Worst Study Award

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.

Comments (7)

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  1. Greg Scandlen says:

    A new article in Health Affairs by Cathy Shoen and colleagues at the Commonwealth Fund is another direct attack on HSAs and all forms of consumer empowerment. The article tries to raise the “problem” of underinsurance to the same level of hysteria used for people with no insurance at all. It “studies” the trend from 2003 to 2007 and finds that deductibles are rising (horrors!). It says the numbers of underinsured rose 60% from 2003, and that 42% of the under-65 population has either no insurance or “inadequate” insurance. They go on to break all this down by income group, race, gender, and all the other things you would expect.

    There is so much wrong with this “study” it is hard to know where to start. I know! Let’s start with one of their most blatant distortions. They say, “The United States already stands out internationally for high per person out-of-pocket spending.” In fact, the United States has one of the lowest rates of out-of-pocket spending of all the OECD countries. According to OECD, Americans spend only 13% of total national spending out-of-pocket, while the OECD average is 20%. Even Canadians spend more out-of-pocket than we do at 15%.

    Next let’s consider their definition of “underinsured.” They include anyone who spends 10% or more of their annual income on medical expenses, 5% for those at 200% of poverty or lower, and anyone who has a deductible equal to 5% of their income. There is no rationale for this standard , other than “it is the level most commonly used in studies of financial stress and studies of the underinsured.” They do not take into account premium payments or taxes devoted to health care. It is somehow not stressful to pay large amounts of one’s income on insurance premiums or taxes, but just awful to reduce those payments and pay cash for health care instead.

    It is curious as well that these authors confine their examination to the population under age 65, since their boss, Commonwealth Fund president Karen Davis, testified to Congress in 2001 that the average Medicare beneficiary pays 21.7% of their income on out-of-pocket medical expenses and she expected that to rise to 29.9% by 2025. If “underinsurance” is a problem, the most egregious offender is the Medicare program.

    But never mind all that. The sole purpose of this strange little exercise is to undermine the growing trend of consumers taking control of their own health care by taking control of the money they spend. Lower income people obviously need additional assistance, but they will need that help whether they pay directly for services or indirectly for premiums.

  2. DoctorSH says:


    Excellent summation.

    It gets back to the argument of who is responsible for ones own health and economics.

    I vote for individuals.

    The Commonwealth Fund obviously thinks that individuals are too stupid or manage their own healthcare finances.

    This is just another ploy for a government takeover of healthcare. And we all know what a mess that would be!!!!!!!!

  3. Paul Eckel says:

    What about those people who through no fault of their own develop a chronic condition? Shouldn’t they be covered by a social contract plan?

  4. Steven Wemple says:

    I absolutely love your logic when dealing with “lack of facts” liberals.

  5. Steven Bassett says:

    The people at Commonwealth are insane – I almost feel sorry for them. On my wall I keep a powerpoint slide that I made entitled “The Overinsured Problem”. It has the image of a pile of cookies and the famous M. Friedman quote “Nobody spends somebody elses money as carefully as he spends his own”. To whom at Commonwealth shall I e-mail a copy?

  6. Hung says:

    Wow, so much hate for the Commonwealth Fund. I can’t believe they want to give everyone access to health care – even the poor and minorities? So evil!

    First – a logical error. You mistake high *amount* of high out-of-pocket spending with high *rate* of out-of-pocket spending. Although our percentage may be lower, the *absolute value* of spending is higher.

    There’s no question that our system contains rampant overinsurance, but that’s because private insurance has priced out the sick to maximize their profits. I think you would agree with the Commonwealth Fund that the incentives of the private insurance industry do not align with patients’… but instead you decided to sling mindless insults like “The Worst Study Ever”.

    HRAs and HSAs are definitely not the silver bullet you think they are. Sure, if you are self-employed or make a ton of money, HSAs/HRAs are awesome. But the average person cannot afford to pay hundred of dollars every time they go to the doctor. This would almost certainly cut down on regular check-ups, preventative care, cancer screenings, etc. etc. Multiple studies have shown this is the case. Unless you think the poor deserve to be sick.

    The most troubling problem with HSAs/HRAs is that they would make health care a luxury market, since the rich would basically be a captive market, willing to pay any price (similar to the college tuition phenomenon today). This would lead to rampant inflation with some doctors charging $1000 per visit and only serving those who can pay. You already see this happening with doctors going into lucrative specialties and regions. With HSAs, this effect would accelerate.

    The excessive number of MRIs and tests that are done are not patients’ fault.

  7. LN Shapely says:

    Dear John,
    Once again, from the newsletter’s list, your headline attracted me. Tell me, why isn’t anyone suggesting major medical policies for uninsured Americans? People have lost the ability to care for themselves because running to the Doctor for every little thing has become the norm. It is no wonder the root of the problem is just that – Overuse of The System.

    My family physician said, “95% of what people come to me for is unnecessary.”

    I have witnessed uninsured people going to the emergency room for a sinus problem and a bloody nose…no joke, yet they have: cell phones, digital cable TV, every Game Boy, Xbox and computer game imaginable. They get FOOD STAMPS, and they eat well. These people could shell out $75-100/month for their major medical insurance, but THEY CHOOSE NOT TO. The grown son could GET A JOB. He chooses not to. I take care of the adult in the home (CCS Caregiver) -totally FREE to her and paid for by WA taxpayers. And she needs very little care, though given 30 hours of ME every week.

    It is unfortunate that I like my work generally because I see in front of me The Problem – it’s LAZY AMERICANS, JOHN. Why are we feeling sorry for them? Why are we going to give our medical care over to the Feds because of them?

    OK…there is a small percentage of starving, ill people who need a safety net. But we know that expanding Federal programs will do nothing except bloat and bastardize the system it is trying to “improve” and make more lazy Americans.

    Is there ANY light at the end of this tunnel??? Do you ever feel like Bastiat?
    LN Shapely
    Poulsbo, WA