State Health Care Reform: Key Questions and Answers

Popular Claims versus Scholarly Evidence

Claim: People without health insurance have no access to care.

Evidence : Among those with comparable incomes, the uninsured get about the same amount of health care as those with insurance once they seek care.

Claim:  Insuring people will eliminate uncompensated care.

Evidence :

The largest amounts of uncompensated care are generated by Medicare and Medicaid patients.  This occurs because Medicaid and Medicare pay providers less than cost.  Eliminating the uninsured by putting them on Medicaid may actually increase the amount of uncompensated care by eliminating the payments the uninsured make for their own care, increasing utilization and increasing administrative overhead.  In the 1990s, Tennessee insured everyone in the state under the TennCare program.  The program was supposed to eliminate uncompensated care, but by the late 1990s uncompensated care had increased.1

Claim:  Health insurance is unaffordable for individuals. 


In Colorado, a 40-year-old woman can choose from a number of comprehensive health insurance policies that cost less than $100 a month.  Adding two children costs about $50 to $100 a month more.  The most this woman would have to pay for health insurance, regardless of health status, would be $425 a month under Cover Colorado, the state’s risk pool, or insurance plan, for the uninsurable. 

Claim: Medicare has lower administrative costs than private insurance plans; private insurers have administrative costs of 30 percent. 


Recent papers suggest that Medicare administrative costs are similar to those in the private sector — even ignoring the fact that Medicare is not solvent.2 Overhead is not necessarily bad.  It includes case management for patients with chronic conditions, health education expenses, fraud detection and customer service, areas in which Medicare is notoriously weak.3 In 2002, the Washington State Office of the Insurance Commissioner determined that administrative expenses for companies filing annual statements with the state averaged 12.6 percent of overall revenues. 

Claim: Mandating electronic health records will lower costs and improve quality.


Evidence from existing systems suggests that results are mixed and that there are significant concerns with record availability, accuracy and security. 

Claim:  Mandating evidence-based medicine will lower costs and improve quality.

EvidenceWhere evidence-based medical decision-making processes have been implemented, there are indications they are used to control costs by denying access to effective therapies.

Claim:  Care coordination and case management will lower costs.


Experiments with disease management have lowered costs in some cases but not in others.  Case management for expensive events like trauma is already routine for private insurers.  Ongoing experiments concentrate on managing some chronic conditions known to generate avoidable costs.

Claim: Because the United States has the highest per capita health care spending, it “spends too much on health care.”

EvidenceNot all higher spending is waste.  Wealthier people spend more on health in order to function better, just as they spend more on housing, transportation and entertainment.  Countries with lower levels of health care spending have worse health outcomes than the United States along a variety of measures.  Within the United States, vacationers admitted to emergency rooms in high-spending areas have lower mortality rates than similar visitors in lower spending areas.4

Claim: The U.S. health system spends more money and has poorer outcomes than health systems in other countries.


The medical literature shows the opposite.  Disparities between health care access for the rich and poor are lower in the United State than in other countries.  A few examples of comparative outcomes include: lower U.S. infant mortality rates, higher cancer survival rates, better population blood pressure control, lower mortality and morbidity from cardiac disease, better diabetes treatment, more preventive care, and better health and quality of life for spinal cord injury patients.  Compared to the British National Health Service, U.S. medical care provides more services for roughly the same expenditures.5

Claim: More spending on the indigent will improve health outcomes.


Spending on the indigent has risen significantly and there is little evidence of positive effects.  It may be time to study how money is spent rather than simply spending more.

Claim: Integrated health care systems will lower costs.


Integrated health care systems have raised costs in states such as Wisconsin, where hospital networks use primary care practices to provide patients for their higher margin hospital services and as barriers to competition.  Colorado has determined that Medicaid managed care costs more than its current fee-for-service system, possibly due to higher overhead costs.6

Claim: People are better off if their health insurance policies have lower deductibles and pay for routine care.


Buying insurance for expected expenses is the most expensive way to purchase medical care.  Lower deductibles come with higher premiums.  Someone spending $10,000 on health insurance with a $500 deductible might be able to buy a policy with a $5,000 deductible for $5,000 a year and save the remaining $5,000 in a tax-free health savings account.  The higher deductible makes this person better off if his health expenses for the year are less than $5,000.

Claim: The uninsured get their care at the emergency room, driving up costs for everyone.


A recent look at a census of all frequent users of Massachusetts emergency rooms suggests that ER use by the uninsured is roughly the same as for the privately insured.  The Urban Institute has concluded that the uninsured do not use emergency rooms at a higher rate than the insured.7

Claim:  Centralizing administration will lower costs.


If this were true, the Soviet Union would have had the lowest costs in the world.  In fact, smaller systems tend to have lower administrative costs.  Counter-evidence for the superiority of competitive systems includes a comparison of the Northern California Kaiser Health Plan with the British National Health Service.  Researchers found that costs were comparable but that Kaiser provided more for the money.8

Claim:  Insurance company profits increase the cost of care.


There is a great deal of evidence showing that for-profit entities minimize costs better than nonprofit entities.  Competitive markets generally make price increases difficult.  When that happens, the only certain way to generate profits is to cut costs.  In some cases, the efficiencies created by the drive to minimize costs allow for-profit firms to provide services that are better and less expensive than their nonprofit competitors, even though the for-profit entities must pay higher taxes and shareholder dividends.  There is no evidence that health insurers are making abnormal profits.

Claim:  More preventive care for individuals will save money


With the exception of things like childhood immunizations, the evidence suggests that many preventive care initiatives increase expenditures.9 This is because most preventive care consists of screening for early detection of diseases that are less expensive to treat if caught early.  While screening lowers individual risk, it increases overall expenditures because the savings from the relatively small number of early cases detected are smaller than the total costs of screening the population.  This is why there is more preventive care screening in the United States than in government-run health care systems.  Individuals are more likely to pay more to lower their own risks; government accountants are more likely to be concerned with total expenditures.


  1. Data from the RAND Health Insurance Experiment suggest that “with no insurance at all, people would have spent about half the cost of free care.” Emmett B. Keeler, “Effects of Cost Sharing on Use of Medical Services and Health,” Medical Practice Management, summer 1992, page 318.  Available at  Access verified December 10, 2007.
  2. See Merrill Matthews, “Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector,” Council for Affordable Health Insurance, January 10, 2006.  Available at  Access verified February 19, 2008; and Benjamin Zycher, “Comparing Public and Private Health Insurance: Would A Single-Payer System Save Enough to Cover the Uninsured,” Manhattan Institute, Medical Progress Report No. 5, October 2007.  Available at  Access verified February 19, 2008.
  3. J. P. Wieske, “How High Loss Ratios Undermine Affordable Health Insurance,” Council for Affordable Health Insurance, May 2007.  Available at  Access verified February 19, 2008.
  4. Joseph H. Doyle, Jr., “Returns to Local-Area Health Care Spending: Using Health Shocks to Patients Far From Home,” National Bureau of Economic Research, Working Paper No. 13301, August 2007.
  5. Richard G. A. Feachem, Neelam K. Sekhri and Karen I. White, “Getting more for their dollar: a comparison of the NHS with California’s Kaiser Permanente,” British Journal of Medicine, No. 324, January 19, 2002, pages 135-143.
  6. In its December 2006 Joint Budget Committee hearings, the Colorado Department of Health Care Policy and Financing wrote, “Although managed care organizations should experience savings over fee-for-service due to their improved ability to reduce unnecessary hospitalizations, emergency room visits, and other overutilization, there are also extensive administrative costs for care management, utilization management, providing networking to ensure access, and other processes such as bill paying and risk management.”  See “FY 07-08 Joint Budget Committee Hearing,” Colorado Department of Health Care Policy and Financing, December 19-20, 2006, page 55.  Available at  Access verified October 16, 2007.
  7. Stephen Zuckerman and Yu-Shu Shen, “Characteristics of Occasional and Frequent Emergency Department Users: Do Insurance Coverage and Access to Care Matter?” Medical Care, Vol. 42, No. 2, February 2004, pages 176-182.
  8. Feachem, Sekhri and White, “Getting more for their dollar: a comparison of the NHS with California’s Kaiser Permanente.”
  9. Tammy O. Tengs, “Dying Too Soon: How Cost-Effectiveness Analysis Can Save Lives,” National Center for Policy Analysis, Policy Report No. 204, May 1997.  Available at  John D. Graham, “Comparing Opportunities To Reduce Health Risks: Toxin Control, Medicine and Injury Prevention,” National Center for Policy Analysis, Policy Report No. 192, June 1995. Available at

