Health Insurance

Why don’t people have health insurance?

The simple answer is, they can’t afford it. This may be a good argument for low-income individuals but for middle class and even upper middle class individuals we see people going without health insurance. The question is why. If income was the whole story, we would observe different incomes levels would have closer to 100% uninsured or 0% uninsured.

One explanation may be prices. Perhaps people with employer provided health insurance pay less for coverage; thus, income is not the reason, but rather individual specific prices. Alternatively, maybe some people don’t want insurance. Health insurance is expensive and perhaps some people prefer to use their budget for other items.

One study from Levy and DeLeire (2003), found that the cost of housing may play an underappreciated role in why some people do not buy health insurance.

the probability of being uninsured is higher for individuals who are poor, less well-educated, nonwhite, and/or in families without a worker…do income, prices or preferences explain the fact that some households do not have health insurance? Clearly, income matters: health insurance is a normal good. But it is not the only thing that matters. Our analysis of spending patterns suggests that the prices of other goods – most notably housing – may be additional important factors causing some households not to purchase health insurance.

This findings should not come as a surprise. The Slutsky equation shows that when the price of one good (say housing) rises, the demand for other goods (say, health insurance) will depend on two factors. First, there is an income effect. As the price of say housing rises, then the individual has less income to spend on health insurance. As long as health insurance is a normal good, demand would fall with a rise in housing. The second effect, the compensated substitution effect, could be positive or negative. The former is true when the goods are substitutes, the latter is true when they are complements. As Levy and DeLeire explain, it should not be surprising that the price of other goods affects health insurance demand.



  1. This is a very important point. The problem with the ACA’s individual mandate is not that people perceive that the government is making them buy something they don’t need, it’s that the government is making them buy something they can’t afford. Levy and DeLaire explain how this can be true even for people who might seem to have an adequate income—it’s just they have more pressing bills to pay. If you don’t pay your mortgage, you los your home. If you don’t buy health insurance you might be ok—until you get sick. If you do, you can always get care in an ER. Or try to raise money on Kickstarter. It’s a gamble that a lot of people don’t even think about because they think of themselves as healthy. Until they are not. It’s a terrible position to put people in.

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