More Insurance Equals More Spending

What do uninsured people do when they become insured? They consume more health care. This fact seems to have been largely overlooked when Congress passed the health reform bill.

The latest work confirming the proposition that health insurance increases health care spending comes is a NBER Working Paper. [Gated, with abstract.] The study predicts that “near universal coverage could raise total hospital stays by 3.9 million per year and ED [emergency department] visits by 13.1 million per year subject to supply constraints.”

The John Goodman Health Policy Blog also reported that the number of emergency room visits under the new national health reform is likely to soar.

Using hospital emergency room visit data from 5 states and the fact that 19 year olds were generally not eligible for their parents’ health insurance policies in 2004 to 2007, the authors estimate that emergency department visits by 19 year olds were 40 percent lower than visits by 18 year olds. The authors note that the net decrease suggests that newly uninsured patients do not, as is commonly claimed, use emergency departments for primary care.

Hospital admissions through the emergency room, likely the least price sensitive admissions, dropped by 1 to 2 percent at age 19. More price sensitive inpatient admissions fell by 6.7 percent for males and 6.0 percent for females. The reductions occurred at private and non-profit hospitals, but not at public hospitals. The sample excludes pregnant women. (In the United States, virtually all pregnant women have third-party insurance coverage.)

Overall, the authors estimate that a 10 percent decrease in third party coverage apparently decreases emergency department visits by 4 percent. They note that “little convincing evidence exists that can quantify the extent to which coverage affects health in the long run.”

Comments (7)

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  1. Bruce says:

    What a timely post. See the comment by artk on the previous post and my response to it.

  2. Tom H. says:

    You are absolutely right when you say Congress didn’t consider these responses. Although the mainstream media ignored the fact, there was never even a Congressional hearing on Obama Care!

  3. Larry C. says:

    Why do people in health care seem to know so little about economics? Or maybe more to the point, why do they seem to think that economic incentives don’t matter?

  4. steve says:

    “Why do people in health care seem to know so little about economics? Or maybe more to the point, why do they seem to think that economic incentives don’t matter?”

    Many of us do, however we also work with patients. Many if not most patients do not behave like rational actors when it comes to making the biggest decisions. After about the hundredth time of offering a safer and cheaper alternative only to have it rejected for a riskier option, you catch on. You also begin to understand how emotionally vulnerable people are when it comes time to make these decisions.

    When you first think about things like HSAs, they seem to make sense. Then, you learn some economic theory, couple it with how medical spending actually occurs, who spends it and on what, and you begin to have second thoughts. Before making a widespread commitment, it should have some large scale studies designed to avoid selection bias.


  5. Linda Gorman says:


    Large scale study designed to avoid selection bias: RAND Health Insurance Experiment.

    On patients not behaving like rational actors–what fraction of the patients you see are actually insured under qualified high deductible plans and have HSAs?

  6. steve says:

    The number of people in HSAs in my area is small, less than 5%. We tried to introduce it as an option for my group, but those with children or spouses who were currently undergoing significant care shot it down.

    I am familiar with the RAND study. My interpretation is that it did modestly reduce costs for those who were healthy. We have no idea what would happen with large scale implementation, including those who are actually sick. For years I have hoped that a pro-free market state, someplace like Texas, would make this experiment on a state wide basis.


  7. Linda Gorman says:

    According to Manning et al. American Economic Review, June 1987, the RAND Health Insurance Experiment documented that “A catastrophic insurance plan reduces expenditures 31 percent relative to zero out-of-pocket price.”

    We see similar reductions in current consumer directed health groups and in the Cash & Counseling type experiments that have been done in Medicaid. The Medicaid results are for those who are chronically ill.

    By current health care policy standards these are substantial reductions.