One of the biggest problems in health care reform is that parties with different viewpoints do not agree on basic facts.  Some view the private sector as the source of U.S. health care woes and an expansion of government control as the solution.  Others believe that ill-considered government interference is the main source of the problem.  Simple logic dictates that it is nearly impossible to agree on a workable reform plan without agreement on a set of basic facts about what needs to be reformed.  Many state reforms fail this test.  This study poses some key questions the many state initiatives have failed to adequately address and makes some recommendations for successful evidence-based reforms.

"The key elements of sound health care reform are competition, consumer control and deregulation."

There are three main components of successful reform.  First, the central focus of any serious reform effort should be a vibrant and competitive free market for private health care, with a wide choice of physicians and treatments and a variety of ways to pay for them.  There should also be a competitive market for private health insurance, one that offers a wide choice of health plans.

By contrast, excessive government regulation — especially requiring guaranteed issue and community rating — cripples markets for individual health insurance, increases health insurance costs for large numbers of people, expands dependence on government programs, and retards innovation in health care delivery and coverage.  The Massachusetts decision to impose guaranteed issue and community rating in the early 1990s put its individual insurance market on life-support and ultimately led to the adoption of the 2006 reform legislation.  Similar regulations had comparable effects in other states, with the result that individuals in New Jersey, Maine, Tennessee, Kentucky, New York and Vermont were denied choice in their health insurance.  [See Appendix A for some specific questions about health care reform.]

Second, consumer-directed health care initiatives, under which individuals manage some of their own health care dollars through Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs), are superior to first-dollar coverage, especially under insurance programs designed and controlled by government.  There is considerable evidence that consumer-directed programs reduce costs.  When the cost of health care drops, health insurance premiums drop, and paying cash for care becomes easier.  Paying cash further reduces costs by eliminating the overhead costs of third-party payment, with the result that more people can receive better health care for the same money.  However, there is no evidence that expansion of government health programs decreases costs.  In fact, there is evidence that such programs actually increase costs.

Third, in view of the compelling evidence that government control of medical practice can degrade care and increase costs, any successful health care policy reform should:  1) substantively reform government programs, 2) introduce incentives to eliminate waste, and 3) reduce costly and unneeded administrative and regulatory burdens.  These are the source of the largest cost problems in the current health care delivery system.


"A health insurance mandate forces people to buy a product they may not want at a price they cannot control."

Many things can be more important than having health insurance, including buying food, paying for housing, having a job and having reliable transportation to get to that job.  An individual insurance mandate ignores this by requiring everyone to purchase the kind of health insurance the government stipulates, regardless of cost and before he or she meets other household needs.  It also ignores the fact that having health insurance does not guarantee medical care — which is a particular problem in government programs with reimbursement rates so low that physicians and hospitals choose not to participate.

The philosophical issue of what constitutes minimal health insurance is likely to be a much larger problem than is commonly recognized.  Some advocates favor requiring policies with low deductibles and low plan limits, such as a $100 deductible and a maximum benefit of $50,000.  Others favor requiring policies designed to cover catastrophic events, with deductibles of thousands of dollars and plan limits in the millions of dollars.  Although individual insurance needs vary with such factors as age, location, health status, wealth, income, medical care preferences and the propensity to travel, most proposals do not take these differences into account.

For example, the Colorado Blue Ribbon Commission for Health Care Reform proposed establishing an unelected, unaccountable panel to periodically review what the government will accept as a minimum health insurance policy.  Benefits would be adjusted as needed.  Families would be required to pay for those minimum benefits whether or not they are a good value relative to other household needs.  At present, many people pay cash for their dental care.  It is more expensive to pay for dental care via insurance because of the additional costs of insurance company profit and overhead.  Should the panel arbitrarily decide that the minimum benefit package must include dental care, overall expenditure on dental care would increase.

The imposition of an individual mandate with minimum coverage requirements will likely mean that thousands of people who currently have health insurance will find that their policies do not meet the minimum standards because their deductibles are “too high” for the officials defining the minimum standards, or because their policies lack certain benefits.  These decisions will be made by a regulatory body that has no direct knowledge of the incomes, assets, health status or values of the individual policyholders.  This is what is happening under the failing Massachusetts health reform plan.

From an individual’s point of view, a mandate is a tax.  By forcing people to buy a product they may not want at a price they cannot control, the individual mandate functions as a potentially unlimited tax for health insurance.  People who currently get health care but have no insurance will be required to purchase insurance, thus increasing their costs.  People who are allegedly unable to purchase insurance because it is unaffordable will have to be subsidized to a larger extent than they are at present.  Funding those subsidies will require direct tax increases that will raise costs for all citizens, whether those increases are in the form of taxes on insurance premiums, provider taxes, sales taxes or increases in the income tax.2

People generally say that they do not buy health insurance because they cannot afford it.  As elected officials cannot require that the impoverished spend money they do not have on insurance they cannot afford, individual mandates are almost always coupled with extensive subsidies for health insurance purchase.  This means that the enforcement and administration of an individual mandate requires the collection of substantially more income data than is currently available to determine who qualifies for subsidies.

Although the Massachusetts plan has been in operation only since April 1, 2006, it has already generated a 13-page “Certificate of Exemption” application that allows people to ask for an exemption from the individual health insurance mandate if they can demonstrate sufficient financial hardship.  Among other things, hardship is defined as a notice of eviction or utility shutoff, or a natural disaster or human-caused event that substantially damages individuals, their homes or their possessions.  People are also exempted if they can establish that purchasing health insurance would cause a “serious deprivation of food, shelter, clothing or other necessities.”  In effect, the individual mandate in Massachusetts requires citizens to petition the government for relief whenever they suffer a serious financial reversal.  Even with extensive subsidies, Massachusetts authorities have exempted an estimated 20 percent of the uninsured from the mandate on the basis of their inability to afford health insurance.

"Most states mandate automobile liability insurance, but large numbers of motorists drive without it."

How can such a mandate be enforced?  The Colorado proposal contemplates requiring proof of coverage when registering for school, and when applying for or renewing a driver’s license or car registration.  People who cannot show proof of coverage will be fined a year’s worth of premiums when they file their state income taxes.  This would significantly increase government control over individual decisions in normal household matters.  Furthermore, it is unlikely that an individual mandate can be fairly enforced.  Most states mandate automobile liability insurance, but large numbers of motorists drive without it.3 The ability to enforce a health insurance mandate is of particular concern in areas where large numbers of the uninsured are illegal aliens who may not file tax returns.


