It Takes a Huge Bribe to Make People Buy Health Insurance with Other People’s Money

With all the talk about the “crisis of the uninsured” that led to ObamaCare, one would be tempted to think that people without enough money to buy health insurance would just need a little help to convince them to do so. But they don’t: If you expect them to use any of their own money, they need a huge dose of others’ money to make them buy health insurance. Maybe this is why so-called single-payer health systems appear to be popular: People think lots of money should be spent on health care, but we should pretend it’s all other people’s money.

This has pretty serious implications for the success of ObamaCare, which offers significant subsidies to people earning up to 400 percent of the federal poverty level (FPL, approximately $90,000 for a family of four). One problem is that even middle-class American households are not wealthy: Although they have big houses and cars, they are in debt to the hilt. So, they don’t need insurance to protect their assets.

The latest evidence comes from a study of people’s response to the 2009 stimulus act (ARRA), which offered a 65 percent subsidy of premiums for COBRA coverage to people who lost their jobs in the recession:

We find that the ARRA subsidy is associated with a 15.2-percent increase in the continuation of employer coverage. This translates into a price elasticity estimate of -0.24, which is towards the middle range of elasticities in existing studies. We also find evidence that part of the increase in the continuation of employer coverage was offset by a decrease in non-group insurance. (A.S. Moriya & K. Simon, NBER)

In other words, a one percent decrease in premium is associated with just one quarter of one percent increase in uptake of health insurance. (And, with respect to ObamaCare, few enjoyed a reduction in premiums.)

Comments (17)

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  1. Thomas says:

    “But they don’t: If you expect them to use any of their own money, they need a huge dose of others’ money to make them buy health insurance.”

    Likely because the cost is high already. People don’t value health insurance as high as the cost is. It takes a big incentive to get them to sign up. Using other people’s money must be that incentive.

  2. Matthew says:

    “Maybe this is why so-called single-payer health systems appear to be popular:”

    They are popular because they are just an illusion of a perfect system. It is far from perfect, as no one wants to be the one who bears the cost. Unfortunately, someone has to and the cost is high.

  3. Jay says:

    Why buy the full cost of insurance when you can use other people’s money for it?

    • Bill B. says:

      “People think lots of money should be spent on health care, but we should pretend it’s all other people’s money.”

      There inlies the problem. Like what economists like to say, there is no free lunch.

  4. Devon Herrick says:

    Revealed preferences illustrate how many people don’t value health coverage. For instance, if it takes a 35% discount to entice them to buy coverage, that means health coverage is only worth two-thirds of its cost to the people who are supposed to purchase it.

  5. MrFreedom says:

    Exactly right Thomas and Devon. Even though Obama sold his awful law (mostly to clueless college students in a never-ending campaign) as though Americans were SO desperate to be able to get health insurance, he had to FORCE Americans (against their will and unconstitutionally) to sign up in his broken exchanges. Oh, and using other people’s money too.

  6. Bob Hertz says:

    Here I go again, must be my night for being snarky.

    The typical Medicare beneficiary pays about $110 a month for Part B. They are using well over $300 of taxpayer money in this process.

    If a Medicare beneficiary buys an Advantage plan or a Part D drug plan, they are again using taxpayer money although the amounts are more complex/

    This latter process was rammed through the Congress by Tom Delay and other Republicans in 2003. Not that many Democrats protested.

    Sorry, but it seems to me that when largely-conservative seniors use other people’s money , it is endorsed by conservatives. When younger largely-liiberal workers get similar amounts of government money, it is a scandal.

    In my book, age 65 does not control all civil rights. Suzanne Mettler and others have talked about the distinction Americans make between ‘good welfare’ and ‘bad welfare.’ I dislike it.

    • dennis byron says:

      Bob

      Your comment does not seem to apply to the post but it is also a complete misrepresentation of how Medicare is funded and what those of us on Medicare contribute to our health care costs.

      1. You say “The typical Medicare beneficiary pays about $110 a month for Part B..” once he or she enters Medicare. You neglect to say that the “typical Medicare beneficiary” paid 3% of their income into the Part A trust fund for 45-50 years before that if they entered Medicare in the last 2-3 years (and are likely still working and therefore still paying) and also paid a percentage (that I have never calculated) of their income tax into the Part B trust fund for all those years. When you say “They are using well over $300 of taxpayer money in this process…” you neglect to say that it was their money in the first place. (Don’t quote Steurle back at me; he forgot to count the income taxes and the pooled money and used a non-real-world ROI).

      2. You say “If a Medicare beneficiary buys an Advantage plan…, they are again using taxpayer money although the amounts are more complex.” Perhaps you find it complex but it is really quite simple for those of us who have buying insurance for 50 years through our employers. It works the same way:
      – The source of the public Part C Medicare Advantage health plan expenditures is the same source — the A and B trust funds — that the beneficiary would make use of if he or she did not sign up for a public Part C Medicare Advantage capitated manged healthcare plan and stayed with unmanaged fee for service Medicare instead. A person on a public Part C Medicare Advantage health plan is still in the Medicare Parts A and B pools (and pays the Part B premium).
      – Now the following might be what you find complex: the money that pays for the Part C plan’s capitated fee and goes to the Part C administrator rather than the Part A/B administrator(s) to pay providers by fee is uplifted in 2014 by 3% on average vs the FFS average. The idea of that uplift is to provide better benefits, primarily to the poor and minority population that uses Part C disproportionately. It succeeds, most notably by providing an annual out of pocket limit on spending, something that fee for service Medicare lacks. But typically there are many other superior benefits for the 3% kicker.
      – But that kicker/uplift will be eliminated as soon as 2015 so your whole point is moot. People on A/B will get the same money from the Medicare trust funds as people on A/B/C. The poor who depend on Part C as a public option to private Medigap or retiree supplemental plans will have to pay more than they have in the past.

