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Don't blame the uninsured for high healthcare costs

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Headlined to H3 9/21/09

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The most pervasive misinformation underpinning the demonization of the uninsured and the drive to push insurance as the solution has hardly been challenged at all. Special interests that stand to benefit from reform have been so successful in framing the debate that most people don't realize they've been manipulated.

The claim that the uninsured increase the premiums of the insured by $922 or $1,000 [senat1] is false. According to the official congressional factsheet, uncompensated care incurred by the uninsured is $56 billion [house1], of which 75% is paid by government [house1] leaving $14 billion, which comes out to $70 per privately insured person [cens1].

The claim that the uninsured cost each of the insured $1,000 in total [obama1] is also false. $56 billion in uninsured uncompensated care [house1] comes out to $224 per insured person [cens1].

This number is a red herring, since it's unlikely to change much with reform. By definition it's what they can't afford to pay. If they can't afford the doctor or hospital, they won't be able to pay both that and insurance administrative costs, so it would be subsidized by taxes rather than premiums [hahca Sec. 243 p135]. Since the cost-shift will still happen, it's not a valid reason for insurance.

But actually, not only is the $56 billion figure most likely wrong, the true number may be zero. The uninsured have been charged 3, 4, 5, and even 10 times as much as the insured for the same treatment [critc]. For example a provider prices a service at $10,000 but cuts a deal with insurers to pay $2,500. Then an uninsured person walks in and is treated and billed $10,000 but can't afford that, ending up paying $6,000. So the provider profited by $6,000-2,500 = $3,500 from gouging the uninsured but then claims they lost $10,000-6,000 = $4,000 in "uncompensated care". The Families USA study that made the $922 claim says their data is from asking providers to use insured rates, but gives no indication that any auditing was done to verify they did that, much less whether they did it accurately.

This phenomenon is so prevalent that an analysis of actual payment records - a more authoritative source than the voluntary survey used by Families USA - found that excess revenue doctors made from the uninsured who could pay more than made up for losses from those who couldn't [nber1]. In other words, it may be that not only are the uninsured not costing the insured, but they could be subsidizing the insured.

Moreover, the tax deductibility of insurance only benefits the insured, so the uninsured pay higher taxes, and thus another subsidy.

Many who are uninsured do pay their bills and thus do not impose a burden on anyone. Forcing them to buy insurance creates a new cost-shift that didn't exist before. It's nonsensical and unfair to penalize them for the actions of others they have no control over.

Trying to pin the blame on the uninsured is a clever trick to distract attention from the fact that insurance shifts costs from one group to another on a vastly grander scale. One half of the population consumes 97% of healthcare costs; the other half consumes the remaining 3% [haffa2 Exhibit 1]. Thus if everyone is required to pay the same amount through insurance toward the total $2.5 trillion healthcare bill, then this constitutes a $2.5 x 47% = $1.2 trillion cost-shift from one group to another. This is 21 times bigger than the alleged $56 billion uninsured cost-shift [house1].

Thus it's absurd to use cost-shifting as a reason to impose insurance. If cost-shifting is wrong, then insurance must be outlawed. The insurance and medical industries have spent millions on this kind of PR to fool us into accepting policies that would give them billions in additional revenue per year.

Another ploy is the line that medical insurance should be required because car insurance is. But the reason for needing car insurance is that driving can maim or kill others. Being a living human being is no threat to anyone else, and medical insurance is about what happens to yourself not others, so the analogy is another trick non-sequitur.

It's unjust to cost-shift through taxes, including the de facto tax of forcing people to buy insurance, because that violates the rights of those who do not subscribe to orthodox medicine. There are hundreds of alternative healing systems, including indigenous, herbal, ayurvedic, naturopathic, clinical ecology, orthomolecular, Christian Scientist, and faith healers. It's unfair to force those who may never use orthodox medicine to pay for what they do not believe in. It's much fairer for the cost-shift to be done through provider fees and premiums, so it only affects those who subscribe to the same system of medicine.

Among the uninsured, half of them only incur 1% of total uninsured healthcare spending [haffa2 Exhibit 3], so it's irrational to impose on all uninsured; to reduce costs, or cost-shifting, only those in the half that account for 99% of costs are relevant. Note that this is a more skewed distribution than for the insured - in other words, putting the uninsured into insurance increases the amount of cost-shifting from one group to another - the diametric opposite of what proponents of universal coverage claim as their rationale.

The top 5% of privately insured healthcare spenders averaged $17,871; the top 5% of uninsured averaged $6,651 [haffa2 Exhibit 3]. Since the uninsured are 15% of the population, this means that there is 85x17871 / 15x6651 = 15 times more cost-saving potential in addressing cost reduction of the sickest insured than going after the sickest uninsured. This would do more to reduce cost-shifting than targeting the uninsured.

A frequently repeated reason for insurance is the claim that the uninsured don't get screenings. This is a fallacy. The truth is that 65% of uninsured american women over 40 had a mammogram within the last 5 years, the same rate as women under Canada's universal health coverage, and uninsured american men had twice as many PSA tests as canadian men [oneil p21]. This begs the question of whether universal mammogram screening is desirable. The apparent benefit of mammography disappears when corrected for bias in lead time and in ductal carcinoma in situ which is usually benign, so most would probably have been better off without mammograms anyway, which would have freed the money for something else that provided a greater benefit [lee] [lancet1].

It is often stated that the uninsured don't get primary care but rely on hospital emergency rooms, the most expensive care of all, so we are told to believe that insuring everyone will cut costs. But evidently the insured do this much more than the uninsured: the truth is that communities with high levels of uninsured have half the rate of hospital emergency department use per person than communities with few uninsured [haffa1] [hsch1]. It's the insured who drive hospital demand.

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I'm a techie who has no connection to the medical or insurance industries other than sometimes paying practitioners or lab tests, but does have a long-standing interest in alternatives in healing.
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Hurrah! I've often felt that I'm waging a singleha... by Carol Thompson on Monday, Sep 21, 2009 at 12:22:02 PM
The last great "reform", the HMO, is when the cash... by Hoss Hoss on Monday, Sep 21, 2009 at 3:06:54 PM
The Congress is back in session and doing the dirt... by HMC LAVADOG on Monday, Sep 21, 2009 at 11:17:07 PM
I've discovered I was right about the uncompensate... by Question Authority on Tuesday, Sep 22, 2009 at 4:01:00 PM