Why Health Insurance Matters: Financial Risks of Being Uninsured

Introduction: The Financial Risk of Going Uninsured

There are many good reasons to have health insurance, and among those reasons is the fact that there is a tremendous financial risk linked to "unanticipated adverse health events," according to an article in the Journal of Health Economics (McLaughlin, et al., 2002). Health insurance not only helps the person who is ill or has been in an accident to recover, it also prevents — in many cases — financial calamity. The U.S. Department of Health and Human Services (HHS) has released a report showing that most families who cannot afford health insurance do not have the "financial assets to pay the hospital bills they would incur if a family member were to be hospitalized" (Glied, 2011, p. 1).

The HHS report further reflects that the majority of uninsured families have "virtually no savings or investments," placing families of modest or low income in dire straits if a family member requires emergency hospitalization. That same report indicates that the average financial assets held by an uninsured family amount to just $20.00 (Glied, p. 1).

Comparing Health Risks to Other Financial Hazards

HHS research shows that people are 50 percent more likely to be involved in an automobile accident than they are to be "hospitalized" for an illness "in a given year"; yet the typical hospital bill is "over two and a half times higher" than the financial loss incurred in a car accident. This is all the more reason why a family should make every effort to obtain health insurance. Of course, a person could be seriously injured or killed in an auto accident, which complicates that particular comparison. However, the report also notes that while a person is "ten times" more likely to end up in the hospital than to experience a house fire, the bill for one hospitalization is nearly equal to the financial loss from a house fire (Glied, 2011).

Another significant problem for those without insurance who require hospitalization is that "other payers must absorb the cost," which ultimately drives up expenses for Americans who do carry insurance.

The Economic Burden of Uncompensated Care

For those without insurance who need hospital care, additional research from the U.S. Department of Health and Human Services shows that "uncompensated care costs estimates" total somewhere between $56 and $73 billion dollars. In other words, money not paid by uninsured individuals being hospitalized must be covered by someone else (Assistant Secretary for Planning and Evaluation, HHS, 2010). By going without insurance and being unable to pay their hospital bills, these individuals place a burden on the U.S. economy, as that $56–$73 billion may ultimately fall to American taxpayers.

Hospitals may demand that patients pay their bills in full, but in practice they often collect only "a fraction of these amounts," according to the ASPE report. On average, uninsured families can find the money to pay for only "about 12% of the admissions to [the] hospital." The scope of the problem is substantial: in 2008, more than 2.1 million uninsured people were hospitalized, and over half of those individuals accumulated bills "in excess of $10,000" during their stay (ASPE, 2010).

Conclusion: The True Cost of Living Without Health Insurance

It isn't just the low-income uninsured family that has trouble paying skyrocketing hospital bills; even higher-income families without health insurance struggle, the ASPE reports. A family without health insurance earning 400% above the federal poverty line — which, for a family of three, falls just above $18,000 per year — could only pay for about 37% of an average hospital bill (ASPE, 2010).