Health Issues

Health Insurance Subsidies Won't Significantly Cut Number of Uninsured

Government subsidies that cut health insurance premium prices in half for people without insurance would reduce the number of uninsured Americans by just 3 percent, according to a RAND Corporation study.

The study by the nonprofit research organization contradicts suggestions by some that large numbers of people without health insurance would sign up for coverage if government provided subsidies or tax credits to reduce the cost of health insurance.

An estimated 45 million Americans don't have health insurance. Most of these people are in low- and moderate-income families where no one gets the insurance from his or her job, but family income is too high to qualify for Medicaid, the health insurance program for the poor.

“Insurance policy prices aren't going to be the tool that solves the problem of the uninsured,” said M. Susan Marquis, senior economist with RAND and one of the study's authors. “Price is not the only barrier people face in deciding whether to purchase insurance. A lot of people who don't have insurance are young and healthy and would rather spend their money on something else.”

People surveyed for the RAND Health study cited numerous other factors that influenced whether they purchased individual health insurance policies, including personal attitudes toward risk, whether they believe they can get good health care without insurance, perceived difficulty in selecting a health care plan, and even a concern that insurance companies require too much personal information for individual plans compared with group insurance plans.

“One implication of our findings is that if you really do want to get to universal health insurance coverage, voluntary solutions that rely on financial incentives aren't going to get you there,” Marquis said. “Government is probably going to have to mandate it.”

The study found that among people who decide to buy non-group health insurance, price is an important factor in their decision to choose one policy over another.

Researchers found that people who buy health insurance prefer policies with more benefits and lower deductibles, even if they have to pay higher premiums. Those in poor health are particularly willing to pay a higher price for a low deductible, and are more likely to prefer insurance plans that feature mental health and prescription drug benefits.

“People prefer better benefits, even if they have to pay a little bit more,” Marquis said. “It's evidence of risk aversion. People would rather pay a little more now and reduce their risk of having a bigger loss in the future. If that weren't true, you probably wouldn't buy insurance.”

Researchers concluded that newer types of individual plans with very high deductibles may be attractive to healthy people, but are unlikely to help reduce the total number of people without health insurance.

The study is titled “The Role of Product Design in Consumers' Choices in the Individual Insurance Market.” It will be published in a future issue of Health Services Research and has been posed online by the journal.

Marquis and her RAND colleagues looked at nearly 19,500 new individual health care policy subscribers from January 1997 through the fall of 2001. The new subscribers enrolled with the three largest non-group insurers in California, which provide approximately 80 percent of the individual policies in the state.

Researchers also examined U.S. Census Bureau survey data on the uninsured and purchasers of individual health plans in California. In addition, researchers conducted telephone surveys in California with nearly 4,000 individual health plan subscribers and 400 families with an uninsured adult in 2002 and 2003.

The data is currently relevant – even though the types of individual health insurance plans available today have changed – because the underlying behavior of consumers has remained consistent, Marquis said.

In addition to Marquis, the other authors of the study include Melinda Beeuwkes Buntin, of RAND; Jose J. Escarce, of the David Geffen School of Medicine at UCLA; and Kanika Kapur, of the School of Economics, University College, Dublin. Both Escarce and Kapur also are affiliated with RAND. The study was funded by a grant from the California HealthCare Foundation.

RAND Health, a division of the RAND Corporation, is the nation's largest independent health policy research program, with a broad research portfolio that focuses on health care quality, costs and delivery, among other topics.

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