A few months ago, I cross-posted a blog written by my cousin Michael who works in analysis of the health care industry. At that time, we were talking about the proposed expansion of SCHIP and its subsequent veto by a suddenly fiscally-conservative President Bush. In this post, Michael talks about the problem of poverty and how it relates to health care.
I think that this speaks to the idea of people "who can afford insurance just not wanting it." This is an argument I've heard from conservatives on campus all the way up to national politics.
Hate to break it to you, but there are poor people in the country who are getting poorer and sicker because of irresponsible tax cuts for millionaires and the lack of health care available to them. And Senator McCain says hope to change the system is a platitude.
Respectfully, sir, I think your hope of winning the general election is the real platitude in American politics today.
The Poverty Syndrome
Posted by Michael Klozotsky on February 19, 2008
Hospitals know them as the sizable and growing self-pay population. Many well heeled Americans refer to them as deadbeats, hangers-on, or freeloaders. Some collection agencies see them as a potential source of revenue. “They” might be identified as uninsured Americans, but that is largely a symptom of an underlying affliction.
They are America’s poor.
According to Dr. Otis Brawly, Chief Medical Officer for the American Cancer Society, in today’s Atlanta Journal-Constitution, “Insurance versus non-insurance is a great marker for people who are socially deprived or poor.”
The findings of a major ACS study released today show that cancer patients with private insurance are much less likely to be diagnosed with late-stage cancers than those who lack insurance. The broad study of 3.5 million patients with 12 common types of cancer also found that many of those advanced-stage diseases could have been discovered by appropriate early screening methods.
The notion that insured patients statistically seek care earlier, have access to more care, and ultimately live longer than uninsured patients is perhaps not earth shattering. But it highlights a false dichotomy in the rhetoric that surrounds the U.S. healthcare crisis.
Uninsured Americans, many of whom are poor—or the American poor, many of whom are uninsured—not only lack insurance. In most instances they lack basic heath information, reliable and convenient modes of transportation, and jobs that afford them the benefit of leave time to visit a doctor’s office. Circumstances like these that impede adequate medical care are conditions of poverty often ignored in an “insured v. uninsured” assessment of healthcare in America. Thus, Dr. Brawly notes, “While giving people insurance would improve things, it will not improve everything.”
If that weren’t enough, findings recently presented at the American Association for the Advancement of Science found that “many children growing up in very poor families with low social status experience unhealthy levels of stress hormones, which impair their neural development.” In short: poverty affects biology. The result is that the poor stay poor.
Now reinsert the corollary absence of health insurance for this population and the grim cycles repeat themselves.
In this election year, Americans are talking about things that matter to them. The economy and healthcare are high on voters’ lists of priorities, and politicians have been quick to fall in step with their supporters’ concerns.
But eloquent proposals for universal health coverage and quick tax rebates aren’t going to solve poverty in America. The question is—can will we ever solve “the economy” and “healthcare” without first addressing poverty?
I think that this speaks to the idea of people "who can afford insurance just not wanting it." This is an argument I've heard from conservatives on campus all the way up to national politics.
Hate to break it to you, but there are poor people in the country who are getting poorer and sicker because of irresponsible tax cuts for millionaires and the lack of health care available to them. And Senator McCain says hope to change the system is a platitude.
Respectfully, sir, I think your hope of winning the general election is the real platitude in American politics today.
15 Comments:
There are three substantial segments of the uninsured population in the United States:
First, there are people who can't afford health insurance who want it, but aren't covered by private plans, medicare, SCHIP, medicaid, the DOD, the VA, or state equivilents. These are the individuals in which the government should have a responsibility to make health insurance financially more accessible. This is where the government is primarily failing on accessibility to health care in the US (and therefore also cost controls, due to the resulting ER and chronic disease cost overuns).
Second, there are the the individuals who have enough money to afford coverage, but don't choose to purchase it. These are the individuals we should not be mandating to get coverage, because doing so will increase the premium cost of coverage with no benefit to the individual's utility or to the utility of anyone else for that matter.
Third, there are undocumented immigrants, who are largely uninsured and probably most would want health insurance, but I don't think it is a good idea for the government to be covering this portion of the uninsured population since it would be encouraging illegal immigration over legal immigration.
