Do the Uninsured Shift Costs to Those Who are Insured?

Not according to a Wall Street Journal editorial by John Cogan, Glenn Hubbard, and Daniel Kessler:

A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study’s authors conclude: “Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance.” For the typical insurance plan, this amounts to approximately $80 per year.

The Health Affairs study is supported by another recent peer- reviewed study that focused exclusively on physicians. That 2007 study, authored by Massachusetts Institute of Technology economists Jonathan Gruber and David Rodriguez and published in the Journal of Health Economics, found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.

Comments (8)

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  1. Paul H. says:

    Good post. Sound analysis.

  2. Ken says:

    If there is no cost shifting then the whole argument for mandated health insurance and universal coverage vanishes. At least the rest of us have no self interest in mandates — self interest being the way they tried to sell it to us.

  3. Devon Herrick says:

    I have always had my doubts about the cost-shift argument. In a competitive market it is almost impossible to shift costs of one customer to another. Granted, the health care market is not competitive. But profit maximizing firms would raise prices to what the market will bear. What some people call cost-shifting is really price discrimination — where sellers charge different prices to different customers based on different levels of bargaining power.

    For example, reimbursements for Medicare patients may be less than average cost; but still above marginal cost. Private payers may keep the clinic doors open by covering overhead and variable costs; while Medicare may only cover variable costs. That doesn’t mean the cost of Medicare is being shifted to private insurers. It merely means privately insured patients are more lucrative customers to have than Medicare-insured patients.

  4. Joe S. says:

    Agree with Ken. It undercuts the whole argument for Obama Care.

  5. Donna Kinney says:

    While I surely understand why lots of people might want this to be true, it’s just pretty obvious that SOMEONE is paying for uncompensated care. In a lot of outpatient settings the uninsured pay for their own care and so lack of insurance does not mean no payment, but where the uncompensated care is high, such as for hospital emergency rooms and the physicians who staff them or take call for them, no services could be produced at all if there were no source of payment. Physicians don’t get charitable contribuutions to cover this cost, so the only way it can be covered is to charge higher prices to those who do pay.

  6. Devon Herrick says:

    Donna you’re talking about a different type of cost shift. John Cogan, Glenn Hubbard, and Daniel Kessler are discussing whether doctors and hospitals can raise the prices they charge private insurers enough to shift the cost of providing uncompensated care onto insurers. Economists tend to say this is not possible because providers already charge private insurers what the market will bear.

    The scenario you refer to: the cost of doctors treating indigent patients. What’s actually happening is the cost of physicians providing uncompensated care to indigent patients is partly born by physicians and hospitals (because they cannot shift the cost to better-paying clients).

    From another standpoint, the cost shift is the government shifting the cost of a public policy problem (how to care for indigent patients) onto the providers of care. As you stated, there is a cost for treating these patients and physicians bear a significant portion (as do taxpayers).

  7. Greg says:

    Ditto Ken and Joe. This destroys the most frequently made argument for a health insurance mandate.

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