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The impact of the uninsured on health insurance premiums

There is now evidence that the health care costs of the uninsured are borne in part by those who do have health insurance. A study by Families USA reported in Bloomberg News indicates that the annual “surcharge” is $922 for the average American family with employer-sponsored health care coverage. Why? Because providers who treat the uninsured only receive about 1/3 the cost of their care from the uninsureds, leaving others to pick up the tab for the rest.
According to the report, about 8% of insurance premiums goes to cover costs associated with caring for the uninsured. And, the cost will rise to over $1500 within five years.
The report notes:
“Insured families in six states – New Mexico, West Virginia, Oklahoma, Montana, Texas and Arkansas – will pay more than $1,500 in additional premiums this year to cover the costs of patients who lack medical insurance, the report found. By 2010, the list will include five more states: Florida, Alaska, Idaho, Washington and Arizona.”
Here’s the impact in real world terms. On an individual basis, your family premiums would be $900 less if the uninsured had coverage. On an employer-specific basis, General Motors is paying about $480 million a year in “excess costs” to cover the uninsured. And nationally, considering the Federal and state governments’ expenditures on health care, our taxes are paying more than $50 billion a year to “insure the uninsured”.
I have been saying for several years that the “uninsured” are actually “insured” through a mix of taxation, cost-shifting, and self-insurance. This is the first study that quantifies the cost of that “insurance”.
What does this mean for you?
Until and unless we address the funding of coverage for the uninsured, these hidden and overt taxes will continue. It adds to everyone’s costs of doing business, reduces industrial competitiveness, and damages balance sheets. Yours too.
Thanks to Peter Rousmaniere for the heads-up.

3 thoughts on “The impact of the uninsured on health insurance premiums”

  1. I’m always extremely skeptical of findings like these.
    First of all, it’s reported that the uninsured pay around 1/3 of their medical costs. Aren’t the uninsured paying billed charges? The allowables are often about 1/3 to 1/2 of billed charges, so by this logic, hospitals are making about the same amount from uninsured as they are from the insured. Where’s the gap?
    But even if there were a gap, how is it that hospitals are allowed to increase their contracted rates due to the presence of the uninsured population? Do they suddenly become better negotiators? If they could have gotten higher contracted rates without the uninsured populations to worry about, why wouldn’t hospitals would be getting those rates, anyway?
    Do managed care organizations suddenly have to accept higher allowables because the hospital says “we’ll go broke if we don’t get it?” The managed care organizations are looking at their own bottom lines when they negotiate contracts. They don’t care what happens to the hospital. If you look at the way profit margins have grown for United, Aetna, and Humana over the last few years, it seems to me that they’re cynically raising premiums under the cover of stories like these to raise their profits.
    I think there’s more evidence that hospitals and the insured are being taken for a ride and that managed care is making money on it.

  2. the confusion here arises from costs v charges. the study states “costs” not charges, so your point re the uninsured paying about the same as other payers is incorrect.
    the second issue is the focus solely on price. Yes, in fact many hospitals and other providers with percentage of charges deals with managed care entities do raise their charges to offset indigent care. That’s a well-known common business practice. However, that is only part of the cost-shift equation.
    Utilization likely increases as well – more office visits, with more tests and other procedures performed per day.
    Finally, upcoding, e.g. increasing the “value” of an office visit by coding it as an extensive v. a brief visit will add significant dollars to the overall price.
    You can’t just look at price when examining health care – the equation is price x utilizatin x frequency = total costs.
    Finally, re Aetna et al. No, they are not making money by underpaying hospitals, they are making money by raising insurance premiums. their “cost of goods sold” has increased significantly over the last decade, and they have finally been able to increase premiums faster to regain profitability. This is part of the insurance cycle.

  3. “the confusion here arises from costs v charges.”
    That’s a good answer. There is plenty of confusion between costs vs. charges, just as there is confusion between health care costs and health insurance costs.
    But what I don’t see discussed anywhere is whether that uninsured “surcharge” will ever go away. It seems to me that it will not. It might be subsidized a different way, but the cost will remain and, depending how the subsidy works, the same people will continue paying it.
    In fact, subsidizing the cost of the uninsured through the insurance mechanism may be more efficient than an explicit tax. Politicians will no doubt favor any approach that does not require an explicit tax.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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