The Colorado Commission also recommends establishing an Orwellian-sounding “Improving Value in Health Care Authority” to “fundamentally realign incentives” in the Colorado health care system by regulating provider payments and determining acceptable treatments.  The proposal recommends that the Authority study the “best scientific evidence to foster clinically, ethically, and culturally appropriate end-of-life care.”  However, based on what has happened in other cases when such recommendations have been put into practice, the Authority will likely end up transferring control over medical practice from individual citizens and their doctors to unaccountable, unelected regulatory authorities.

The potential for harm is made clear by a recommendation to “Pay providers based on quality, such as use of care guidelines, performance or quality measures, coordination of patient care, and use of health information technology.”  While the proposal never defines quality, it is confident that the Authority will know it when it sees it.  Physicians who do not do what the Authority demands will face financial penalties.  If what the Authority wants differs from what patients want, physicians will have an incentive not to act in the best interests of their patients.  The Commission did not explain why it believes that the Authority will do a better job of aligning incentives than a program of deregulation that puts smart shoppers using their own money in charge of their own health care decisions.

"'Pay for performance' allows government to tell doctors how to practice medicine."

The pay-for-quality recommendation means the Improving Value in Health Care Authority will end up using evidence-based measures to regulate physician behavior and, ultimately, medical practices.  At present, physicians are free to disregard evidence-based recommendations that conflict with their experience in clinical practice or with their patients’ wishes.  Physician freedom of action is crucial to good medical care because it protects physicians and patients from regulators with an agenda or conflicting values.

The U.S. National Heart, Lung and Blood Institute’s JNC 7 clinical guidelines for treating hypertension provide a recent example of how agenda-driven research can create seriously flawed evidence-based national guidelines. They have the potential to increase patient morbidity and mortality.  The guidelines recommend starting all patients with high blood pressure on thiazide-type diuretics.  In support of this, the guideline for primary care physicians states:

“Thiazide-type diuretics have been the basis of antihypertensive therapy in most outcome trials.  In these trials, including the recently published Antihypertensive and Lipid Lowering Treatment to Prevent Heart Attack Trial (ALLHAT), diuretics have been virtually unsurpassed in preventing the cardiovascular complications of hypertension.”4

This statement is grossly misleading.  In fact, the ALLHAT study has been subjected to withering criticism and the JNC 7 guidelines are not widely accepted.  In Britain, the National Institute for Health and Clinical Excellence recommends ACE inhibitors as the first choice for initial therapy in patients younger than 55.  The guidelines also ignore evidence suggesting that diuretics may increase the risk of developing new-onset type 2 diabetes.  Newer antihypertensive drugs appear to have a beneficial or neutral effect on glucose and lipid metabolism.5

"‘Evidence-based medicine’ may create incentives to deny people care."

The Colorado Commission advocates combining evidence-based standards with the pay-for-performance rules.  If the Improving Value in Health Care Authority follows this recommendation, it might use the results from poorly designed clinical trials to pressure physicians to use less expensive, older and less effective therapies, regardless of their relatively poor side-effect profiles or of their effect on individual patients.  The Commission recommendations also set the stage for various methods of provider profiling, including hospital and physician report cards, two currently fashionable quality initiatives which have been shown to have serious technical problems.  They also give physicians an incentive to deny care to people who are very ill.  Seriously ill people pose higher risks of poor outcomes.6

When such power is concentrated in the hands of an unaccountable group that has no personal contact with those affected by its decisions, patients become mere costs.  Such groups tend to focus on costs and are highly susceptible to influence from narrowly focused interest groups with political agendas not in accord with what patients value.  The danger is that access to advanced therapies for “expensive patients,” including the disabled, the chronically ill and those with complex medical needs, will be severely restricted.  In the Netherlands, physician-caused deaths are increasingly commonplace.  The utilitarian ethic adopted by the Royal Dutch Medical Society has virtually eliminated any prosecution of physicians who kill the elderly, the mentally ill or the disabled.7


The governing assumption of U.S. health care policy is that people who can afford health care should subsidize essential care for those who cannot.  Yet, those who must pay for people who cannot pay for themselves deserve an efficient system for providing subsidized care — one that minimizes costs.  It should be noted that by international standards, virtually everyone in the United States, regardless of ability to pay, does get health care.

Individual health insurance mandates are usually combined with large subsidies to people judged unable to afford health insurance.  This is likely to increase the cost of existing government programs designed to ensure that those unable to pay get essential health care — in part, by encouraging people who presently pay for their own health care to stop doing so.

Even if users of Veterans Health Administration hospitals are counted as uninsured, studies suggest that the uninsured pay for at least half of their own health care.8 Expanding public programs to cover people who are already paying for their care eliminates such payments.  As health insurance is an expensive way to buy health care, it is possible that it may actually be less expensive to provide care under the existing mixture of public subsidies and private charities than under a system created by mandatory health insurance.  There is no compelling case that mandated health insurance buttressed by a large new bureaucracy dedicated to the control of insurance markets and medical practice, and to extensive income redistribution, is the lowest-cost method of providing health care to those who need it but cannot pay.9

Contrary to popular belief, the uninsured use emergency rooms at about the same rate as the insured.10 Generous estimates of uncompensated care for the uninsured suggest that it is about 3 percent to 5 percent of private insurance premiums, which is probably less than the taxes proposed under most universal coverage proposals.11

"Government health care spending crowds out private spending."

It is not clear to what extent estimates of premium increases caused by “cost shifting” include uncompensated care for those nominally insured under such government programs as Medicare and Medicaid.12 In Washington state, Milliman, Inc. estimated that the cost shift from Medicare and Medicaid to private payers was 14.3 percent of commercial hospital costs, or about 4.8 percent of commercial premiums.  Of the typical commercial health insurance premium of $850 a month per family in 2004, the government program shifted costs of about $490 a year.  Physician underpayment by government programs was higher.13 Thus, expanding Medicaid and Medicaid-like programs runs the risk of expanding uncompensated care.  These expansions also increase utilization and encourage people to substitute government payments for health care for their own payments.  For example, TennCare, the Tennessee Medicaid expansion designed to insure everyone, promised to reduce uncompensated care.  Some years later, however, uncompensated care costs had increased.  Tennessee radically changed the program after its cost threatened to bankrupt the state.14

There are also disincentives to work created by the high marginal tax rates people who receive subsidies will face as their incomes rise.  People are free to make choices between leisure and labor, part-time work and full-time work, and high paying jobs and jobs that pay less but are more congenial.  Proposals for rich subsidies for health insurance may increase the number of people who choose lower incomes in order to qualify for taxpayer-supported programs.  This appears to be a particular problem with the State Children’s Health Insurance Program/Children’s Health Plan Plus (SCHIP/CHPP) in Colorado, where an estimated 6 out of 10 new enrollees dropped private insurance to participate in the subsidized public program.  The crowd-out rate is higher as more high-income families become eligible for coverage.  And, contrary to assertions that waiting periods can control crowd-out, economist Jonathan Gruber found that “the anti-crowd-out efforts that have accompanied the SCHIP program have probably raised crowd-out more than lowering it.”15

"Many of the uninsured see health insurance as a bad deal at current prices."

The Colorado Commission recommends subsidizing any household with an income between 300 percent and 400 percent of the federal poverty level that cannot buy employer group insurance and spends more than 9 percent of its income on health insurance.16 This means that any family of four with an income of $61,950 that spends more than $5,576 on health insurance, and any family of four with an income of $82,600 that pays more than $7,434, is eligible for subsidies.  According to the 2006 Consumer Expenditure Survey, families in this income bracket spent 5.3 percent of their household incomes on entertainment, 4.3 percent of their incomes on cash contributions, 3.8 percent of their incomes on household furnishings and equipment, and 5.5 percent of their incomes on food away from home.  In view of this spending pattern, meeting a 9 percent premium burden would not seem to be impossible for these households, and subsidizing them would seem to place an unfair burden on other taxpayers.

