One of these days I’m going to announce the winners. In the meantime, the Commonwealth Fund submitted another entry. It gives me an excuse for a second mailing this week. The study is an update of a previous entry, this time claiming there are 25 million “underinsured” Americans.
After reeling from the sheer size of that number, my first question was: How many Americans are overinsured?…. Overinsured?…. Yes, overinsured. Since CWF claims that the primary reason for underinsurance is high deductibles and since the primary reason for a high deductible is to reduce the degree of overinsurance, one can’t adequately study one problem without studying the other.
Examples of overinsurance are: a male, or a female past menopause, paying for maternity coverage; or someone paying $200 to insure for primary care that can be purchased out-of-pocket for $100; or anyone at anytime paying more than 50 cents to transfer a dollar’s worth of risk to an insurer. Mandated benefits are a principal cause of overinsurance–forcing people, say, to purchase coverage for in vitro fertilization or acupuncture or natureopathy or dozens of other services they never intend to use. In fact, several studies, including one by yours truly, estimate that as many as one in every four uninsured persons has been priced out of the market by these cost-increasing regulations.
So to get to the bottom of things, I went to the CWF Web site, entered “overinsurance” into their search engine, and guess what?…. CWF has never heard of the term!…. That’s right…. The word “overinsurance” is not to be found.
This brings us to another concept which also seems to escape the CWF search engine: individual self-insurance. The alternative to third-party insurance is self-insurance. Instead of giving all their health dollars to, say, Blue Cross, people can reduce their levels of coverage and put the premium savings in a Health Savings Account (HSA) or (figuratively speaking) a Health Reimbursement Arrangement (HRA) or a bank account. Not only does CWF not seem to grasp this concept, in their survey they didn’t even bother to ask the “underinsured” if they self-insured through an HSA, HRA or some other account…. But, hey, not everybody shares my curiosity.
Greg Scandlen (as a comment), Grace-Marie Turner and John R. Graham have all weighed in as well. But I can’t resist five quick jabs.
First, CWF judges people to be underinsured if their out-of-pocket spending exceeds 10% of income (5% for lower-income folks). Yet the average household already spends 5.6% of income out of pocket on health care, and health spending for all purposes is 20% of personal income for the nation as a whole! The wonder is not why the number of underinsured (so defined) is so high. The wonder is that it is so low.
Second, although CWF ignores the elderly, by their definition well over half of all seniors on Medicare are underinsured. (See tables here.)
Third, CWF claims that “The United States stands out internationally for high per-person out-of-pocket spending.” In fact, US out-of-pocket spending (13¢ of each $1) is well below the OECD average (20¢) and also is lower than Canada (15¢) and most European countries. [See OECD table here.]
Fourth, CWF says that people are also underinsured if they have a deductible that exceeds 5% of income. Yet deductibles are a poor guide to total out-of-pocket exposure-something CWF must surely know. Sadly, most people-including most Medicare enrollees-have no idea what their out-of-pocket exposure is. The one exception is an HSA plan. By law, exposure here is limited to $5,600 (individuals) and $11,200 (families).
Finally, CWF finds that the uninsured are more likely to forego care because of out-of-pocket costs. But is this always a bad thing? In a real marketplace, people forego the purchase of all types of goods and services because of prices. Some studies suggest that one-quarter of physician visits and more than half of people who visit hospital emergency rooms do not need to be there (link). Yet when people manage their own health care dollars, they cut back on these types of unnecessary services (link). All over the world people do not get CAT scans, MRI scans and all manner of other care because governments do not want to incur additional costs. With self-insurance, patients rather than bureaucracies make these decisions.