Health Justice CT

Health Justice CT Blog

Is Insurance Irrelevant?

Economists take great pleasure in taking widely accepted maxims and turning them on their head– hence the popularity of books like Levitt & Dubner’s Freakonomics.

Image from "The Oregon Health Insurance Experiment"

A recent finding from a decisive study on the effect of health insurance on health outcomes does just that. The Oregon experiment is considered one of the most rigorous and decisive studies of the effect of health insurance on health and health care related outcomes because it was able to use an experimental design rare in social science research.

Due to a budget surplus (also a rare event these days) the state of Oregon was able to provide extra Medicaid benefits, which it assigned by using a lottery among individuals on a wait list, creating the possibility to conduct a rigorous “randomized” evaluation of people who got benefits compared with people on the wait list who did not. Without this kind of random assignment, the neediest or those with the greatest demand for health care would be more likely to seek out and get insurance.

Though the results remain preliminary since more time is needed to observe longer term outcomes, what the researchers found was quite surprising: there was no difference between those who had insurance in their health outcomes or use of health care.

Another way to look at this is that, as it turns out, those who were currently uninsured were not any sicker than those who had insurance– thus, those who are concerned about a tsunami of sick individuals being added to the Medicaid ranks, or that people will be more heedless with their health as a result of getting insured, should be assuaged.

Nevertheless, some will interpret this finding as evidence that Obamacare, which will widen Medicaid eligibility for millions below 138% of the federal poverty level in 2014, is unnecessary and a massive waste of public resources. This interpretation, I would argue, is incorrect and short-sighted, because the true benefit of health insurance comes not in the form of improved health outcomes, but in the financial risk protection that it confers to its beneficiaries.

Health insurance is fundamentally about protecting people from large out of pocket medical expenditures.  The Oregon study did find that catastrophic out-of-pocket medical expenditures were nearly eliminated.

Even if you are not swayed by other-regarding arguments about the benefits to people without insurance, there is an important self-interest to insurance. Insuring people brings down the cost of health care overall, and particularly to people who are themselves paying for health insurance.

But if publicly financed subsidies are what pay for health insurance, this is still coming out of the average workers pocket one way or another, right? Technically yes. So how can giving people insurance bring down the cost of health insurance?

Hospitals routinely shift costs from unpaid “charity” care back onto paying customers through higher rates- sometimes referred to as a “hidden tax.” Thus, in the end, you end up paying one way or another. By getting people insured, you can reduce more costly care like the use of the emergency room. Furthermore, the Oregon study confirmed that those with insurance increased the use of many preventive services including diabetes detection, which can lead to lower costs by improving diabetes management.

Although Medicaid also contributes to the cost shift since the government under-reimburses providers, the more people who are on insurance, the lower the rate of uncompensated care that gets shifted back onto people with private health insurance.

Thus, those arguing in favor of “repeal and replace” should look in their own pockets, and those with private insurance concerned about armies of sickly poor people overrunning the health system should be assuaged by these findings, and at the same time feel more secure in their own financial risk protection.


About Ashley Fox

Ashley Fox, Ph.D., is an Assistant Professor at the Mount Sinai School of Medicine, Department of Health Evidence and Policy. Learn more about Ashley here.

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