Focusing on payments for health insurance discriminates against people who substitute cash savings for insurance, and only purchase health insurance that covers very large expenses.  People who purchase a health insurance policy with a $10,000 deductible may never pay more than 9 percent of their incomes for health insurance but may occasionally have total health expenses that exceed 9 percent of income in one or two years.  Encouraging the purchase of health care using third-party payment and discriminating against cash payments raises costs by increasing administrative overhead. 
One reason given for imposing an individual mandate is to limit the need for subsidies by requiring that everyone spend money on government-defined health insurance.  The fact that people who have low medical expenditures are exceptionally resistant to purchasing standard insurance policies indicates that simply expanding the insurance model is a mistake unless regulators also act to lower economic costs.  A substantial number of the uninsured see health insurance as a bad deal at current prices.  Shifting that bad deal to taxpayers does little to change the cost/benefit tradeoff.

The estimated elasticity of demand for individual insurance — the percentage change in policies bought divided by the percentage change in price — ranges from -1.0 to -0.3.  This suggests that a 10 percent increase in insurance premiums results in a 3 percent to 10 percent decline in the number of policies purchased.  Poor families without access to group coverage who are not eligible for public plans are least likely to purchase individual insurance, regardless of the subsidy.  Married couples tend to be less affected by price increases, while single people are more sensitive.  One study found that even substantial subsidies for individual insurance would “have modest effects on the number of uninsured.”17

"Taxpayer subsidies make unwanted coverage attractive to the uninsured."

In Wisconsin, a 2004 evaluation of the BadgerCare program speculated, “the mere perception of the premium [3 percent of income above 150 percent of the federal poverty level] could be holding back applicants who would not be required to pay it.”18 Kate Bundorf and Mark Pauly found that the likelihood of purchasing health insurance increases with expected health expenditures, and that this effect is more likely to be observed in the large group market than in the individual market.19 They reported that in 2002 the average employee payment for single coverage was $450 per month — about the average expected health expenditure for a 25-to-29-year-old man.  Bundorf and Pauly concluded that if the wage difference between jobs with and without health insurance “reflects the average premium for coverage ($3,060 for single coverage in 2002), the reduction in wages associated with coverage may generate income effects for low-income workers that make jobs with coverage unattractive relative to those without coverage.”  If people with the largest expected health costs are already insured, estimates of the savings from insuring the uninsured may be overstated.

For employer-provided insurance, economists Jonathan Gruber and Ebonya Washington used results from the transition of federal employees to pretax health insurance premiums over the 1991-to-2002 period to estimate the effect of after-tax price on insurance takeup and plan choice.  They found that lower premium shares led people to choose more expensive plans but had little effect on overall plan choice.  They point out that targeting people who are already offered employer-subsidized insurance but refuse it is very costly.  The reason:  The fact that these people have already turned down a highly subsidized product means that they are exceptionally price sensitive or already have insurance from another source.  They estimated that the federal government spent $31,000 to $83,000 per newly insured person.20 This conclusion is roughly in line with the results in Maine, where the DirigoChoice program spends almost $16,000 to insure one additional uninsured person.21

Economic theory predicts that people with smaller medical expenditures will be more sensitive to the price of health insurance than those with larger, and less discretionary, medical expenditures.  Empirical support for this supposition suggests that individuals self-select into insured or uninsured status depending on their knowledge of their own health.  This self-selection means that the uninsured are not an isolated population subgroup, and to insure the majority of people it is necessary to change behavior at relatively high levels of the income distribution.

"Means-tested subsidies are often extremely unfair."

There is little evidence that insurers “cherry pick” and sort across plans, suggesting that worries about adverse selection in insurance markets are likely exaggerated.  This means that the regulatory schemes proposed to correct the problem — mainly guaranteed issue and community rating — are unnecessary, and likely do more harm than good.22

Another problem is that means-tested subsidies are potentially extremely unfair and create a disincentive to act responsibly.  For example, if the Colorado Commission recommendations are followed, the state could end up taxing a young married couple with employer-provided health insurance, a baby and an income of $25,000 to provide health insurance subsidies to an older married couple with substantial home equity and retirement savings, three children, an annual income of $68,000 and a business that does not provide health insurance.

In order to provide more health care for all at a lower cost, other options need to be explored and evaluated, including:  subsidized clinics, designated hospitals to which those who cannot pay can be transferred, removing the regulations that discourage physicians from participating in charitable activities and charitable organizations from operating such programs, insurance plans that provide small benefits for low cost, reducing unnecessary licensing barriers and scope of practice restrictions, and insurance plans that offer catastrophic benefits.  [See Appendix B for some specific recommendations.]


Historically, tax-supported health care programs have focused on two areas:  public health programs to limit environmental health hazards and the spread of infectious and communicable diseases, and public programs providing individual care for people unable to provide it for themselves — primarily children, the frail and impoverished elderly, people with grievous injuries or diseases, and people with severe birth defects or developmental disabilities.

There is a finite amount of tax money available to subsidize health care.  The Colorado proposal would divert substantial resources to areas in which state government has little prior experience and, in some cases, a poor record of success.  These include extensive recordkeeping on large numbers of complex transactions for every individual in the state, developing and deploying effective information technology architectures that are new and untested, developing new regulations for every area of medical practice, developing and promoting wellness initiatives of dubious merit, vastly expanding means-testing for subsidies, enforcing the health insurance mandate, and extensively researching systems design.

Tax money spent on these initiatives is tax money not available for projects to ameliorate the conditions of those with serious disease or disability.  This is of particular concern in view of the fact that many of the people who testified before the Commission were concerned about inadequate care under existing public subsidy systems.


"Consumer-directed accounts allow individuals to control their own health care dollars."

For the purposes of this discussion, consumer-directed accounts are sums of money that people control, benefit from and can spend at will on certain broadly designated categories.  In health care, these amounts are usually combined with health insurance policies that have lower premiums, and deductibles of at least $1,100.  If people save money on health care, savings accumulate in their health savings account (HSA).  HSA balances belong to the individual account-holder, accrue interest tax-free and can be spent on any medical expense recognized by the Internal Revenue Service.  HSA balances can be willed to beneficiaries.  After age 65, funds can be used for other purposes.  Health Reimbursement Accounts (HRAs) are not owned by individuals and HRA balances may be lost when an individual changes employers.  Health care reforms that arbitrarily limit financing choices to a few government-approved options are not consumer-directed.

Most proposals for universal coverage do not promote any of the consumer-directed private or public-sector initiatives that have been reducing costs and improving health since the late 1990s.

The use of consumer-directed accounts coupled with high-deductible health insurance policies (HSA/HDHP) has grown rapidly since their inception in December 2003.  There were 1 million HSA/HDHP accounts open by March 2005.  The number rose to 4.5 million by January 2007.  Projections recently released by America’s Health Insurance Plans, an industry group, forecast that the use of HSAs will double in the coming year, and that the use of all consumer-directed products will more than triple.  In employer-sponsored plans, the Mercer National Survey of Employer-Sponsored Health Plans suggests that enrollment in consumer-directed health plans has risen to 5 percent of all employees.  The 2007 average cost per employee for HSA plans is $5,679, roughly $700 less than the average $6,644 cost for managed care, preferred-provider plans (PPOs) with deductibles of at least $1,000.  Mercer comments that this “lends support to the theory that the account feature encourages more careful health spending.”23

Private insurers have already begun to increase coverage and lower costs using consumer-directed account-based products.  The lower premiums associated with HSA/HDHP policies have helped reduce the number of uninsured:  An estimated 27 percent of the 1 million people covered by individual HSA/HDHP policies in force by January 2007 previously had no health insurance.  They are particularly appealing to the young: 39 percent of the people covered by HSA/HDHP policies are under age 29.  More than 80 percent of the policies offer disease management, covering conditions such as diabetes, coronary artery disease, congestive heart failure, asthma and chronic obstructive pulmonary disease.  More than 85 percent of the companies writing HSA policies offered health education information, information on physicians, hospital-specific quality data and health care cost information.  Seventy-two percent offered online personal health records.  Policies that are owned by individuals are portable from job to job and, if purchased from a national company, are often portable when someone moves to another state.24

"'Cash-and-counseling' accounts reduce costs and improve health for disabled Medicaid patients."

