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Going without health insurance

by Tony Novak, CPA, MBA, MT
  originally published in 2003, updated 11/21/2011

The U.S. Census Bureau set the current number of Americans without health insurance at 43.6 million in September 2003, an increase of 5.8% over the prior year.  The rate of increase surprised most people who follow these issues and is likely to add fuel to the political argument for mandatory national health care coverage. The number of Americans without insurance remained stable for several years and then increased in 2010 and 2011.

The reasons for the sharp increase are: 1) rising healthcare costs; 2) rising unemployment; 3) increasing flexible benefit plans that allow employees to "opt out" of health insurance; 4) increasing employee contributions to employer-sponsored plans; and 5) the availability of free health care to those without insurance.

Of these reasons, cost of health insurance coverage seems to be the least important. The large majority of Americans without health insurance are middle income people whose monthly disposable income is significantly larger than the cost of health insurance. The largest portion of uninsured Americans are working adults under age 40. More than half of the uninsured adults viewed their situation as temporary -especially those changing jobs or recently graduated from school.

The major reason for the drop of insured workers cited by the Census Bureau is the decline in employer-provided group health insurance. State insurance laws have made these group health insurance plans too cumbersome and too costly for the average employer. Some firms have switched to Health Reimbursement Arrangements (HRA) and Medical Savings Accounts (MSA) to combat this trend. HRAs avoid most of the group insurance restrictions and MSAs cut cost simply by purchasing less insurance.

The most significant underlying trend is that one in ten healthy young workers who could afford to purchase health insurance - either though buying into an employer-sponsored plan or purchasing coverage on their own - now opts to be uninsured instead. Uninsured people generally have little motivation to enroll in a health insurance plan. They know that; 1) they have little "at risk" in terms of personal financial liability for not carrying insurance, 2) they can enroll later in an "open enrollment" health plan if their health deteriorates, and 3) free health care is available at many facilities to those without health insurance. Mandatory health insurance coverage is not a politically popular idea, so we may face this issue for a long time to come.

The federal health reform law of 2010 is designed to reduce the number of people without insurance but it is too soon to predict whether the law will achieve the intended results. One key provision of the law referred to as the "individual mandate" will be tested by the Supreme Court in 2012.

Some predict that the number of uninsured will continue to increase from 2012 to 2016 before stabilizing. Additional medical cost controls and reforms to social health insurance programs are likely needed before we seem meaningful reductions in the number of people without health insurance.

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