College project for Health Economics

1. State Health Care
Plans
A Cost Benefit Analysis
By: Matt Harmon and Michael Wildes

2. The Growing Number of
Uninsured Americans
 15.9% of the U.S. population had no
health insurance in 2005.
 The cost of providing free care was
around $100 b. in 2003 (NCHC).
 $65-$130 b. in labor productivity is lost
annually from a lack of health insurance.
 Free care must be financed through cost
shifting. The insured pay through taxes
and higher premiums.

3. Reform Is a Necessity
 New legislation must be enacted to cover those
currently uninsured.
 Growing income inequality threatens to
continually increase the amount of uninsured.
 An aging population that will stress the
Medicare budget requires the currently
uninsured to help finance the system.
 A lack of primary care will worsen labor
productivity and inhibit economic growth.
 The costs of providing free-care outweigh the
costs of a well-administered system.

4. The Massachusetts Mandate
 Mass. State gov’t. spent
$7.7 billion on health care in
2006.
 34% of the uninsured in
Mass in 2006 had incomes
below 100% of the FPL.
 The growth in state income
inequality threatened to
expand the uninsured.
Massachusetts Health Insurance Coverage (2006)
15%
16%
52%
12%
5% 0%
Medicare
Medicaid
Employer
Uninsured
Individual
Other Public

5. The Costs of Expanding
Coverage: Massachusetts
 Preliminary estimates put the annual system cost
around $620 million.
 Premiums for the uninsured are separated into two
income based groups.
 <150% of FPL pay $18/month (~290,000)
 150-300% of FPL pay $106/month (~170,000)
 If all these residents pay for insurance they would
spend about $279 m. per year.
 Net cost of the system is about $100 million, assuming
$385 million in assistance from the federal gov’t.
 If lost labor productivity due to the uninsured
decreased by 2.15% it would offset the net cost.

6. California’s Need to Expand
Coverage
 CA contains 14% of all
Uninsured Americans.
 CA spent $38.5 b. on health
care in 2006.
 35% of Uninsured residents
had incomes below 100% of
the FPL.
 The Gini Coefficient for CA
rose from 0.379 in the early
1980s to 0.441 in the early
2000s.
California Health Insurance Coverage (2006)
9%
16%
48%
19%
7% 1%
Medicare
Medicaid
Employer
Uninsured
Individual
Other Public
1900
1950
2000
2050
2100
2150
2200
2250
2300
2350
2400
Population of
Nonelderly
Uninsured
Thousands
Under 100% 100-199% 200% or more
Income Group by Federal Poverty Level (FPL)
Income Distribution of the Uninsured in California (2006)

7. The Cost of Expanding
Coverage: California
 Estimates from state officials say the total health care spending
would be $12.1 b.
 Premiums for the uninsured would be sectioned into three income
groups
 100-150% of FPL pay 3% of gross income (~1.1 million)
 151-200% of FPL pay 4% of gross income (~1. million)
 201-250% of FPL pay 6% of gross income (~560,000)
 All previously uninsured paying for coverage would save about
$1.95 b. annually.
 The cost of subsidizing this group is estimated at $2.27b.
 The net cost of insuring the currently uninsured would be $0.32b.
 A gain of 2.7% in lost labor productivity would offset this cost.

8. Conclusion
 There is an ambiguous effect from increased access
to health insurance.
 State health plans appear to cost more than they
would save through extending coverage.
 Longer wait times and a sacrifice of quality could keep
productivity from increasing.
 Small gains in labor productivity may lead to net
benefits.
 Leaving the uninsured without subsidized coverage
will increase each state’s health expenditures.