Consumer-directed account-based reforms have also reduced costs and improved health for disabled Medicaid participants.  The Colorado Consumer Directed Attendant Support Program, which enables people with disabilities to hire, train, supervise and fire their own attendants, has improved health while saving 20 percent or more on attendants for the disabled simply by freeing the participants from Medicaid regulation.  Similarly, the flexibility that the Robert Wood Johnson Foundation’s “Cash & Counseling” accounts brought to Medicaid spending by the home-bound disabled in other states also increased access to needed services and reduced unmet needs.

Results from private-sector employers like Wendy’s, John Deere and Whole Foods suggest that account-based consumer-directed health insurance also increases the use of preventive care.  Reports from other employers indicate that people covered by consumer-directed accounts are more compliant in their use of recommended medications and are more active in disease management programs.

A recent paper by Greg Scandlen reviewed the evidence on consumer-directed account-based health care reform and considered whether consumer-directed insurance has lived up to initial predictions.  Scandlen concluded that initial indications suggest that account-based insurance is changing patient behavior by reducing the demand for unnecessary services, encouraging higher compliance with treatment recommendations, and increasing the use of preventive care. The rate of cost increases has decreased substantially for users of the account-based plans.  There are early indications that account users are fueling a transformation of service delivery.25


Despite the assertion that centralized electronic medical records will cut costs, supporting evidence is lacking.  Such data systems have yet to prove themselves in practice.26

The evidence to date suggests that electronic medical records will increase the risk of misuse of individual health information.  Identity theft is already common.  New criminal uses of individual health information include using someone else’s name to get expensive health care services, or attempting to extort money from employers by threatening to publish patient records.  A threat to breach patient confidentiality could lead to serious penalties under the  1996 Health Insurance Portability and Accountability Act (HIPAA), one of the goals of which was to ensure the privacy of patients’ medical records.

Electronic records also increase the risk to state taxpayers, who could be liable for damages caused by stolen or misused records.  The Veterans Health Administration, long praised for its electronic records, has repeatedly lost sensitive data on millions of patients and has spent tens of millions of dollars repairing the damage caused by such thefts.27

Although popular mythology assumes that electronic records will reduce costs, the evidence from hospital-based systems is mixed.  Hospital-based computerized order-entry systems for prescription drugs do appear to reduce medication prescribing errors, but at the possible cost of increased workloads and decreased human vigilance against error.  Experts fear that this combination may harm patients in situations when rapid treatment is essential.  There are scant data on whether electronic prescribing records improve health outcomes, and a small but growing literature on the new kinds of errors they facilitate.28

"There is little evidence that electronic prescribing improves health outcomes."

Other problems with electronic records include how to control the propagation of errors, and differences between clinical and administrative records.  Medical records contain errors, and those errors are neither reduced nor corrected by computerizing them.  A November 21, 2007, Associated Press article described the errors that physicians found in their own medical records.29 HIPAA does not require those who maintain health records to correct them.  There are important questions about who should have the authority to alter electronic patient records.  Data system robustness is a concern.  There are also studies that have found that the records themselves change behavior.  In the Veterans Health Administration system, a significant number of patient records have case notes that are electronically copied from one record to another in order to save time. The electronic medical records that result are bloated and obfuscated.  They waste physician time, are inefficient, and do a poor job of rapidly conveying important clinical information.30

A final problem is that the drive to use patient records for billing and monitoring may degrade their usefulness in patient care.  Patient records were originally developed to help clinicians provide care.  If administrators insist on standardizing them in order to use them for process control and provider evaluation, it is likely that clinicians will respond by not keeping notes that can be used against them.  In Britain, hospital trusts have “adjusted” patient records in order to suggest that patients had been treated on time.31 In the United States, physicians already keep multiple sets of records. One is in the format demanded by payers like Medicare. The other may be private notes that suit a physician’s personal style and helps him facilitate patient care.


A common belief is that having government pay for everyone with expensive medical conditions will lower insurance costs for everyone else.  In 2004, presidential candidate Sen. John Kerry called for the federal government to pay for all medical expenses in excess of $50,000.  In the Colorado reform recommendations, this took the form of requiring all high-cost patients with certain pre-existing conditions to enroll in Cover Colorado, the state’s guaranteed issue high-risk pool for the uninsurable, at rates equal to prevailing rates for people without severe illnesses.  At present, the pool is funded by state tax funds and assessments on private insurers.  Premiums are higher than those in the standard market to discourage people from forgoing health insurance until they are sick and then buying into Cover Colorado.

The Commission’s plan would extend guaranteed issue to the individual insurance market.  To make guaranteed issue more palatable, the Commission would shuffle high-cost individuals into a revamped Cover Colorado.  The idea is that having government pay for high-cost individuals will offset the increased cost of guaranteed issue and will create premium stability.

"High-risk insurance pools with subsidized premiums are already available for patients with pre-existing conditions."

These plans will not reduce insurer costs.  Individual insurance underwriters currently have three options:  Accept an individual application as written, decline the application, or accept it with conditions, such as waivers and ratings.  In most states, insurers already charge higher prices for higher risks.  People with specified pre-existing conditions who are “uninsurable” are already allowed to enroll in state-sponsored risk pools or to purchase a policy from the guaranteed issue provider at higher than standard rates with some subsidies for those with lower incomes.  This means that guaranteed issue products are already available for many of those who need them, at rates that are already subsidized.  As they are already out of the individual insurance market, promising to take them out will have little effect and there is no particular reason to believe that coupling government catastrophic insurance with guaranteed issue and community rating will create premium stability.  There is every reason, based on experience in other states, to believe that premiums will rise significantly.

Massachusetts is a real-world example of extending guaranteed issue and community rating to the individual insurance market.  The Massachusetts plan penalizes the parents of healthy children and people who purchase health insurance before they get sick by increasing their premiums in order to offer lower premiums to others.  This is inefficient and unfair.  It raises the rates paid by the vast majority of people.  In doing so, it discourages the purchase of private insurance coverage, especially in lower-income brackets where people are especially sensitive to premium price increases.

"'Guaranteed issue' requires insurers to sell policies to the sick at the same premiums charged to the healthy."

In contrast, Colorado achieves guaranteed issue for all by directly subsidizing insurance for the uninsurable and by letting those who act responsibly save by purchasing medically underwritten insurance in a market with far more flexible pricing.  Rather than supporting a bureaucracy to control all health insurers, Colorado efficiently uses taxes to support a far more limited bureaucracy that focuses on providing coverage to thousands of residents who cannot purchase health insurance due to pre-existing conditions.  In short, it achieves the Massachusetts result of making insurance available for everyone, and does so at a lower cost.  The Massachusetts Connector Authority is now quoting individual insurance prices that are higher than those currently prevailing in Colorado.  This is illustrated by the representative premiums given in Table I.

