A Political Economy Model of Health Insurance Policy

By Kimakova, Alena | Atlantic Economic Journal, March 2010 | Go to article overview

A Political Economy Model of Health Insurance Policy


Kimakova, Alena, Atlantic Economic Journal


Introduction

United States health policy stands in stark contrast to policies adopted by other high-income countries. In terms of eligibility, public health insurance covered only 25.3% of the total U.S. population in 2001 compared to the OECD point average of 93.2% for the same period. (1) In terms of actual cost-sharing, public expenditure as percentage of total health care spending has been on the rise in the U.S. over the last three decades and reached 44.2% in 2000 (OECD Health Data 2003).

Despite this public involvement, about 14% of the total U.S. population, 40 million, remained uninsured in 2000. By 2006, the number of uninsured increased to 42.4 million with their share in the total population remaining steady around 14%. (National Center for Health Statistics--NCHS 2006). Since virtually all Americans aged 65 or older are covered by the federally funded Medicare, Fig. 1 provides time series data on the share of uninsured children and adults under the age of 65 years between 1997 and 2006.

As Fig. 1 shows, the share of uninsured children has declined somewhat since 1997 due to new initiatives such as State Children's Health Insurance Program (SCHIP), but the reforms were implemented differently in each state. Based on ethnographic research, Angel et al. (2006) provide a vivid account of the common obstacles that low income families face in terms of maintaining continuous coverage under needs-based Medicaid and SCHIP public social welfare programs with strict eligibility criteria and an abundance of bureaucratic obstacles.

Besides the lack of insurance or the sporadic nature of coverage, underinsurance is also a considerable problem in the U.S. The degree of cost-sharing in terms of deductibles, co-payments and exclusions, especially with respect to drug coverage, for both public and private insurance schemes is significantly higher in the U.S. than in other OECD countries (OECD Health Data 2003). Consequently, data on health insurance coverage conceal the vulnerability of middle-class Americans to downward social mobility in a health crisis. Public insurance is designed primarily as a social safety net only, and thus eligibility for public health insurance schemes typically entails financial bankruptcy.

Private insurance covers about 70% of the U.S. population, predominantly through employment-based insurance (64% of the total population) (OECD 2002). Health insurance premiums are a tax deductible item for companies and the self-employed, but gaps in coverage remain. Job mobility and existing provisions on the non-insurability of pre-existing conditions also leave many vulnerable in terms of health and financial risks. Figure 2 provides the breakdown of coverage for persons under 65 years of age between private and public insurance.

Overall, U.S. health care expenditures represented 14% of GDP in 2001 compared to the OECD average of 8%. Multi-payer systems combining private and public health insurance providers are typically more expensive than single-payer (public) systems, but the U.S. is an outlier nevertheless. In terms of health outcomes, the U.S. typically corresponds to the OECD average, which indicates that this significantly higher level of spending does not translate into health improvement (OECD 2002).

The above data suggest that higher per capita income does not necessarily correspond to increased demand for public policy conducive to universal health coverage and/or public health insurance. Increases in health costs due to demographic and technological changes also cannot predict the course of health policy in the U.S. since all high income countries are typically exposed to the same trends.

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[FIGURE 2 OMITTED]

This paper adopts the view that health insurance policy is primarily an exercise in redistribution. (2) In order to explain the divergent path of U.S. health policy, the paper builds a political economy model representing the relevant redistributive conflicts in the society.

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