Once again, the scholars at the Commonwealth Fund have scared the bejayzus out of the mainstream media with their latest reckoning that over 25 million Americans are “underinsured”. While the 2007 numbers look worse than the previous ones from 2003 (when the estimate was only 15.6 million), the problems with this Commonwealth Fund survey are the same as they were when the Center for the American Experiment’s Peter J. Nelson critiqued the previous one last August.
The Commonwealth Fund scholars consider you “underinsured” if you have just one of the following characteristics: spend at least 10% of your income on health care, spend at least 5% of your income on health care if you earn less than 200% of the Federal Poverty Level, or have a deductible that is more than 5% of your income.
Well, hang on a minute. Linda Gorman of the Independence Institute has challenged the idea that these cut-offs are sensible. People spend more on food and clothing, where few would argue there is a crisis in 21st century America.
As well as the points that Mr. Nelson has use to criticise the Commonwealth Fund’s survey, there are a few more:
- Although 85% of the adults (aged 19-64) surveyed had employer-sponsored health benefits, the survey only measures premiums and out-of-pocket costs paid directly by the individual, not the share of premium paid by the employer. However, 85% of American firms that offer health insurance pay at least half the premium, and half of firms pay over three quarters of the premium, according to the Kaiser Family Foundation. This is real income to the worker, which he then uses to pay for health insurance – even though it never crosses his palms. If you fail to make this adjustment before comparing those with employer-sponsored health benefits to those who buy health insurance individually, the latter are bound to look worse off. This is significant: Say you earn $60,000 and have employer-sponsored health benefits that cover all but $2,000 of your health spending. According to the Commonwealth Fund, you spend 3% of your income on health benefits. But suppose your employer is actually paying $10,000 premiums for your benefits: that’s your income. Economically, you are spending 17% of your income ($12,000/$70,000) on health benefits, but the Commonwealth Fund doesn’t capture that. No wonder the media spun this into a story about how crappy individually purchased health insurance is.
- Of the increase of 9.6 million “underinsured”, 2.5 million had deductibles greater than 5% of household income. But 1.6 milion of those did not have to spend more than 10% (or 5% for low-income individuals) of their incomes on health care(Exhibit 1, p. w301). So, most of those with high deductibles were able to save money that they will need for higher medical spending in future years. The whole point of tools like Health Savings Accounts is to give the individual the ability to manage his health spending through time: comparing a person’s income in 2007 to his health spending in 2007 ignores his new ability to save pre-tax money for health care.
- Those on government plans (Medicaid & Medicare) are significantly more likely to be “underinsured” than those with private insurance – even those with individual insurance (Exhibit 5, p. w306, although there appears to be a slight arithmetic error in the table, which may appear due to rounding). This is remarkable, given that people dependent on government programs face similar “economics” to those with employer-sponsored insurance, i.e., most of the costs are not included as “income” to the beneficiaries, as well.
Even taken at face-value, the questionable notion of “underinsurance” points towards less government-run, and more consumer-directed health care.