The cost-benefit of universal coverage

You should read Michael Cannon’s post at Forbes in which he comments on the state of the evidence base in support of universal coverage.

Before one can reasonably determine whether universal coverage is advisable policy—whether it produces net benefits—one must tally all the ways it improves human well-being, and weigh those benefits against the costs of universal coverage, which detract from human well-being. […] To know whether the benefits of universal coverage outweigh the costs, we need evidence.

Where is the evidence upon which the Progressive Left bases its core belief that universal coverage is net beneficial? Where are the studies that look at the effects of universal coverage on length of life and quality of life and financial security? Where are the studies that weigh those benefits against all the costs of universal coverage?

Spoiler alert: those studies do not exist.

Like any good analyst, Cannon breaks the problem into its two, obvious parts: costs and benefits. He cites four studies that have examined benefits of coverage (click through to see what they are, though if you read this blog most or all of them will be familiar). He then appeals to his audience to bring more such studies to his attention. This is the easy part. There are probably hundreds, some of which he’ll find by clicking through the links at this TIE FAQ, or this round up of evidence on the financial protection benefits of insurance and this follow-up to it.

But neither Cannon, nor most wonks I read, contest that health insurance (of some type) offers benefits.*

Cannon’s real beef is on the cost side.

The state of the literature on the costs of universal coverage is worse still. I am aware of only one study that has even attempted to measure some costs of universal coverage and compare them to some of the benefits. [Amy Finkelstein and Robin McKnight’s “What Did Medicare Do?”] […]

So how is it that despite this dearth of evidence, a vocal minority of the U.S. population is utterly and completely convinced that universal coverage is net beneficial? Like most humans (including me, probably), advocates of universal coverage criticize every new finding that casts doubt on their prior belief, and hail every new finding that supports their prior belief. But why do they hold this prior belief in the first place? How did they reach this conclusion when it seems clear that the evidence necessary to reach it does not exist? And how do they retain this belief, especially when the available evidence creates so much room to doubt the benefits of universal coverage?

These are excellent questions. And, to be clear, I’m only quoting a few of the ones Cannon raises. The rest are good too. In particular, where are the studies that weigh costs against benefits of coverage? Spoiler alert: Some exist.

  • In a book chapter you can read in full here, John Nyman estimates that if we value a year of life at $100,000 (an admittedly arbitrary, though typical, standard) and if health insurance leads to a 25% reduction in mortality (which strikes me as high in light of recent work), then people are better off by $2,100 per year with insurance. For what it’s worth, he also quotes Kenneth Arrow who argued that health insurance is welfare improving.
  • In Health AffairsWilhelmine Miller and colleagues find that the gains in health from covering the uninsured to be valued at $65-$130 billion annually with costs estimated to be $34-$69 billion. The ranges overlap, so it’s not evident that the benefits exceed the costs, but it is certainly possible, if not likely, provided these estimates hold up.
  • On the cost side, Miller et al. cite other work: “Economists Jack Hadley and John Holahan […] projected health care spending if the currently uninsured U.S. population were insured produced [at] $34 billion–$69 billion […]. Other simulations have produced incremental cost estimates for providing the uninsured population with an ‘insured’ level of health care that fall within this range.” [Hyperlinks added.]
  • Peter Muennig, Peter Franks, and Marthe Gold calculated that health insurance yielded a quality-adjusted life year (QALY) for a non-elderly American at a cost of $35,000, a relative bargain if one values a year of life at something like $100,000, or even half that.
  • In other work, the same authors found that supplementing Medicare with more generous coverage produced a QALY for $24,000.
  • I’d be remiss in not noting the work by McClellan and Skinner, which includes a utility-based valuation of Medicare. They estimate that for individuals in the bottom two-thirds of the income distribution, Medicare provides substantially more value than it costs.

Now, one need not find this body of work convincing, and maybe there ought to be more of it. But at least there is more than none! To be sure, each study has its limitations, and none may account for every cost Cannon or I could think of. (As for limitations, see, for example, the Discussion section of Franks, Muenning, and Gold.) But one cannot credibly say there has been no consideration of the benefits and costs of coverage expansion. To the extent one does find this work convincing—and I am not taking a position on that here—one might reasonably support universal coverage as “worth the cost.”

There’s yet another point of view to consider. The work of David Cutler shows that medical care is overwhelmingly worth its cost. This does not imply that just any old insurance for it would be worth it. Insurance for valuable medical care plus a free panda bear or otter at each birthday would not be worth its cost for most people.** But, based on Cutler’s work, insurance just for valuable care would be, provided loading fees, economic drag of taxation and redistribution, and other implicit costs are low enough. It’s not an unreasonable bet that these costs are low enough, again for some type of insurance that covers only valuable care. Yet, if nobody has explicitly tallied them up, I agree with Cannon that that would be a worthwhile exercise.

Let us keep in mind, however, that even if health insurance of some type is worth its cost, that alone doesn’t imply universal coverage is the “right” or most “urgent” policy. It may not be the most cost effective policy we could implement now. Also, one can oppose mandatory coverage on other grounds. We don’t force people to vaccinate their children or forbid people from smoking, both of which would probably be overwhelmingly cost-effective.

* There are some holdouts when it comes to Medicaid, but let’s leave that aside for now.

** Your welfare gain from pandas or otters might vary.


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