How health-insurance subsidies can help patients and hospitals

David J. Phillips | Oct 19, 2017

Sections Economics

Collections Health Care

There has been much debate in the United States about the costs and benefits of publicly subsidized health insurance. A survey of research on this issue suggests that both recipients and nonrecipients, including doctors and hospitals, benefit from expanding such insurance—but also highlights the complicated dynamics involved.

The impetus for this discussion is the 2010 Affordable Care Act (ACA). Popularly known as Obamacare, the ACA greatly expanded health-insurance coverage for low-income adults by making heavily subsidized plans available through federal and state-run marketplaces and by expanding state Medicaid.

According to MIT’s Amy Finkelstein, Chicago Booth’s Neale Mahoney, and Northwestern’s Matthew J. Notowidigdo, who conducted a review of existing literature, subsidized health-insurance coverage can substantially reduce the risk of poorer patients having large out-of-pocket expenses. The researchers also find that financial benefits accrue to health-care providers, as coverage increases medical spending and therefore revenue, and reduces the implicit costs of what otherwise amounts to uncompensated care.  

However, the data reveal complexities. For example, with the ACA in place, the previously uninsured said they felt healthier, and they also reported lower levels of depression, according to the researchers. That said, there is a lack of data showing actual health benefits of the ACA. Some randomized studies have produced clinical health measurements, including for blood pressure, blood sugar, and cholesterol levels, but of these, none showed significant improvements.

The researchers also review evidence that shows that even modest premiums can deter many low-income adults from enrolling in health-insurance programs. If premiums were subsidized to 90 percent of insurers’ average costs, at least 20 percent of eligible individuals would elect to stay uninsured even if they faced penalties for doing so. If an uninsured patient were to rack up a mountain of medical bills, she might walk away from the debt, especially if she already has low credit scores. Then the costs would ultimately be paid, mostly or entirely, by taxpayers and health-care providers.

“Because the uninsured do not face the full social cost of being uninsured when uncompensated care exists, they have less incentive to take up formal insurance coverage,” the researchers write. This situation helps explain why the ACA levied tax-related penalties on people choosing to remain uninsured.

There is an estimated $75 billion in overdue US medical debt, according to data compiled by the researchers. Many people assume that hospitals pass on unpaid debts from uninsured patients to charity-based organizations, other family members, and the government, as well as to insured patients, by inflating hospital charges. But the researchers find limited evidence of a hospital’s ability to “cost-shift.”