Liberals (Obama and Clinton included) love to only talk about the first group of the uninsured. Conservatives (John McCain included) love to only talk about the 2nd two groups of the uninsured. In reality, all three groups of uninsured exist and any responsible health care accessibility solution needs to take into account the existence of all three.
You forgot the fourth group. The Americans who have health insurance but it doesn't actually cover anything when they need it. Insurance companies are in business to deny claims.
Remind me to rip up your other argument later, David.
*I should clarify. I consider them uninsured because it is basically like they don't have coverage.
David, we pay for the 2nd group whether we like it or not, unless you're proposing that emergency rooms deny care for medical emergencies to those without health insurance. The government always reimburses hospitals for a portion of the free care they give out which is covered by taxes, and the care that is not compensated if paid by us in the form of higher premiums and lost wages.
We can either pay for these groups that lack health insurance at the front end, subsidizing insurance coverage for them and mandating it or just providing it through government revenue, or at the back end, i.e. when their problems are severe enough to require high-cost interventions at the emergency room. I think the first approach is smarter. Health care is a collective responsibility either way, even if conservatives would rather pretend no one gets a free ride under our system and we're not wasting huge amounts of money and lives due to this fantasy.
"You forgot the fourth group. The Americans who have health insurance but it doesn't actually cover anything when they need it. Insurance companies are in business to deny claims.
Remind me to rip up your other argument later, David."
I didn't forget them, since they are insured. Quality of coverage for thought who are insured is a seperate issue. I agree that federal and state laws should protect health insurance consumers a hell of a lot more when it comes to claims being denied.
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Long post coming up...
I'll post my conclusion first if you don't want to go through the methodology.
Conclusion:
The insurance companies (the ones Suchita says are frequently ripping people off of their claims and she is right), are getting $359,569,988 more a year than Wisconsin tax payers are saving in ER costs with group #2 forcibly being insured (along with everyone else). Additionally, your average privately insured individual is paying 10% more a year in premiums.
Most privately insured individuals are what Democrats and Republicans would label "middle class". Frequently, they are in the group Suchita mentioned above, paying premiums and getting screwed out of a lot of claims. So what mandatory coverage is asking them to do is pay more for their private health insurance, with absolutely no added benefit, and with no improvement to their coverage quality. Sounds like a pretty regressive health insurance policy to me.
"David, we pay for the 2nd group whether we like it or not, unless you're proposing that emergency rooms deny care for medical emergencies to those without health insurance. The government always reimburses hospitals for a portion of the free care they give out which is covered by taxes, and the care that is not compensated if paid by us in the form of higher premiums and lost wages.
We can either pay for these groups that lack health insurance at the front end, subsidizing insurance coverage for them and mandating it or just providing it through government revenue, or at the back end, i.e. when their problems are severe enough to require high-cost interventions at the emergency room. I think the first approach is smarter. Health care is a collective responsibility either way, even if conservatives would rather pretend no one gets a free ride under our system and we're not wasting huge amounts of money and lives due to this fantasy."
Most of this group (group #2) chooses not to get coverage because they see themselves at lower health risk and/or can pay out of pocket. Typically they are younger, healthier, and from a more affluent economic background than the average American. Thus, they are comparatively very unlikely to be using ER often or having expensive-to-treat chronic diseases. For this reason making them get insurance means they will be raising the market price of private insurance for everyone else, but barely using the coverage themselves - this effect is amplified further by insurance markets being almost completely intrastate, not interstate (thus lacking competition).
Assumptions...
If we assume one out of seven of your average persons in Wisconsin uses ER once a year and ER costs $1,246 per use (MEPS: http://www.meps.ahrq.gov/mepsweb/data_files/publications/st111/stat111.pdf).
If we also assume Wisconsin's average annual individual health insurance market premium cost $1,254 (AHIP: http://www.ahipresearch.org/PDFs/StateData/StateDataWisconsin.pdf).
If we further assume mandates in Wisconsin would boost the cost of private coverage premiums in Wisconsin by the 10% they are going up in Massachusetts (Economist: http://www.economist.com/world/na/displaystory.cfm?story_id=10254606).
