NCPA - National Center for Policy Analysis

Insurance Affordability

May 19, 2003

A common explanation for the fact that 15 percent of U.S. citizens do not have health coverage is that a significant proportion of the population cannot afford to pay for coverage. Yet the "affordability" of health insurance is a subject that is poorly understood and that has received relatively little attention from economists.

In their study, economists Kate Bundorf and Mark Pauly develop a framework for understanding affordability and, based on a plausible range of definitions and assumptions, show that health insurance is affordable for between one quarter and three quarters of adults who are not insured.

  • Adults in low-income households are certainly more likely to be uninsured than people in higher income households, but not all uninsured adults are in families with low incomes.
  • If low income is defined by the federal poverty line, then only 22 percent of adults aged 25-64 who are uninsured are in families with incomes below the poverty line while 30 percent are in families with incomes three times the poverty level.

At the same time, some people purchase health insurance despite having what might be seen as an inadequate income, and this has important public policy implications. There may be a case for subsidizing health insurance for those who cannot afford it, or for people who have insurance but for whom paying the premiums causes hardship. But, for a large proportion of uninsured people, health insurance is a matter of choice. Policymakers can either mandate coverage - as is the practice in most countries - or not worry about people who choose to bear the risk.

Source: Andrew Balls, "Is Health Insurance Affordable to the Uninsured?" NBER Digest, May 2003; based upon Kate Bundorf and Mark Pauly, "Is Health Insurance Affordable for the Uninsured?" NBER Working Paper No. 9281, National Bureau of Economic Research, October 2002.

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