Are the Uninsured Free-Riding?

Should government require people to purchase health insurance?  My answer is no.  Here are three reasons.

  1. The uninsured bear the health costs of their decision not to insure.  If my neighbor doesn’t buy health insurance, that doesn’t threaten my health.  (He might threaten my family’s health if he doesn’t get his family vaccinated.  But vaccinations can easily be obtained without insurance.)
  2. As a group, the uninsured bear the financial costs of their own health care.  Many uninsured people show up at the hospital, get treated, and then don’t pay their bills.  Doctors and hospitals scream an awful lot about having to deliver “uncompensated” care.  But two recent studies – one on doctors services by Jonathan Gruber and David Rodriguez, the other on hospital services in California by Glenn Melnick and Katya Fonkych – show that the uninsured who do pay their bills more than make up for the uninsured who don’t.  Why?  The uninsured pay the highest prices.  Gruber and Rodriguez write, “Our best estimate is that physicians provide negative uncompensated care to the uninsured, earning more on uninsured patients than on insured patients with comparable treatments.”  Melnick and Fonkych write that in 2005, “uninsured patients as a group still paid a higher percentage of charges, on average, than Medicare and Medicaid.”  Note that this is an average: some providers may provide lots of uncompensated care, but that appears to be offset by those that provide negative uncompensated care.  As a group, the uninsured appear to pay for themselves.
  3. The uninsured pay higher taxes.  Federal and state governments offer large tax breaks for employer-sponsored health insurance.  The uninsured, by definition, do not obtain employer-sponsored health insurance.  Because they forgo those tax breaks, they pay higher taxes.  Those additional tax payments help fund things like subsidies to hospitals that provide (positive) uncompensated care (see #2).

So it’s not at all clear that when people don’t buy health insurance, they are imposing costs on the rest of us.  The uninsured mostly just hurt themselves.