Then, if we assume this group makes up only 11% of the 9% uninsured in Wisconsin’s 5,556,506 person population (2006 CS: http://quickfacts.census.gov/qfd/states/55000.html, AHIP: http://www.ahipresearch.org/PDFs/StateData/StateDataWisconsin.pdf, profile of affluent uninsured income over 500% of the FPL HHS: http://aspe.hhs.gov/health/reports/05/uninsured-cps/index.htm#income).
Finally, if we assume that this demographic is only in the age group 18-34 and so makes up 41% of the uninsured before adjusting down to only 11% of this 41%, meeting our FPL requirement above (HHS: http://aspe.hhs.gov/health/reports/05/uninsured-cps/index.htm#income).
Methodology...
(5,556,506 people in Wisconsin)*(.09, rate of uninsured in Wisconsin)*(.11, percentage of uninsured who are 500% about the FPL)*(.41, percentage of uninsured who are ages 18-34) = 5,556,506*.09*.11*.41 = 22,553 people forcibly entering the insurance market from group #2.
Now that we have a very conservative estimate of group number 2 calculated, let’s analyze the costs of forcing them to be insured versus not.
Every year 22,553*(.142, the 1/7 average using ER once a year) = 3202 people from this group use ER (in reality it is far less since this group has less chronic diseases and ER use than average; I just took the average Wisconsin ER usage to be generous to your side of the argument).
ER costs $1,246 per use so the annual cost of the status quo with this demographic is:
$1246*(3202 people) = $3,989,692 of ER costs a year in the status quo for group #2.
4,224,000 individuals are privately insured in Wisconsin. 57% of these individuals are self-insured. See the AHIP source again.
Thus, 2,407,680 (57% of 4,224,000) individuals in Wisconsin are in the same individual (not company or group) coverage plan market as the demographic you want to force to buy insurance.
Now ALL individuals in the insurance market (middle class, rich, etc.) see their premiums go up 10% because of the lack of competition in the intrastate Wisconsin insurance market, as private coverage premiums did in MA after mandatory coverage was instituted.
$1254 average annual individual premium rate before becomes: $1254*1.1 = $1397 a year.
The absolute change in premium cost per individual: $1397-$1246 = $151 Then, $151*(2,407,680 individuals) = $363,559,680 more a year in premiums for a savings of $3,989,692 (we are assuming ER costs become $0 to be very generous to your side of the argument).
To conclude:
The insurance companies (the ones Suchita says are frequently ripping people off of their claims and she is right), are getting $359,569,988 more a year than Wisconsin tax payers are saving in ER costs with group #2 forcibly being insured (along with everyone else). Additionally, your average privately insured individual is paying 10% more a year in premiums.
Most privately insured individuals are what Democrats and Republicans would label "middle class". Frequently, they are in the group Suchita mentioned above, paying premiums and getting screwed out of a lot of claims. So what mandatory coverage is asking them to do is pay more for their private health insurance, with absolutely no added benefit, and with no improvement to their coverage quality. Sounds like a pretty regressive health insurance policy to me.
And that is why both Hillary and Obama propose first dramatically reforming our current system.
I wish I had more time right now to respond, David. I will eventually.
No rush. We'll sort this out at some point hehe...
Guess I'm going to preempt Suchita.
Anyway David, that was an interesting analysis but many of your premises are pretty strikingly flawed. While I don't deny that many of the individuals who could afford to but still choose not to buy health insurance may be making a rational economic decision FOR THEM, they still end up being free riders to society.
-1st: While the average cost of emergency room visits might be $1250, my guess is for people who don't get health care elsewhere and use it for routine care, they will end up costing a lot more than that when they go and that more than 1/7 of them visit the emergency room every year (1/7 is for the population as a whole, most of whom have access to other forms of care, not the uninsured).
-2nd: While the average cost of an individual premium on the market today may be $1250 (assuming no preexisting conditions), the government's purchasing power and ability to subsidize individuals to buy their own premium in some kind of regulated market (which all the Democratic presidential candidates are proposing) will drastically decrease the actual cost per premium. Insurance companies will have to drastically lower prices to be able to compete to cover the proposed national insurance pool.
-3rd: Costs for individual premiums may have gone up 10% in Massachusetts the year after they implemented the health care mandate, but keep in mind overall health care cost inflation was already 7% in 2006 http://www.nchc.org/facts/cost.shtml.
