Wednesday, February 24, 2010

Uncompensated Care for the Uninsured

As David Henderson observes, it's nice to see that the Economic Report of the President actually includes facts and sources. Of course, that opens the analysis up to criticism it wouldn't otherwise face.

The Report notes four sources of inefficiency in health insurance markets: adverse selection, moral hazard, the Samaritan's dilemma, and incomplete insurance contracts. But as Henderson points out, the Report itself draws attention to the market solutions for the first two of these -- and oddly condemns them. (Risk-rating is the market response to adverse selection, and high deductibles and co-insurance are the market response to moral hazard.) It's worth adding that government policies like community rating and mandated benefits exacerbate adverse selection, and government-provided care and insurance exacerbate moral hazard.

We should also cast a skeptical eye on the Samaritan's Dilemma -- that is, the willingness of the citizenry to provide care for people who can't or won't provide for themselves, which encourages free-riding. While this is a real issue (as are the other three cited inefficiencies), what is its magnitude? The Report says uncompensated care for the uninsured was $56 billion in 2008. That sounds like a lot. But the Report also says (elsewhere) total expenditures on healthcare in 2009 were $2.5 trillion. Assuming the 2008 and 2009 numbers are relatively close, we can do the math and conclude that uncompensated care for the uninsured is less than 3% of all health expenditures.

For what it's worth, I think the Report's fourth source of inefficiency, incomplete contracts, is probably the most serious challenge for private insurance markets. That is, aside from the various government policies that hobble them now.


jimbino said...

I think you need to go much further with your math. I don't have the figures myself, but I can see if total healthcare expenditures were $2.5 trillion, the gummint share was about 1.5 trillion, or about $5000 per American. If some $60 billion of gummint money was spent on some 30 million uninsured, that's some $2000 per uninsured, meaning that the government still owes some $3000 to each uninsured.

Another way of putting it is that each uninsured person is paying $3000 per year in subsidizing the insured person. The insured are the free riders, not the uninsured!

Tony said...

The fact of the matter here is that the general public wants a public option if not a universal system. Facts and figures have been telling us this for years, but there are some things that we know without needing numbers. For instance prisoners don't want to be abused by corrupt wardens:

Glen Whitman said...

Jimbino -- you're right that the government pays for a lot of healthcare. But that's just not the same question. When people in the healthcare debate (on both sides) refer to "uncompensated care for the uninsured," they don't mean "all care paid for by someone else." They mean "care that is not paid for by means of private or public insurance," where public insurance includes Medicare and Medicaid.

Anonymous said...

I spent thousands and thousands of dollars on my DENTAL care last year and the first 2 months of this year. I think that my diabetes contributed to the deterioration of my middle- aged teeth, not to mention infirmed body. I just paid an endodontist $1,400 for a root canal on #31 molar. I accidentally discovered that that particular dentist lives in a 7 million dollar mansion in Beverly Hills. So far, I'm happy with the results of the root canal therapy that took him under 2 hrs. to perform. I am destitute compared to my dentist. Where is the pro-bone dental work? I suppose I could have asked him for discount, but it is quite painful, like a sore tooth, to have to beg for one. Where is the talk about universal dental care? You don't think teeth are important to one's health and happiness? You don't know nothin', then.

jimbino said...


OK, but these figures are all muddy. For example, MD Anderson in Houston bills close to $5000 for a routine colonoscopy. Medicare allowance + the patient co-pay for the identical procedures comes to only some $500, which MD Anderson accepts as payment in full, since they take Medicare assignment.

So, suppose an indigent person without insurance gets a colonoscopy at MD Anderson. If MD Anderson writes it off, did the "uncompensated" care amount to $500 or $5000? I say $500, but the provider handwavers maintain the figure is $5000.