Universal Health Insurance Won’t Break Bank

Additional medical care provided to newly insured people under a system of universal health insurance coverage would increase total health care spending about 3 to 6 percent.

That translates into an increase in the health care portion of the gross national product of less than 1 percent, according to a report prepared for the Kaiser Commission on Medicaid and the Uninsured and published on the Health Affairs Web site on June 4.

Jack Hadley, PhD., a principal research associate at the Urban Institute, told Psychiatric News that the finding suggests the cost of universal health coverage is not as insurmountable as sometimes thought.

“The most important finding is that if you think of the cost of providing insurance as a cost of providing additional medical care for people who are currently uninsured, it is a relatively small amount of money,” Hadley said. “We should not think of universal coverage as an unaffordable or unattainable objective.”

In the study, Hadley and co-author John Holahan, also of the Urban Institute, based their estimates on two scenarios: the first assumed that medical spending by the newly insured would be similar to that of either low- or middle-income people covered by the “average” private insurance policy; the second assumed that spending would resemble that of people covered by the “average” public insurance policy (usually Medicaid or State Children’s Health Insurance Program).

The analysis suggests that the uninsured would use $33.9 billion to $68.7 billion (in 2001 dollars) in additional medical care if they were fully insured, depending on which scenario is used.

Hadley acknowledged that there has been debate about the actual numbers of uninsured, since many Americans are uninsured for only a portion of a year (Psychiatric News, June 20). But he said the analysis includes cost estimates of full-year coverage for those among the uninsured who have part-year coverage.

“This study shows that the direct cost of providing care to the 41 million uninsured would be less than annual inflation in health spending—which was 8.7 percent in 2001—but still would require a commitment of new resources in a time of fiscal deficits,” said Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured.

Data for the analysis are from the Medical Expenditure Panel Surveys conducted in 1996, 1997, and 1998. The survey is a nationally representative sample of the noninstitutionalized population and contains detailed information on annual total charges and payments for health care used, monthly information on insurance coverage, and demographic and health characteristics.

In the estimates for additional medical spending based on average private insurance, people making more than 400 percent of the poverty level were excluded from the analysis. This was to avoid possible differences in care-seeking behavior resulting from differences in socioeconomic status between the uninsured and higher-income people with full-year coverage. The latter might be more likely to use costly, out-of-network providers than would lower-income people with the same insurance coverage, and would be generally less deterred by cost sharing, according to the study authors.

Under an “average” public health plan, estimated per person spending by people previously uninsured for any part of the year would rise by a little over 50 percent, increasing from $1,383 to $2,121, according to the study.

Under an “average” private health plan, per person spending would rise to $2,676. Hadley cautioned, however, against drawing an assumption that publicly funded universal health care would necessarily be “better” than privately funded care.

“We do estimate public insurance to be less costly than private insurance, mainly because it is stingy to the extent that Medicaid can cover people at lower payment rates,” Hadley said. “If public programs were to expand, and all people were in a public program, my guess is that political pressure would mount to increase payment rates.”

By looking strictly at the additional cost of medical care for newly insured people, the analysis assumes a “perfectly targeted” reform strategy. Plans to expand coverage typically entail larger cost increases for government because some privately insured people will inevitably switch to the government-subsidized plan, he said.

Further, by looking at “average” health plan characteristics, the analysis does not take into account assumptions about specific features of potential plans, such as mental health benefits.

Nonetheless, Hadley said, “there is pretty good evidence that when people are uninsured, they tend to show up for care at a more advanced stage. The process of care with insurance would be more effective and efficient with benefits that would potentially offset some of these costs.”

The article, “Covering the Uninsured: How Much Would It Cost?,” is posted on the Web at www.kff.org/content/2003/20030604/. ▪