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The European Journal of Health Economics

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01-06-2013 | Original Paper

Does the US health care safety net discourage private insurance coverage?

Authors: Xuezheng Qin, Gordon G. Liu

Published in: The European Journal of Health Economics | Issue 3/2013

Abstract

The large and growing uninsured population poses an alarming threat to the US health care system, and is a major target of the Obama health reform. This paper investigates analytically and empirically the degree to which the absence of health insurance in the US reflects the availability of the health care safety net, such as the guaranteed or charitable care provided by emergency rooms, community health centers and physicians. Our theoretical model demonstrates that the safety net can be a real alternative to health insurance, thus discouraging private insurance purchase in the market setting. In particular, when the community premium rate fails to reflect the value of such resources, not purchasing insurance becomes a rational decision for a sizeable portion of the population. The calibrated simulation based on US statistics indicates about 15.75 % of the uninsured population, or 7.2 million people in US, are attributable to the existing safety net system. Further empirical analysis using nationally representative data shows consistently that the presence of local safety net resources may reduce the probability of individual insurance purchase by as much as 45.9 %.

This includes the federal tax law IRS Schedule H and the various state level legal mandates for the safety net provision. For example, the “Charity Care” program in the state of Washington requires all hospitals within the state (including the for-profit hospitals) to provide free or discounted health care to the indigent patients [the program is authorized by state legislation R.C.W. 70.170.020(2) and WAC 246-453-010(2)].

A similar functional form is conventional in earlier literature, e.g., Flavin and Nakagawa [14].

For simplicity, we do not consider the public insurance options separately; however, any contribution-based risk management system such as the various public insurance programs can be modeled similarly with the premium contribution R and the cost sharing component c.

As the simulation is based on the single period model, the operational measure of total annual income is the total annual consumption.

The poverty line is set at the 2006 federal poverty threshold. The dollar amounts of the annual income for the three groups are: low income—$27,138; middle income—$40,707; high income—$67,845.

The individual premium rate estimates are based on 2005 MEPS survey and the Center for Policy and Research’s America’s Health Insurance Plans (2005) comprehensive survey. The premium values of the three groups are: $409, $723, and $2,268 for government, private and non-group plan enrollees, respectively.

Billings J, Weinick RM. Monitoring the Health Care Safety Net—Book 2: A Data Book for States and Counties. Rockville, MD: Agency for Health Care Research and Quality; 2003. AHRQ Publication No. 03-0026.

The combined data file includes 30,993 persons. There are 74 counties in the 2003 CTS data file that are not represented in the AHRQ Data Book; the records of the individuals residing in these counties are thus eliminated due to the lack of information on the key county variables.

According to Barro and Lee [2], the average years of formal schooling received by adults over 15 in the US is 12.25. Considering the fact that our sample does not include elderly people aged over 65 who tend to be less educated than adults 25–64 (Ehrlich [36]), our estimate on educational attainment is comparable with that based on national surveys.

The first stage coefficient estimates for the instrumental variable are 0.7089 in the CHC equation, 2.3805 in the hospital with ED equation, and 74.3132 in the adult PCP equation—all are statistically significant at 1 % level, with F values greater than 10.

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Title: Does the US health care safety net discourage private insurance coverage?
Authors: Xuezheng Qin
Gordon G. Liu
Publication date: 01-06-2013
Publisher: Springer-Verlag
Published in: The European Journal of Health Economics / Issue 3/2013
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI: https://doi.org/10.1007/s10198-012-0389-4

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Does the US health care safety net discourage private insurance coverage?

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