Thus the increase in inflation from the mandate itself was really only 3%. But even that figure is complete speculation because it ignores all the other possible factors that could have increased health care cost inflation in Mass. more than the national average. Health costs obviously have more components than insurance premiums (drugs, equipment, etc). Even if there were costs directly associated with increased demand from the mandate, the Democratic presidential candidates are proposing reforms on a national scale, not state by state, which would avoid the problem of only a few local insurance companies having to deal with all the increased demand. But basically my point here is that it's only fair to consider the increase in insurance costs due to a mandate, not the year to year increase in health costs as a whole.
-4th: Self-insured does NOT mean you buy your own insurance policy on the market. Far less than 57% of the insured population actually buys their own policy. I don't have the statistics for Wisconsin but the national average is 5% (http://health.usnews.com/articles/health/2008/01/24/health-insurance-options-that-squeeze-individuals.html) so your estimate there is WAYYY off. Self-insurance actually is employer-based and refers to the fact that employers pay out claims from contributions to a fund and bear the risk rather than premiums being paid directly to the insurance company which would in turn bear the risk.
If I found the exact figures we could redo the analysis and the numbers wouldn't be anywhere near the ones you found. But in general, if we did impose a mandate at the state level requiring everyone to buy health insurance we'd have is AT MOST a 3% cost increase on AT MOST 5% of the population with a few additional small indirect costs POSSIBLY divided among all group insurance plans (which are probably impossible to calculate) due to increased demand. And even all that said, neither Obama nor Hillary is proposing we leave health care mandates up to the states. They both propose creating a pool that crosses state boundaries and mandating significant new cost control mechanisms, AND ONLY THEN subsidizing the uninsured to buy their own policies. So none of even these possible cost increases on the already insured necessarily have to take place, and in the long-term cost inflation would in theory be lower than the current level.
Ryan, great post. Thanks for catching my mistakes. The 5% vs 57%mistake is a huge one. I will redo my analysis and see what we get later tonight. It's always a pleasure debating you btw since you are good at catching stuff like this.
“Anyway David, that was an interesting analysis but many of your premises are pretty strikingly flawed. While I don't deny that many of the individuals who could afford to but still choose not to buy health insurance may be making a rational economic decision FOR THEM, they still end up being free riders to society.”
I ran the numbers with 5% instead of 57% and we still get the same answer for group #2. The likely rise in cost - even at your 3% inflation guess – is still more than the MAXIMUM savings from not using ER (assuming ER costs go to zero and they use it an average amount when they would probably use it less). Here, mandated health insurance (just in Wisconsin or federally down to each state) costs society more than the problem it is trying to solve. I continue to assume prices would rise in the individual coverage market, because Hillary Clinton’s mandate proposal NEVER mentions opening up state markets into a nation-wide insurance market.
“-1st: While the average cost of emergency room visits might be $1250, my guess is for people who don't get health care elsewhere and use it for routine care, they will end up costing a lot more than that when they go and that more than 1/7 of them visit the emergency room every year (1/7 is for the population as a whole, most of whom have access to other forms of care, not the uninsured).”
We are only talking about group #2. With #2, there is no routine care. They are the demographic where care is not routine, that is why they choose not to get insurance. This is also why they are probably below the 1/7 average people who use ER every year.
“-2nd: While the average cost of an individual premium on the market today may be $1250 (assuming no preexisting conditions), the government's purchasing power and ability to subsidize individuals to buy their own premium in some kind of regulated market (which all the Democratic presidential candidates are proposing) will drastically decrease the actual cost per premium. Insurance companies will have to drastically lower prices to be able to compete to cover the proposed national insurance pool.”
In the private market - the largest insurance market in every state, including Wisconsin – this is not true as long as buying insurance beyond state borders is difficult. Hillary Clinton does not support opening up the states’ private insurance markets into a national market. Obama does, but he does not support mandates, so is not relevant to this discussion at all (In fact a mix of Obama’s plan and McCain’s are what I personally support on national health care policy). I challenge you to find one place on Hillary Clinton's website where she supports the Health Care Choice Act or something like it, a bill that would de-regulate state health insurance markets so consumers can easily buy health insurance plans across state lines. Without her supporting this type of proposal, what I analyzed here for Wisconsin would probably happen in most of the 50 states if a national mandatory coverage scheme passed without a national private health insurance market in place beforehand.
