NCPA - National Center for Policy Analysis

Universal Coverage Involves Income Redistribution

April 2, 2004

In a series of recent reports, a committee of the Institute of Medicine (IOM) tried to make the case that universal health insurance is not costly relative to what the United States already spends on health care services.

The committee put forward four prototypes. The first approach would expand Medicaid and State Children's Health Insurance Program (SCHIP) eligibility, provide tax credits and lower the age of Medicare eligibility. The second option follows the general contours of the Clinton plan, an employer mandate coupled with a public program for those not covered through work. The third option involves individual mandates with tax subsidies, and the fourth, a single-payer, public plan.

Among the IOM projections:

  • Universal coverage would boost spending, in 2001 dollars, by $34 billion to $69 billion annually.
  • This is about 3 to 6 percent of total spending on personal health care services.
  • Critics charge the IOM estimate is likely to be unrealistically low.

The committee's estimate assumes that the uninsured would be provided with an average insurance policy, but roughly half of those who are already insured have below-average insurance policies. The cost of providing the uninsured with an average insurance policy will be greater than simply the cost of the additional services that the uninsured would use if they had such coverage.

According to economists Joseph P. Newhouse and Robert D. Reischauer, any universal insurance plan will increase the amount of redistribution not just from the healthy to the sick, but also from higher-income to lower-income households, and across workers at different firms.

With personal health care services constituting more than one-eighth of the economy, the scope of potential redistribution is larger than any non-wartime policy change except Social Security.

Source: Joseph P. Newhouse and Robert D. Reischauer, "The Institute Of Medicine Committee's Clarion Call For Universal Coverage," Web Exclusive, Health Affairs, March 31, 2004.

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