Families USA Makes Strong Bid for Worst Study of the Year Award

In the ominously titled Hidden Health Care Tax, Families USA claims the uninsured are costing other Americans $1,017 a year (family) or $368 (individual) in unpaid medical bills. That's five times previous estimates and in stark contrast to the estimate by Hadley et al. that uncompensated care amounts to at most 1.7 percent of the amount spent on private health insurance. [link] The latter estimate implies that an individual with expensive employer coverage priced at the 2006 average of $4,118 is incurring a "hidden tax" of about $70 a year. [link] A family with expensive employer coverage priced at the 2006 average premium of $11,381 is incurring a "hidden tax" of at most $200 a year. [link] 

Compared to the cost of any conceivable Congressional program to "make health coverage affordable for all Americans" of the type that Families USA supports, an annual $70 to $200 increase in private insurance premiums is a bargain.

Beginning with the reputable 2006 Medical Expenditure Panel Survey (MEPS), Families USA used three methods to pump up its uncompensated care numbers.

Disregarding Important Sources of Payment. Without explanation, Families USA disregarded categories accounting for roughly 33% of the payments MEPS allocates for uninsured care. These categories include payments under automobile coverage, Medicaid emergency coverage for women and newborns, state programs other than Medicaid, services provided by the federally subsidized community health centers, payments from employers that are not insurance, and payments from other kinds of insurance like liability insurance and critical illness insurance.

The sums involved can be substantial: Auto coverage medical payments account for $9 out of every $100 of automobile insurance premiums. [link] In 2006, U.S. drivers paid an estimated $447 billion in auto premiums. Nine percent of premiums would be roughly $40 billion in payments, a large number when compared to the $54.3 billion in uncompensated care that Hadley et al. estimate is the total amount of uncompensated care.

Inflating Estimates of Uncompensated Care. Families USA arbitrarily increased the number of 2006 MEPS uninsured by 2 percent to bring its 2008 estimates up to date. The last time the rate of uninsured increased by 2 percent over a two-year period was from 1980 to 1982. It has not increased by even 1 percent in any year since 1990. [link]

A back of the envelope calculation using Census Bureau estimates of the number of uninsured in 2006 and 2007, along with Census Bureau estimates of the number employed in 2006, 2007, and 2008 suggests that the Families USA arbitrary increase in the number of uninsured is accurate only if virtually all of the people who lost their jobs in 2008 both lost employer provided health insurance and failed to find any replacement for it. In view of the fact that many of these people were probably part-time workers, had spouses whose employers could provide health insurance, or could buy insurance for themselves directly, this does not seem particularly likely.

Families USA also ignored the fact that people who have part-year health insurance schedule medical care so that insurance pays for it. Furthermore, most uninsured people are only uninsured for part of a year. Hadley et al. report that the part-year insured incur 87 percent of their medical costs in the part of the year in which they have medical insurance. Families USA simply ignores this result.

Families USA assumes that the cost of services rendered to the uninsured should be based on what private insurance pays even though many uninsured people likely pay less for care. Furthermore, private insurance pays substantially more than any other third party payer. For physicians, a Milliman report on Washington state payments found that commercial payments were 24 to 45 percent higher than Medicare and Medicaid reimbursements.¹ Given the economic literature showing that hospitals adjust the intensity of care to match the expected level of payment, there is no particular reason to expect that the uninsured consume, or would be billed for, the same services that people with private insurance receive.

Allocating All Costs to the Private Sector. Families USA assumes that every dime of uncompensated care costs is passed on to the privately insured because Medicare and Medicaid have firm fixed prices for care that are difficult to adjust. This assumption is unlikely. Providers are adept at Medicare coding games and at wringing extra money out of legislatures. Providers also can adjust the intensity of care in a variety of ways, and those who pay less generally receive less care.

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