      3. You say “If a Medicare beneficiary buys… a Part D drug plan, they are again using taxpayer money although the amounts are more complex.” Again, you are pretending those on Medicare never paid their payroll and income taxes. But this is not at all complex. Source is the same. Works just like most people’s insurance has worked wherever they were employed for the last 50 years. All Medicare should work like this.

      Sorry, but we seniors are not using “other people’s money.” That is a complete deception. (Now if you want to have a debate over the cash flow pattern between Rooseveltian vs. Johnsonian social insurance programs, and the fungibility (sic?) of money, that’s a different question.)

  7. Bob Hertz says:

    My comments do apply to the post, in this sense:

    -the original post is about subsidies in the ACA, and the implication of the post was that recipients of subsidies were in some sense free loaders.

    -my response is that the typical senior gets far more out of Medicare than they ever put in through their taxes. (you are correct to point out the income tax hit that we all take to pay for Part B of Medicare.)

    -this is not because seniors are bad people. They are just living a lot longer.

    Therefore, the point of my comment is that when seniors benefit from other people’s money, Republicans are OK with that, but when working people benefit the same way, some Republicans oppose that.

    I am a senior on Medicare, for all that is worth. When I paid my Medicare taxes for 40 years, I always thought I was paying for my parents. I never thought I was paying for myself.

    I will read your comments a second time. I appreciate the detail you have provided.

    • dennis byron says:

      Bob, you would be a very unusual person if you thought you were paying Medicare (and I assume SS) taxes for your parents rather than yourself. In fact. it would say you did not believe Johnson, Mills and all the rest of the Democrats that passed the Medicare bill(and Roosevelt re SS). I am not saying that that was not what you believed. I am just saying that it puts you in a very small minority group. (

      You should read some of the legislative history leading up to the 1965 passage of Medicare, particularly the conscious decision by that Congress to one-time fund the healthcare of those then over 50 or so on the understanding that those then younger would be paying their own way come their 65th birthday. That date got moved out as Congress kept adding Medicare benefits without adding revenue but it works out for those now turning 65 even with all the extra benefits that have been added.)

      • John R. Graham says:

        Thank you both. I have to cast my vote with Mr. Hertz on this one, because there is no “trust fund” except in legislative fiction.

        Part A is pay as you go and Part B premiums only pay for one quarter of Part B costs. (Part D premiums only pay for one eighth of Part D costs.)

        With respect to Prof. Steuerle’s analysis: The Medicare beneficiary’s income taxes from his working years are as irrelevant as his Part A payroll taxes are to his current consumption of Medicare benefits. (The income taxes didn’t even have the fig leaf of having been paid into a fictional trust fund.)

        The Medicare beneficiary’s income taxes that he currently pays, out of (most likely) investment income, should certainly be counted as “paying for” his current Medicare benefits, but recall that those taxes are also paying for the President’s vacations to Hawaii, windmill subsidies, and the other benefits of our republic.

        • dennis byron says:

          As I said, if you want to have a discussion of cash flow, that is a separate subject.

        • dennis byron says:

          By the way, there is a “fig leaf” of the income taxes being paid into the B trust fund

  8. Bob Hertz says:

    As for my feeling that my social insurance taxes were going to my own parents:

    I started thinking that way after reading Pete Peterson on The Graying of America (and other books.)

    He is surely no liberal, and neither is Robert Samuelson.

    Robert J. Samuelson – Why Social Security is welfare
    http://www.washingtonpost.com › Opinions
    The Washington Post
    Mar 7, 2011 – In a recent column on the senior citizen lobby, I noted that Social Security is often “middle-class welfare” that bleeds the country. This offended …

    • dennis byron says:

      Who said anything about “liberal?” I do not base my opinion on either the opinion or the politics of analysts or propagandists. I just deal with the facts.

      We have two programs — in one case SS, in the other Medicare — proposed in 1935 and 1965 respectively (a few years before each of those years actually). Instead of defaming we seniors the way Samuleson has always done, we who could care less about liberal/conservative, Democrat/Republican, and so forth, go look at what the proponents of SS and Medicare claimed back in 1935 and 1965 that the programs were and how they would work. In reading these documents you would see why people on these programs (despite many of their preferences) think — correctly it turns out — that they have paid for the programs. The fact that the government took our money and spent it on something else should not change our perspective.

      • John R. Graham says:

        It is interesting to read about the early 1930s development of the Social Security legislation. There was a deliberate attempt to use words that would hide the truth from people, and delude them into thinking they were paying into an account at a trust fund. FDR knew that this illusion would persist mightily.