“-3rd: Costs for individual premiums may have gone up 10% in Massachusetts the year after they implemented the health care mandate, but keep in mind overall health care cost inflation was already 7% in 2006 http://www.nchc.org/facts/cost.shtml.
Thus the increase in inflation from the mandate itself was really only 3%. But even that figure is complete speculation because it ignores all the other possible factors that could have increased health care cost inflation in Mass. more than the national average. Health costs obviously have more components than insurance premiums (drugs, equipment, etc). Even if there were costs directly associated with increased demand from the mandate, the Democratic presidential candidates are proposing reforms on a national scale, not state by state, which would avoid the problem of only a few local insurance companies having to deal with all the increased demand. But basically my point here is that it's only fair to consider the increase in insurance costs due to a mandate, not the year to year increase in health costs as a whole. “
Let us use the 3% number and see what happens in Wisconsin:
First, .05*(4,224,000 People Covered by Private Insurance) = approximately 211 200 people with individual health insurance plans in Wisconsin who would be affected by demand growing over 10% with a limited intrastate supply willingly given by the small amount of major Wisconsin insurers.
(211,200 people)*($1,254 average cost of plan)*(.03 new 3% rate to give your argument the benefit of the doubt) = $7,945,344 increase in premiums from forcing these people into the market if we assume a similar correlation to MA. Now, you’re right in saying this is just a correlation, but we should both have a very hard time saying that prices don’t increase when the market is tight and demand increases by over 10% for individual insurance in Wisconsin.
This does not include the fact that we just added 22,553 people to the market so 211,200 people are now 233,753. That means our $8 million above becomes:
(233,753 people)*($1,254 average cost of plan)*(.03 new 3% rate to give your argument the benefit of the doubt) = $8,793,787
Our ER cost from before was $3,989,692
This means that mandating this population to get health insurance is giving at least $8,793,787 - $3,989,692 = $4,804,095 to the insurance companies in Wisconsin for absolutely no reason. Imagine this happens now in every state in the country with few exceptions. This is what mandated private health insurance without a national competitive insurance market looks like.
“-4th: Self-insured does NOT mean you buy your own insurance policy on the market. Far less than 57% of the insured population actually buys their own policy. I don't have the statistics for Wisconsin but the national average is 5% (http://health.usnews.com/articles/health/2008/01/24/health-insurance-options-that-squeeze-individuals.html) so your estimate there is WAYYY off. Self-insurance actually is employer-based and refers to the fact that employers pay out claims from contributions to a fund and bear the risk rather than premiums being paid directly to the insurance company which would in turn bear the risk.”
Already accounted for this mistake… Thanks once again for catching me on it, was a pretty big logical farkup on my part hehe.
“If I found the exact figures we could redo the analysis and the numbers wouldn't be anywhere near the ones you found. But in general, if we did impose a mandate at the state level requiring everyone to buy health insurance we'd have is AT MOST a 3% cost increase on AT MOST 5% of the population with a few additional small indirect costs POSSIBLY divided among all group insurance plans (which are probably impossible to calculate) due to increased demand. And even all that said, neither Obama nor Hillary is proposing we leave health care mandates up to the states. They both propose creating a pool that crosses state boundaries and mandating significant new cost control mechanisms, AND ONLY THEN subsidizing the uninsured to buy their own policies. So none of even these possible cost increases on the already insured necessarily have to take place, and in the long-term cost inflation would in theory be lower than the current level.”
Nope, Hillary does not support making a national private insurance market across state lines. It is not in her plan: http://www.hillaryclinton.com/feature/healthcareplan/americanhealthchoicesplan.pdf
She sidesteps this issue by assuming everyone in-group #2 will just move to her Health Choices Menu. The problem with this is that it assumes everyone in this group want to get government health care and not just pickup an individual plan instead.
This is irrelevant for Obama’s plan once again; he does not support mandates so my argument here does not concern him at all.
In conclusion, there will be no cost savings with group #2, because – as shown above – they put more waste into the system by getting insurance than they save by not using the ER. The out: the ways of avoiding this problem are creating a true competitive national private insurance market and/or regulating private insurance prices like the state regulates utility rates (a completely different assortment of problems).