The academic literature on this is clear:  Guaranteed issue and community rating increase costs and decrease coverage.  Examples of statements from the literature include:  “States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people;”32 “Community rating and guaranteed issue regulations produce only small changes in risk pooling because the extent of pooling in the absence of regulation is substantial;”33 community rating and guaranteed issue “have succeeded only in making individual health insurance coverage more expensive and less available than it otherwise would have been;”34 “individual health insurance markets deteriorated after the introduction of GI and CR reforms…premium rates tended to increase, sometimes dramatically.  We did not observe any significant decreases in the level of uninsured persons.”35

"Guaranteed issue and community-rated premiums raise the cost of insurance."

Furthermore, if the experiences in New York, Maine, New Jersey, Tennessee and Massachusetts are any guide, guaranteed issue and community rating will severely damage the individual insurance market, stop the consumer-directed insurance market in its tracks, stifle important health care innovations and lessen competition among insurers.  This could expand the number of people who are uninsured or depend on government for health coverage.

Expanding the number of people on government programs could be costly if they are removed from innovative private programs designed to manage chronic health conditions.  Among these successful programs:

  • In Colorado, Aetna’s migraine headache management program reduced MRI use, increased the use of appropriate medications and improved the quality of life for migraine sufferers.
  • The oncology management program of Great-West Healthcare, a group health insurer, reduced the rate of hospital readmissions by 17 percent by hiring nurse managers to help patients cope with treatment.
  • Rocky Mountain Health Plans developed a diabetes management program that combined pay-for-performance measures with case management fees.  It improved the percentage of diabetic members with good blood pressure control and increased the number of members with acceptable LDL-cholesterol levels.
  • Pharmacists call all members of the Kaiser Permanente ALL program who have diabetes or coronary artery disease to ensure they are taking all of their medications.
  • Humana analyzes monthly data on claims to ascertain whether people might benefit from its personal nurse coaching service.36

A good deal has been written about connectors, also known as health insurance exchanges, since Massachusetts incorporated the concept into its reform measures.  A recent academic analysis by John E. Schneider and others, published by the Health Economics Consulting Group, says that the “connector” concept, as a proposed mechanism to move the commercial health insurance market away from an employer-sponsored environment to one that is individually based environment, holds certain “intuitive appeal.”37 However, they note that there are numerous trade-offs and consequences that prevent such programs from accomplishing their goals.

The centralization of information envisioned by these programs is an unnecessary and costly addition to the administrative costs of health care coverage.  In fact, well-developed mechanisms already exist to offer consumers the opportunity to search for and compare various health coverages.  The Internet, coupled with the consumer-directed health insurance revolution, has simplified comparing, pricing and purchasing a health insurance policy.  Various Internet and insurance carrier Web sites provide complete coverage descriptions and allow coverage comparisons.  As is the case in other markets selling complex financial products, agents provide significant amounts of consumer education, act as ombudsmen to intervene with insurers on behalf of clients, and provide a check on insurer quality by refusing to market plans that treat customers poorly.

Other problems with connectors include:

  • Displacement of existing coverage, which may stress remaining risk pools;
  • Legal issues;38
  • Loss of product innovation and choice;
  • Disproportionate risk and premium cost increases due to adverse selection — whether risk pools are voluntary or mandatory;
  • Fairness in the allocation of risk and financial burden.

One of the major drawbacks of connectors is that they devolve into government-run managed competition schemes.  The two best-known connector plans, the Federal Employee Health Benefits Program and the Massachusetts Commonwealth Connector Authority, put bureaucratic intermediaries and price controls between consumers and the health insurance they purchase.

"Insurance connectors give health plans incentives to attract the healthy and avoid the sick."

Companies in the Federal Employees Health Benefit Program (FEHBP) survive by attracting healthy employees.  Federal employees pay the same price regardless of their health status.  If an insurer attracts employees in poor health, the company will have higher claims and will raise its premiums.  Higher premiums will induce the relatively healthy to move to other plans.  With only the unhealthy left, premiums will rise again.  In the long run, the insurance offered in the federal system has evolved to provide less consumer choice — in some areas people may have a choice of only one plan — and less flexibility.  The Massachusetts Connector Authority is also moving to reduce choice for its voluntary plans.  It estimated that its expenses would rise from $24 million in 2007 to $36 million in 2009.39 Facing higher expenses, it is moving to offer fewer plans with less choice in an effort to control premium costs.

In important respects, connectors suffer from operating deficits identical to those that plague the FEHBP.  After some government empowers an authority to run a connector, the connector’s job is to match firms and individuals with private sector health insurers. As in the FEHBP, the government manages the competition between private health insurers. Under most connector plans this management takes the form of a requirement that every person of the same age be charged the same premium regardless of expected health care spending.

Blocked from competing on their ability to price and manage risk, insurers compete on their ability to reduce costs and attract only healthy people.  Plan quality suffers and choices are inexorably reduced.40


"The assumptions behind the Lewin Group model are biased toward central planning."

In almost every case, the recommendations of the Colorado Commission were influenced by Lewin Group assumptions that having fewer entities providing a specific function would lower costs by reducing administrative overhead, and that centralized control would more effectively deploy resources than independent private actors governed by profit in a functioning market system.  As explained in Appendix C, the Lewin Group model makes certain assumptions that implicitly bias its results toward finding that central planning will lower costs.

For example, the Lewin Group systematically overstates the cost of private insurance relative to public programs.  It assumes that single-payer programs will have the same administrative costs as Medicare — about 1.8 percent of benefits.  This ignores growing evidence that Medicare’s overhead costs are much higher.  For example, it ignores the administrative costs of supplemental policies required to fill the gaps in Medicare coverage.  The Lewin Group also overstates private insurance administrative expenses.

Lewin bases its assumptions about physician administrative costs on a survey of just 335 physician practices self-selected from a statistically unrepresentative sample.  It assumes millions of dollars in savings on building occupancy costs and on furniture and equipment from centralized purchasing and volume discounts.  Lewin also assumes benefits for physician support staff will fall 12.5 percent under single-payer, and the cost of administrative duties by medical assistants and registered nurses will drop 66 percent.  It is unlikely that moving to a single-payer system will reduce patient record keeping or the amount of office space needed to see patients.  These assumptions likely produce inflated estimates of cost savings.

"Lewin overstates private administrative costs and understates government costs."

Similar assumptions plague Lewin’s treatment of hospital cost reductions under single-payer.  It assumes that hospital costs for data processing are reduced by 36 percent.  It also estimates patient accounting, credit and collection, and admitting costs will be reduced by 50 percent, 90 percent and 40 percent, respectively.  For reasons that are unclear, the model assumes that medical records costs will be reduced by 10 percent.  Depreciation and amortization are assumed to be reduced 23 percent.  Apparently, when government runs things capital does not depreciate and interest costs are no longer a consideration.  Social work services are assumed to fall 50 percent under a government plan.  Finally, maintenance and repairs and plant operations are each assumed to fall 23 percent.  Apparently repairs will be less frequent when a single payer controls operations.41


NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.

