehow associated with the natural selection of the “Darwin Awards” process. With the acknowledgment that we as a society are certainly not going to “let people die like dogs at closed hospital doors”, perhaps we should stop short of making people adult wards of the state. People have to be free to make their own decisions, and take responsibility for their actions.
Lines and doing without care is always a way to lower costs. If someone dies on line waiting or doesn’t get the care it is obvious that costs will go down. Yes, our costs are far more than they should be, but the costs seem to be increasing side by side with our tendencies to follow our western friends despite the fact that we have the best care in the world. Yes, we also spend more on TV’s, the military and almost everything else. Our system has brought us tremendous amounts of wealth as demonstrated by the amount of consumer goods found in the US. Get rid of the foolishness involved in the progressive methods of managing health care and our costs will fall while our quality remains the highest.
Frank,
Your last paragraph……..well-said.
If you think about it, all people have insurance….Those that don’t buy it are self-insured.
This is based on chargemaster rates. Having gotten to know many many hospital administrators, when they report “uncompensated care”, they report it at chargemaster rates.
When my wife had a joint replacement, we paid $1,300 facility fees, and the chargemaster cost was $21,000. We have a group client at http://www.MediBid.com whom we have saved $60,000 in the first 5 months, and that’s compared to average posted cash prices, not even chargemaster.
When a car dealer offers financing, they advertise cars at $299 per month zero down, to disguise the real cost, and medical care is no different.
If hospitals had transparency in pricing, and charged the uninsured Medicare plus 20%, there’s probably be very few people who didn’t pay. And if they didn’t, current law allows hospitals ot issue a 1099 for uncompensated care.
Greg is right, it’s like the zombie that keeps coming back to life.
This is a real head thumper, eye opener and reality check all in one. Thanks so much for the information –now let’s tell Congress!