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Editorials |

Insurance and Health Care Expenditures: What's the Real Question?

Giancarlo DiMassa, MD; and José J. Escarce, MD, PhD
[+] Article and Author Information

From the Department of Veterans Affairs and University of California, Los Angeles, Robert Wood Johnson Clinical Scholars Program and David Geffen School of Medicine at University of California, Los Angeles; Los Angeles, CA 90095.


Potential Financial Conflicts of Interest: None disclosed.

Requests for Single Reprints: Giancarlo DiMassa, MD, Robert Wood Johnson Clinical Scholars Program, 911 Broxton Avenue, 3rd Floor, Los Angeles, CA 90095; e-mail. gdimassa@mednet.ucla.edu.

Current Author Addresses: Drs. DiMassa and Escarce: Robert Wood Johnson Clinical Scholars Program, 911 Broxton Avenue, 3rd Floor, Los Angeles, CA 90095.


Ann Intern Med. 2007;146(11):814-815. doi:10.7326/0003-4819-146-11-200706050-00010
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For more than a quarter century, researchers and policymakers have known that people who must pay out of pocket for health care—because they are uninsured or face high levels of cost sharing—use less care (12). However, uninsured persons differ from insured persons in a variety of measured and unmeasured ways (3). Consequently, the precise effect of insurance on health care utilization and expenditures is difficult to quantify by using observational data.

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Insurance and Health Care Expenditures: More Than One Real Question
Posted on June 10, 2007
Peter Franks
University of California, Davis
Conflict of Interest: None Declared

We appreciate the editorial about our paper, drawing attention to our work. However, we are less enthusiastic about the substance of the comments and address some critical issues here. The editorialists use the opportunity to suggest the need to better understand whether health care improves health outcomes, and while we agree with this goal, our paper addresses an important, but different, intermediate question: How does the acquisition or loss of insurance affect utilization? Our longitudinal analysis makes less likely one argument about the uninsured: That the uninsured are different in some unmeasured ways from the insured, in terms of their need for insurance or their likely utilization when they get insurance. We find that when the uninsured gain or lose insurance their expenditures change in ways entirely predictable from those continuously insured or uninsured. To appreciate the importance of this question it is necessary to consider the singular destructive contribution of health economists to the US healthcare debate, namely, the notion of moral hazard. This ambiguous term (especially the "moral" part) implies (in the context of health insurance), if a person gains health insurance coverage then they will start behaving badly (smoking, overeating, not exercising) because they are now protected (through access to health care) from the unhealthy consequences of their unhealthy behavior. There is no evidence for such a phenomenon, yet the term carries weight, in part, from this connotation. The other argued meaning of moral hazard is that healthcare will be used excessively, because the true cost of use is no longer borne by the user. It is this second meaning that our paper is intended to address. This second meaning is also flawed as a concept when applied to healthcare. Unlike other forms of insurance, for example car insurance which is intended to be used only for catastrophes (car accidents), health insurance is precisely intended to increase access to routine healthcare - again in contrast to the implied meaning of "hazard". The idea is that accessing healthcare will avail users of the potential net benefits of healthcare on health outcomes. Then the question becomes what is excessive use. We know from the RAND health insurance experiment that people with lower co-pays use healthcare more for both appropriate and inappropriate (unnecessary) care. This is hardly surprising. The average consumer is not equipped to make the distinction "” one that in the RAND study required a complex process of experts to discern"”even so, those expert decisions substantively lacked an evidence base. Thus, care for chest pain that was due to indigestion may result in excessive, inappropriate, or unnecessary care, but if the pain was due to coronary heart disease the care was likely necessary. Increased healthcare utilization, the purpose of health insurance, inevitably entails unnecessary care.

The editorialists suggest we should have used our two part model to produce a summary estimate of health care expenditures (after noting, incorrectly, that we present results only for those with positive expenditures). We chose not to do that for two reasons. First, keeping use vs. non-use separate from amount of use contingent on some use allows readers to see that two key components of health care (the decision to use care or not, and the amount of care used) are affected similarly by gaining or losing insurance. Combining the two components would obscure these two important aspects of health care utilization. Interested readers can produce their own summary estimates by multiplying the point estimates from these two analyses together. Second, combining two estimates, both measured with error, would have produced a summary measure with significantly more error, masking potentially important differences. We also used a differencing approach to the analysis (examining the difference in actual expenditures between the two years); this does provide some information on how actual expenditures change, for those interested in this aspect of the problem.

Finally, the editorialists note that the reasons people lose or gain insurance are unknown "“ implying these results are not generalizable to the larger population of persons who are continuously uninsured. The effect on expenditures for this larger population is clearly a main policy issue for expanding health insurance. The intermittently insured group (despite characteristics intermediate between the continuously insured and uninsured groups) when uninsured had adjusted expenditures similar to the continuously uninsured and when insured had adjusted expenditures similar to the continuously insured. It's possible that the continuously uninsured, if given insurance, would increase their expenditures from levels observed also in the intermittently insured group (while uninsured) to some different, unpredictable level (because of some unobserved variables). But there is no evidence for such an effect, and parsimony suggests that their adjusted expenditures would also increase to levels comparable to those of the continuously insured.

Conflict of Interest:

None declared

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