  1. This study is based on Linda Gorman and R. Allan Jensen, “Minority Report,” in Blue Ribbon Commission for Health Care Reform, Final Report to the Colorado General Assembly, January 31, 2008, Chapter 10.  Available at  Access verified February 19, 2008.
  2. With respect to Colorado, the Lewin Group has presented a number of charts showing average family health spending by income group under various reform proposals.  Usually the groups shown are incomplete and the numbers presented do not provide a picture of overall spending or how many families are in each group.  They also do not include the economy-wide effects of various tax increases on jobs, business formation and incomes.  In slide 18 of a November 15, 2007, presentation, the effect on people with incomes below $50,000 was given for each $10,000 in income.  For amounts above $50,000 the increments increased to $24,999 and then to $49,999.  In 2004-2006, the Census Bureau put median household income in Colorado at $54,039.  As the chart is restricted to averages between income groups, it is impossible to know what will happen to overall average spending.  The November 1, 2007, interim report by the Lewin Group stated that “About 70.4 percent of all Colorado families would see a net increase in health spending of $20 or more.”  The Lewin Group, Colorado Model 5: Cost and Coverage Impacts, November 15, 2007, powerpoint presentation to the Blue Ribbon Commission on Health Care Reform, Denver, Colorado.  Final report, revised November 28, 2007, slide number 18; Lewin Group,  Technical Assessment of Health Care Reform Proposals, an interim report prepared for the Colorado Blue Ribbon Commission for Health Care Reform, November 1, 2007, page 122.

  3. Greg Scandlen, “Will Mandatory Health Insurance Work?” National Center for Policy Analysis, Brief Analysis No. 569, September 6, 2006.  Available at

  4. National Heart, Lung and Blood Institute, “JNC 7 Express:The Seventh Report of the Joint National Committee on Prevention, Detection, Evaluation, and Treatment of High Blood Pressure,” U.S. Department of Health and Human Services, National Institutes of Health, NIH Publication No. 03-5233, December 2003, page 7.  Available at  Access verified November 28, 2007.

  5. There is a growing amount of literature exploring possible relationships between treatment for high blood pressure and the onset of type 2 diabetes.  For an example, see Effie L. Kuti, William L. Baker and C. Michael White,“The development of new-onset type 2 diabetes association with choosing a calcium channel blocker compared to a diuretic or beta-blocker,” Current Medical Research and Opinion, Vol. 23, No. 6,June 2007, pages 1,239-1,244; Sameer Stas, Lama Appesh and James Sowers,“Metabolic safety of antihypertensive drugs: myth versus reality,” Current Hypertension Reports, Vol. 8, No. 5, September 2006, pages 403-408.

  6. For sample literature on the topic of problems with quality measurement and report cards see Timothy P. Hofer et al., “The Unreliability of Individual Physician ‘Report Cards’ for Assessing the Costs and Quality of Care of a Chronic Disease,” Journal of the American Medical Association, Vol. 281, No. 22,June 9, 1999, pages 2,098-2,105; Rachel Sorokin, “Alternative Explanations for Poor Report Card Performance,” Effective Clinical Practices, Vol. 3, No. 1, January/February 2000, pages 25-30; David M. Shahian et al., “Comparison of Clinical and Administrative Data Sources for Hospital Coronary Artery Bypass Graft Surgery Report Cards,” Circulation, Vol. 115, No. 12, March 27, 2007, pages 1508-1510; Sharon-Lise T. Normand et al.,“Assessing the Accuracy of Hospital Clinical Performance Measures,” Medical Decision Making, Vol. 27, No. 1, January/February 2007, pages 9-20; Andrew J. Epstein, “Do Cardiac Surgery Report Cards Reduce Mortality? Assessing the Evidence,” Medical Care Research and Review, Vol. 63, No. 4, August 2006, pages 403-426; Harlan M. Krumholz et al., “Evaluation of a Consumer-oriented Internet Health Care Report Card: The Risk of Quality Ratings Based on Mortality Data,” Journal of the American Medical Association, Vol. 287, No. 10, March 13, 2002, pages 1,277-1,287.

  7. For a general discussion of the Dutch experience see Ezekiel Emanuel, “Whose Right to Die?” Atlantic Monthly, Vol. 279, No. 3, March 1997, pages 73-79.

  8. For an example of a case in which care provided by the Veterans Health Administration (VHA) is counted as care for the uninsured, see Jack Hadley and John Holahan, “How Much Medical Care Do the Uninsured Use, And Who Pays For It?” Health Affairs, Web exclusive, February 12, 2003.  The problem, of course, is that the VHA is not supposed to serve those who are not veterans.  The second problem is that people meeting the criteria for lifetime health care from the VHA might rationally consider themselves insured and would not purchase private policies or enroll in other public ones.

  9. Helen Levy and David Meltzer, “What Do We Really Know about Whether Health Insurance Affects Health?” Catherine G. McLaughlin, ed., Health Policy and the Uninsured (Washington, D.C.: Urban Institute Press, 2004), Chapter 4.

  10. For examples see Jesse M. Pines and Kevin Buford, “Predictors of frequent emergency department utilization in Southeastern Pennsylvania,” Journal of Asthma, Vol. 43, No. 3, April 2006, pages 219-223; B. C. Sun, H. R. Burstin and T. A. Brennan, “Predictors and Outcomes of Frequent Emergency Department Users,” Academic Emergency Medicine, Vol.10, No. 4, April 2003, pages 320-328; K. A. Huntet al.,“Characteristics of Frequent Users of Emergency Departments,” Annals of Emergency Medicine, Vol. 48, No. 1, July 2006, pages 1-8; K. K. Fulda and R.  Immekus, “Frequent Users of Massachusetts Emergency Departments: A Statewide Analysis,” Annals of Emergency Medicine, Vol.48, No. 1, July 2006, pages 6-16; Peter J. Cunningham, “What Accounts for Differences in the Use of Hospital Emergency Departments across U.S. Communities?” Health Affairs, Web exclusive, Vol. 25, No. 5, September/October 2006, pages 324-336; Stephen Zuckerman and Yu-Shu Shen, “Characteristics of Occasional and Frequent Emergency Department Users: Do Insurance Coverage and Access to Care Matter?” Medical Care, Vol. 42, No. 2, February 2004, pages 176-182.Urban Institute researchers Zuckerman and Shen concluded that “The uninsured do not use more [ER] visits than the insured population as is sometimes argued.” In fact, “the publicly insured are overrepresented among [ER] users.”

  11. The Lewin Group estimated that total Colorado health spending is about $30 billion.  This implies that the estimated cost of uncompensated hospital care for the uninsured in Colorado is less than 3 percent of overall spending.  In another context, the Lewin Group estimated that about 40 percent of the Colorado hospital shortfall is passed along to private payers.  If correct, this would suggest that hospital care for the uninsured is about 1 percent of total spending.  The reform proposal created by the Commission would increase health spending in Colorado by $2.7 billion, $854 million of which would come from an increase in personal income taxes.  Blue Ribbon Commission for Health Care Reform, Final Report to the Colorado General Assembly, January 31, 2008, pages 38 and 119.

  12. In a personal communication with the Commission staff, the Lewin Group cited a paper on physician pricing by Thomas Rice et al. as a source for its assumption that shortfalls in reimbursement were passed along to private payers in the form of higher hospital charges.  However, Rice’s paper discussed the effect of changes in Medicaid compensation on the volume of services provided; thus, Lewin’s reference to this paper was apparently in error.  The remainder of the communication simply said that “Our [Lewin’s] own analysis of hospital data indicates that about 40 percent of the increase in hospital payment shortfalls (i.e., revenues minus costs) in public programs were passed on to private payers in the form of the cost-shift during the years studied.  Based upon this research, we estimate that 40 percent of increases in reimbursement would be passed back to payers in the form of reduced charges.”

  13. Will Fox and John Pickering, “Payment Level Comparison Between Public Programs and Commercial Health Plans for Washington State Hospitals and Physicians,” Premera Blue Cross, May 2006.  Available at  Access verified February 19, 2008.

  14. PriceWaterHouseCoopers, Actuarial Review of Capitation Rates in the TennCare Program, March 1999, Comptroller of the Treasury, State of Tennessee.

