# Healthcare Costs and the Uninsured

I had a couple recent posts on healthcare costs – one showed that for whatever reason, healthcare costs tended to rise faster in the terms of Republican Presidents than when Democrats were President. The second one showed that the greater the government involvement in healthcare, the lower the increase in healthcare costs.

I decided to check one more thing. I’ve heard it said many times that the more uninsured people there are, the greater the healthcare expenditures for the rest of us. The idea is that the poor, by choosing not to have health insurance, end up not going in for healthcare until they’re really sick and thus costly to treat, and their healthcare costs get passed onto the rest of us with insurance. Despite the snark, the story makes sense to me, but I figured I’d check it. The data I used:

Cost of healthcare, 1960 – 2003

CPI

Population (NIPA Table 7.1)

Percentage of Americans with insurance from 1989 to 2005

The correlation between the percentage change in real healthcare costs per capita and the change in the percentage of insured Americans was -.31. So far so good for the story – as the percentage of uninsured rises, the percentage increase in real healthcare costs per capita also rises. I should probably have stopped here… I’ve had about 21 posts so far that have involved data, and this is the first time I recall getting anything resembling the conventional wisdom to crop up. But I was wondering…

Does one factor lead the other? For instance, do rising healthcare costs lead to fewer people with health insurance in later years? The following table shows the correlation between the change in the percentage of insured in any given year, and the % change in real expenditure per capita on healthcare in some previous year.

% ch real exp per cap t-1, ch in pct insured t_-0.20

% ch real exp per cap t-2, ch in pct insured t_-0.29

% ch real exp per cap t-3, ch in pct insured t_-0.43

% ch real exp per cap t-4, ch in pct insured t_-0.44

% ch real exp per cap t-5, ch in pct insured t_-0.29

% ch real exp per cap t-6, ch in pct insured t_-0.05

It seems that the greater the incrases in healthcare costs, the fewer people are insured some years (and some years seems to be mostly 3 or 4) down the line. As healthcare costs rise, so do insurance rates, and eventually fewer people buy it.

What about going the other way? The table below shows the correlation between the % change in real expenditures on healthcare per capita in any given year, and the change in the percentge of uninsured in some prevous years.

% ch real exp per cap t, ch in pct insured t-1_-0.16

% ch real exp per cap t, ch in pct insured t-2__0.37

% ch real exp per cap t, ch in pct insured t-3__0.69

% ch real exp per cap t, ch in pct insured t-4__0.28

% ch real exp per cap t, ch in pct insured t-5_-0.01

% ch real exp per cap t, ch in pct insured t-6__0.09

This is a bit more interesting…. it seems that if the percentage of Americans with health insurance goes up, a few years (3 seems to be a magic number today) later we see increases in healthcare costs.

Now, correlation is not causality, but note that the correlation between changes in the percentage of Americans with health insurance and the percentage change in real expenditures three years out is by far the larger (in absolute magnitude) than any other number in this post.

So what’s the mechanism? My guess… the more people get insurance, the more they want to use that insurance to get healthcare services, and rising demand raises prices.

Combining both parts of the story… prices (on healthcare, and then on insurance) rise, prompting people to drop insurance coverage some years later. The drop in insurance coverage leads to a slowdown in healthcare costs, and hence insurance costs, a few later. A drop in insurance costs leads to more people with insurance … Its not much data to work with, but for a guy like me who spent a lot of quality time with population ecology models, this looks an awful lot like a Lotka-Volterra system. What it doesn’t look like is the clean story about unwashed hordes of uninsured driving up the costs for the virtuous insured.

Update… I forgot to mention… as always, my spreadsheet is available to anyone who wants it.