I just realized I farked up again lol. This time the mistake is in my argument's favor, however.
I took 5% out of those privately insured instead of the total Wisconsin population.
So let's quickly do total population...
First, .05*(5,556,506 total population of Wisconsin) = approximately 277,825 people with individual health insurance plans in Wisconsin who would be affected by demand growing 8% (22,553/277825) with a limited intrastate supply willingly given by the small amount of major Wisconsin insurers.
(277,825 people)*($1,254 average cost of plan)*(.03 new 3% rate to give your argument the benefit of the doubt) = $10,451,776 increase in premiums from forcing these people into the market if we assume a similar correlation to MA. Now, you’re right in saying this is just a correlation, but we should both have a very hard time saying that prices don’t increase when the market is tight, the insurance companies have a lot of pricing power (upwards), and demand increases by 8% for individual insurance in Wisconsin.
This does not include the fact that we just added 22,553 people to the market so 277,825 people are now 300,378. That means our $10 million above becomes:
(300,378 people)*($1,254 average cost of plan)*(.03 new 3% rate to give your argument the benefit of the doubt) = $11,300,220
Our ER cost from before was $3,989,692
Thus, $11,300,220 - $3,989,692 = $7,310,528 more is given to the insurance companies annually than the maximum savings for eliminating non-insured ER use from group #2 (in Wisconsin only, we would have to do this for all 50 states).
Extrapolate this to most of the 50 states and you have a huge gain for insurance companies, far greater than any societal gain to tax payers. Additionally, you now have people with individual insurance that are paying 3% more annually in premiums. Moreover, because outside of wealthier group #2 most individually insured people are middle class; this mandatory insurance policy is economically regressive.
There is no way you can get around it Ryan, outside of opening up state insurance markets into a national market or regulating individual insurance prices, but Hillary Clinton is not proposing either of these solutions (and neither is Governor Patrick of MA for that matter).
Wow, so many things I could address. We're kind of getting into the weeds of an argument, although the assumptions on which it is based we are not even sure of, so I'm going to avoid debating figures. I mean, we have no idea how much of the health care inflation in MA is due to the mandate, could be 1-3% or 0%. You think the market is tight enough that adding a few thousand more to demand is going to have a huge cost effect, I think the effect is probably negligible (and the increased health inflation in MA in 2006 could have been temporary), but the point is neither of us has a clue.
What we haven't taken into consideration really yet is the type of people a mandate adds to the health insurance pool are healthy (you're right that emergency room costs per year are probably lower for this small group than average, but there are significant long-term costs to not getting regular check-ups and catching problems before they get worse. In addition, these people will go to the ER when they have like the flu and treatment there is higher cost than it would be at say, a clinic) so if they are added to the health insurance pool along with those who want insurance but can't afford it via mandate then the pool gets healthier on average. Therefore the cost of the mandate on overall health costs should go down, actuarially at least. No force affecting health care costs can be considered in a vacuum. This is one of the biggest arguments for a mandate, and one I completely forgot to mention.
The second point I wasn't clear enough on so it's easy to see why you misunderstood on. I wasn't talking about interstate deregulation of the insurance companies, but was referring to both Clinton and Obama's proposal to create that public insurance option thats supposedly "as good as what the members of Congress receive." By across state lines I meant this pool would be available to American citizens in any state. Many liberals see this as a possible building block for single-payer. Personally I don't really see how we get from here to there but I digress (maybe enough people will lose private coverage over time due to exploding costs such that a majority of Americans will end up on the public plan?). Anyway, so that public insurance pool would be regulated to offer cheaper rates than individual insurance policies from any insurance company. It wouldn't make sense for the uninsured who will receive subsidies to buy an overpriced individual policy from Cigna or whatever when they can get a better, cheaper government regulated health insurance policy. So in THAT context it is cheaper to have the healthy people be mandated to join this public pool because if not, the pool will be dominated by those for whom it makes economic sense to buy health insurance (like those with preexisting conditions) and in need of regular care.
Again, I'm just not gonna get into the calculations because we don't know what we're talking about. Isolating the variable "imposed mandate" on a second variable "overall health costs" in a sea of other important variables is clearly beyond the scope of this blog post.
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