  15. Jonathan Gruber and Kosali Simon, “Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?” National Bureau of Economic Research,Working Paper No. 12858, January 2007, page 28.

  16. Nine percent was chosen because research suggests that 75 percent of people with incomes in the subsidy range considered spending 9 percent or less on health care.

  17. M. Susan Marquis et al., “Subsidies and the Demand for Individual Health Insurance in California,” Health Services Research, Vol. 39, No. 5, October 2004, page 1,564.  To develop its estimates of coverage, the Lewin Group uses an average price elasticity of -0.34 percent to estimate the price elasticity of the demand for health insurance.  Its estimate is derived from data from the Current Population Survey for 1987 to 1997.  However, the Lewin Group goes on to say that it varies the elasticities that it uses by income.  For those with incomes of $10,000 the income elasticity is assumed to be -0.55.  For those with incomes of $100,000 the price elasticity is assumed to be -0.09. While the Lewin assumptions may be among the most reasonable available, how accurately this application of elasticities mirrors actions in the real world is unknown.  The Lewin Group, “Cost and Coverage Impacts of Five Proposals to Reform the Colorado Health Care System, Appendix D: The ‘Solutions for a Healthy Colorado’ Proposal,”December 29, 2007, page D-11.

  18. Chris Swart, Nina Troia and Dorothy Ellegaard, “BadgerCare Evaluation,”Wisconsin Department of Health and Family Services, Office of Strategic Finance, Evaluation Section, July 2004, page 54.  Available at  Access verified February 19, 2008.

  19. M. Kate Bundorf, Bradley Herring and Mark Pauly, “Health Risk, Income, and the Purchase of Private Health Insurance,” National Bureau of Economic Research, Working Paper No. 11677, September 2005.

  20. Jonathan Gruber and Ebonya Washington, “Subsidies to Employee Health Insurance Premiums and the Health Insurance Market,” National Bureau of Economic Research, Working Paper No. 9567, March 2003.

  21. Tarren Bragdon, “Eight Challenges for Dirigo Health in 2006,” DirigoWatch, Vol. 3, No. 1, January 30, 2006.

  22. Patrick Bajari, Han Hone and Ahmed Khwaja, “Moral Hazard, Adverse Selection and Health Expenditures: A Semiparametric Analysis,” National Bureau of Economic Research, Working Paper No. 12445, August 2006; M. Susan Marquis and Melinda Beeuwkes Buntin, “How Much Risk Pooling Is There in the Individual Insurance Market?” Health Services Research, Vol. 41, No. 5, October 2006, pages 1,782-1,800. 

  23. “U.S. employers’ health benefit cost continues to rise at twice inflation rate, Mercer survey finds,” Mercer Group, Press release,November 19, 2007.  Available at  Access verified February 19, 2008.

  24. Hannah Yoo, “January 2007 Census Shows 4.5 Million People Covered by HSA/High-Deductible Health Plans” AHIP Center for Policy and Research, April 2007.  Available at

  25. Greg Scandlen, “Working as Intended: What We Have Learned About Consumer Driven Health Care,” Consumers for Health Care Choices, November 2007.  Available at  Access verified February 19, 2008.

  26. Evidence on the effectiveness of electronic health records in improving care differs.  Jesse C. Crosson et al., “Electronic Medical Records and Diabetes Quality of Care: Results from a Sample of Family Medicine Practices,” Annals of Family Medicine, Vol. 5, 2007, pages 209-215; Crosson et al. found that practices not using electronic medical records were more likely to meet their standards for high quality care.

  27. “VA could spend $20M on data breach response,” FierceHealthIT, June 17, 2007.  Available at  See also Daniel Pulliam, “VA sets aside $20 million to handle latest data breach,” Government Executive, June 14, 2007.  Available at  Access verified March 4, 2008.

  28. For an example, see Ross Koppel et al., “Role of Computerized Physician Order Entry Systems in Facilitating Medication Errors,” Journal of the American Medical Association, Vol. 293, No. 10, March, 9, 2005, pages 1,197-1,203. 

  29. “Errors clearer on other end of the stethoscope,” Associated Press, November 21, 2007.  Available at  Access verified February 19, 2008.

  30. For an introduction to one segment of the argument against electronic medical records in their current form see Robert E. Hirschtick, “Copy-and-Paste,” Journal of the American Medical Association, Vol. 295, No. 20, May 24/31, 2006,  pages 2,335-36; and Robert E. Hirschtick, “Copy-and-Paste-and-Paste—Reply,” Journal of the American Medical Association, Vol. 296, No. 19, November 15, 2006,  pages 2,315-16.

  31. BBC News, “Crackdown on waiting-list ‘fiddles,’” British Broadcasting Corporation, December 19, 2001.  Available at  Access verified February 19, 2008.

  32. Mark V. Pauly and Bradley Herring, “Risk Pooling and Regulation: Policy and Reality in Today’s Individual Health Insurance Market,” Health Affairs, Vol. 26, No. 3, May/June 2007, pages 770-779.

  33. Bradley Herring and Mark V. Pauly, “The Effect of State Community Rating Regulations on Premiums and Coverage in the Individual Health Insurance Market,” National Bureau of Economic Research, Working Paper No. 12504, August 2006.

  34. Conrad F. Meier, Destroying Insurance Markets (Chicago, Ill.: Heartland Institute, 2005).

  35. Leigh Wachenheim and Hans Leida, The Impact of Guaranteed Issue and Community Rating Reforms on Individual Insurance Markets (Brookline, Wis.: Milliman, Inc., August 2007).

  36. “Innovations in Chronic Care,” America’s Health Insurance Plans, March 2007. Available at  Access verified February 19, 2008.

  37. John E. Schneider, Carey M. Gehl Supple and Janet Benton, “Legal and Economic Analysis of Health Insurance Exchange Mechanisms,” Health Economics Consulting Group, May 24, 2007.  Available at  Accessed March 2, 2008.

  38. These include ERISA, the implications of using the Section 125 provisions of the IRS code, HIPAA and COBRA 1985, list billing and guaranteed issue.

  39. “Plan of Operations: Three Year Financial Plan/Budget,” Commonwealth Health Insurance Connector Authority, December 14, 2006.

  40. See “Is Managed Competition the Answer?” in John C. Goodman, Gerald L. Musgrave and Devon M. Herrick, Lives at Risk: Single-Payer National Health Insurance Around the World (Lanham, Md.: Rowman & Littlefield, 2004), Chapter 2.

  41. The Lewin Group, “Cost and Coverage Impacts of Five Proposals to Reform the Colorado Health Care System, Appendix F: “Colorado Health Services Program” Single-Payer Proposal,” prepared for the Colorado Blue Ribbon Commission for Health Care Reform, Denver, Colorado, December 29, 2007, pages F-3 to F-11.





Linda Gorman is the Director of the Health Care Policy Center at the Independence Institute, a free market think tank in Golden, Colorado.  She was a member of the Colorado Blue Ribbon Commission on Health Care Reform.

R. Allan Jensen was a commissioner on the Colorado Blue Ribbon Commission on Health Care Reform.  Mr. Jensen has been an insurance broker for more than 16 years.  His practice focuses on individual and small group health coverage, life insurance and seniors products, specifically Medicare and long term care.  He previously worked in operations, marketing and sales in the homebuilding and commercial construction industries for 16 years.

Mr. Jensen has also served as the state legislative chair for the Colorado Association of Health Underwriters, as president of the Metro Denver Association of Health Underwriters, and as the Region VII legislative chair for the National Association of Health Underwriters.  Jensen is a 1974 graduate of the Air Force Academy, and worked in the space systems field during active duty.  He obtained his Masters degree in Public Administration from the University of Colorado in 1979.