Cost of covering the uninsured
Covering The Uninsured In 2008: Current Costs, Sources Of Payment, And Incremental Costs
by Jack Hadley, John Holahan, Teresa Coughlin, and Dawn Miller
Health Affairs
August 25, 2008
People uninsured for any part of 2008 spend about $30 billion out of pocket and receive approximately $56 billion in uncompensated care while uninsured. Government programs finance about 75 percent of uncompensated care. If all uninsured people were fully covered, their medical spending would increase by $122.6 billion. The increase represents 5 percent of current national health spending and 0.8 percent of gross domestic product. However, it is neither the cost of a specific plan nor necessarily the same as the government’s costs, which could be higher, depending on plans’ financing structures and the extent of crowd-out.
Incremental resource cost versus transfer or crowd-out costs.
Most important for the policy debate, however, it is essential to differentiate the incremental resource cost of insurance expansion from transfer or crowd-out costs, and from the more thorny issue of the financing of insurance expansion. Incremental resource cost is a key number for assessing the cost-effectiveness of expanding insurance coverage—that is, comparing the value of improved health associated with expanded coverage to its resource cost.
However, the additional cost of care used by the uninsured is not the same as the cost to the government of a coverage expansion, since out-of-pocket spending and income-related premium payments by the newly insured are likely to pay some of these extra costs. Further, the cost attributed to any broad health care financing reform could be much higher, depending on the extent to which people drop their prior coverage in favor of coverage under the new plan or retain their current coverage but receive new public subsidies to help pay their premiums.
These costs are not new national resources being devoted to health care but, rather, represent a transfer of spending from one type of coverage to another: although government spends more, many individuals, families, and businesses spend less. The savings to businesses and families in private insurance premiums and out-of-pocket spending can be large and are often overlooked in health reform cost calculations that focus on increased government spending. How the cost of the subsidies is distributed among different classes of people and geographic areas is at least as major a political issue as the amount of the subsidies.
http://content.healthaffairs.org/cgi/content/full/hlthaff.27.5.w399/DC1
Comment:
By Don McCanne, MD
Previous studies by Jack Hadley and his colleagues have shown that the increase in medical spending that would result from expanding insurance coverage to the uninsured would have been about $55 billion in 2001. For 2008, because of rapid increases in health care costs, continuing growth in the number of uninsured people, and changes in the characteristics of the uninsured population, that estimate has increased to about $122.6 billion. Even at this level, the cost of expanding coverage to everyone would be “remarkably small — about the same as the growth of real health care spending over eighteen months” (Aaron, Health Affairs blog, 8/25).
It is not the lack of funds that has impeded reform. As a nation we could easily afford to cover everyone. So what is the problem?
We already have proven that reform cannot be accomplished by incremental expansions of our current programs, even with introductions of new targeted programs (e.g., SCHIP). The effectiveness and equity of health care financing have continued to deteriorate under the incremental approach to reform. No reform proposal is capable of leaving those with coverage alone while collecting $122 billion and spending it exclusively on those who are currently uninsured.
Only through comprehensive reform could we provide all necessary health care for everyone at a cost comparable to today’s spending. Not just any reform would do. In fact, the policies that we would need to adopt would limit the reform options to some form of social insurance such as a single payer national health program.
Transforming a financing system for a $2 trillion industry inevitably results in winners and losers. Our policies to date have made winners of the entrenched vested interests that have so much to gain (money), while making losers of the patients that the industry should be serving (losing affordable health care access).
It’s time to make patients the winners. That means that a well financed and well managed health care delivery system would also fall into the winners’ category. There will be losers, but, gee, aren’t they already losers anyway?