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Whereas most industrialized countries have established national health insurance systems, the United States stands out as providing a patchwork of private and public sources of coverage that leave a sizable proportion of its citizenry uninsured (15.3 percent, or 44.8 million persons in 2005). Of the insured U.S. population in 2005, coverage from employers represents the largest source (60.2 percent, or 176.3 million persons), followed by Medicare (13.7 percent, or 40.1 million persons), Medicaid (13 percent, or 38.1 million persons), and private health insurance purchased directly from an insurer (9.2 percent, or 26.9 million persons).

The lack of a uniform health insurance system in the United States has resulted in significant gaps in coverage. Persons most likely to lack insurance are young adults (ages 19 to 34), racial and ethnic minorities (especially Hispanics), persons with low educational attainment, persons with low incomes, those in fair or poor health, low-wage earners, workers in small firms, and the self-employed. Compared with insured persons, the uninsured are less likely to have a usual source of health care, more likely to report difficulties obtaining timely care, and less likely to use medical care.

The provision of health insurance in the United States has also raised a number of equity and efficiency issues, especially with regard to employment-based coverage. For example, employer contributions to an employee's health insurance premium are tax deductible, representing a revenue loss of $209 billion in 2004. This "tax subsidy" exacerbates moral hazard by creating incentives for individuals to purchase more generous coverage. Because the value of the tax deduction depends on an individual's marginal tax rate, it represents a regressive subsidy favoring higher- rather than lower-income workers.

Providing coverage through the workplace also yields labor market inefficiencies. Workers may be discouraged from changing jobs or retiring early, and they may alter their labor force activity to qualify for coverage. Means-tested public insurance, such as Medicaid and the State Children's Health Insurance Program (SCHIP), can also create perverse incentives whereby individuals adjust hours of work and earnings so that family members qualify for coverage. Expanded Medicaid eligibility and SCHIP implementation have also resulted in private insurance "crowd out." In this case, privately insured low-income workers with dependents eligible for public coverage substitute public for private coverage.

Although the United States has failed to address these problems through comprehensive health insurance reform, public policy has not been entirely passive. Medicaid expansions and SCHIP implementation during the 1990s contributed to a reduction in the number of uninsured children. In 2007, however, President Bush vetoed legislation that had bipartisan support to expand the number of children covered by SCHIP. Moreover, recent policy initiatives stressing voluntary enrollment in private coverage through the use of tax credits, small-group and individual insurance market reforms, and premium subsidies for employers have not reduced the number of uninsured. In response, several states have mandated that individuals obtain private coverage. In addition, outreach efforts have sought to provide information to those eligible but not enrolled in public coverage. It remains to be seen whether public policy can effectively expand coverage and address the problems of moral hazard and adverse selection.

Bibliography:

1) Cutler, David M. and Richard J. Zeckhauser. 2000. "The Anatomy of Health Insurance." Pp. 563-644 in Handbook of Health Economics, edited by A. J. Culyer and J. P. Newhouse. Amsterdam: Elsevier.

2) Newhouse, Joseph P. 2006. "Reconsidering the Moral Hazard-Risk Avoidance Tradeoff." Journal of Health Economics 25(5):1005-14.

3) Nyman, John A. 2004. "Is Moral Hazard Inefficient? The Policy Implications of a New Theory." Health Affairs 23(5):317-18.

4) Selden, Thomas M. and Bradley M. Gray. 2006. "Tax Subsidies for Employment-Related Health Insurance: Estimates for 2006." Health Affairs 25(6):1568-79.

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