Embargoed Until:
June 24, 2008
12:00 a.m. Eastern Time



Christopher Fleming

Covering Low-Income Americans Through Public Rather Than Private Health Insurance Would Lower Total Spending And Out-Of-Pocket Payments

Even Under Tax Subsidy Proposals, Low-Income People Face High Out-of-Pocket Costs With Private Insurance , Authors Warn

Bethesda, MD -- Covering low-income people through public programs such as Medicaid and the State Children’s Health Insurance Program (SCHIP), rather than through private health insurance, results in lower per person medical spending and considerably lower out-of-pocket expenses for consumers. That’s the conclusion of a new study published today on the Health Affairs Web site, which looks at different ways of providing health insurance to Americans with family incomes below 200 percent of the federal poverty level. (For a family of four, 200 percent of the 2008 FPL is $42,400.) http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.4.w318
For example, the total annual medical spending required to cover an average low-income uninsured adult with Medicaid for a full year would have been $3,084 in 2005, while covering that person with private health insurance instead would have cost $3,899, or about 26 percent more. More dramatically, if the uninsured person were covered by Medicaid, the annual out-of-pocket expenses for that person -- including payments for deductibles, copayments and coinsurance, and noncovered services, but not premiums -- would be $109, but would be $771 under private health insurance, or about 600 percent more. Similarly, if an average uninsured child were covered for a full year by Medicaid or SCHIP, total annual spending would be $918, but would be $1,194 with private insurance. The amount spent out of pocket for the child would be $36 per year with Medicaid or SCHIP, compared to $305 with private insurance, say coauthors Leighton Ku, a professor at George Washington University’s School of Public Health and Health Services, and Matthew Broaddus, a research analyst at the Center on Budget and Policy Priorities.

Ku and Broaddus also look at the effects of switching those now covered by Medicaid or SCHIP to private health insurance or vice versa. Their results indicate that public coverage results in lower total medical spending and much lower out-of-pocket expenses per person.

Although unadjusted total per-person medical spending is higher for low-income adults with Medicaid than for low-income adults with private coverage, the study reveals that this is because adult Medicaid enrollees tend to be in poorer health, increasing their need for medical care. When you level the playing field, public coverage costs less overall than private coverage, Ku and Broaddus say.

“Some policy experts believe that the only way to lower health care spending is to force low-income patients to bear more of the cost, so they have more ‘skin in the game.’ These findings indicate that public coverage can hold down both total medical spending as well as the amount that low-income consumers have to spend out of their limited resources, a finding policymakers should keep in mind as the nation debates how best to move toward universal coverage,” said Ku.

“Policymakers should also note our study’s finding that low-income Americans face much higher out-of-pocket payments with private insurance than with public coverage. Some proposals to expand coverage rely on tax subsidies to help people afford private coverage. However, even if the subsidies are high enough to cover the policy premiums, our study shows that high deductibles and other substantial out-of-pocket payments could still impose a barrier to care for low-income people,” Broaddus added.

The Ku-Broaddus study uses data from the 2005 Medical Expenditure Panel Survey, a nationally representative survey conducted by the Agency for Healthcare Research and Quality. It updates and expands on an earlier study by Jack Hadley of George Mason University and John Holahan of the Urban Institute, which used 1996-99 data and also found that total medical costs were lower under public coverage than private coverage. However, Ku and Broaddus note that their findings differ from Hadley and Holahan’s “in one important respect. [Hadley and Holahan] interpreted the large difference in Medicaid and private health insurance spending as being primarily attributable to differences in provider payment rates. We found that the main difference is attributable to higher out-of-pocket spending under private health insurance.”

After the embargo lifts, the article by Ku and Broaddus will be available online at



Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org. The full text of each Health Affairs Web Exclusive is available free of charge to all Web site visitors for a two-week period following posting, after which it will switch to pay-per-view for nonsubscribers. Web Exclusives are supported in part by a grant from the Commonwealth Fund.

©2008 Project HOPE–The People-to-People Health Foundation, Inc.