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| Number 5, April 2004 |
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The University of Michigan T 734-936-9842 |
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Q&A with John Cawley, Ph.D. John Cawley, an assistant professor in Cornell's Department of Policy Analysis and Management, examines how health insurance coverage is impacted by larger economic trends. Cawley, who is affiliated with the Sloan Program in Health Administration, recently authored a paper, "Health Insurance Coverage and the Macroeconomy," for the Economic Research Initiative on the Uninsured, with fellow Cornell assistant professor Kosali Simon. Their work sheds light on an area that surprisingly has been the focus of little research. Q: How do macroeconomic trends affect the number of people who have health insurance? A: It depends on what measures of the macroeconomy you want to look at. We found unemployment rate is what really matters. The U.S. had two significant macroeconomic events back to back - a national recession from March of 2001 to November of 2001 after the longest continuous economic expansion in U.S. history. We were curious to what extent those events affected the probability that people had health insurance coverage. The first thing we wanted to look at was: Did recession matter? When we naively looked at recession, we found something that's really surprising: if the way you measure the macroeconomy is just with an indicator variable for recession it turns out the recession seems to increase the probability you're covered. I think the reason you find this is because recession is the wrong measure of what matters. Q: What's the significance of unemployment rates as a barometer for uninsured rates? A: Unemployment rate is really what turns out to be the strongest determinant of health insurance coverage, as most people's coverage is linked to an employer. The unemployment rate in August 2003 of 6.1 percent is actually higher than during the recession. In November 2001, unemployment was only 5.6 percent. Unemployment is a lagging indicator of recession. It's not going to peak until after the recession is over. To a much lesser extent real per capacity gross state product - or the value output per person living in that state - is also correlated with health insurance coverage. When productivity is higher people are more likely to be covered; when it's lower people are less likely to be covered. Q: Please quantify the degree to which these bigger trends impact health insurance coverage. A: A one percentage-point increase in unemployment, like a rise from five percent to six percent, decreases the probability of coverage by about 0.33 percent for men, about 0.25 percent for women and 0.03 percent for kids. Meanwhile, a $1,000 per person increase in gross state product would increase the probability of coverage by 0.1 percent for men, 0.14 percent for women and 0.25 percent for kids. While people don't think that's a significant probability of losing health insurance, when you multiply that by 86.6 million men in the U.S., for example, it gives you huge swings in health insurance coverage. During the 2001 recession, we estimate 407,000 men lost health insurance coverage, 311,000 women lost coverage, and 292,000 children lost coverage. That's more than 1 million people who lost health insurance during the recession. This estimate refers only to the number of people who lost it because of the macroeconomy. People might have lost it for other reasons, but we're just measuring the change due to change in unemployment rate and gross state product. Q: Have people who lost coverage gained it back after the recession? A: We also tried to estimate the number of people who gained health insurance during the recovery. We calculate that it's only 137,000 people overall. That means there are over 850,000 fewer people who have lost health insurance today than at the beginning of the last recession because of the macroeconomy. Q: What does this mean going forward? A: As the unemployment rate falls more people gain health insurance. As gross state product rises, more people gain health insurance. Our results suggest that health insurance coverage cycles with the economy. If the economy continues to improve then we'll likely see more people gaining coverage. One final point on that is we found that government-provided health insurance - SCHIP and Medicaid - do operate counter-cyclically for children. So when unemployment rates are high and gross state product is low, states do step in and cover more children, though we found that government expansions were not fully counter-cyclical. We found there was still a net loss in coverage even among children. Q: Why is this important for policymakers to realize? A: There are a lot of reasons why policymakers should care about how many Americans have health insurance coverage. It has an impact on budgets, especially at the state level. When unemployment rates go up and when businesses close, people get fired and employers' perception is they have to stop offering coverage because they can't afford it. Some people who lose health insurance are taken up by Medicaid or the State Children's Health Insurance Program. State budgets are affected by this correlation between the macroeconomy and health insurance coverage. The bigger reason to care is that there has been research that has found that people who are uninsured receive less medical treatment than people who are insured. And the care they do receive tends to be in inefficient ways. Instead of going to a doctor's office to attend to something that's pretty minor, they'll just go to the emergency room. That's more costly for society. Finally, there's evidence that people who are uninsured are at real risk of severe financial losses, if they become seriously ill. Q: How does the macroeconomy affect the probability of health insurance coverage? A: There are several ways that a poor economy may result in the loss of employer-provided coverage. Those who lose their jobs during recession are likely to lose any health insurance previously provided by that employer. A poor economy can reduce coverage even among those who remain employed. Employers may cease offering health insurance in order to cut costs in the face of falling profits. Alternatively, employers may reduce their contributions and shift health insurance costs to employees, causing some of those workers to decline coverage. In addition, previously full-time workers may be shifted to part-time jobs that no longer qualify for health insurance benefits. A poor macroeconomy may lead state government to reduce eligibility for publicly provided health insurance. When state tax revenues fall because of an economic downturn, there is increased pressure to cut Medicaid and SCHIP budgets, potentially increasing the number of eligible individuals without coverage. A poor macroeconomy may also affect the number of uninsured if those who previously purchased private health become unable to afford it. Q: How does the effect of local economic climate on insurance coverage differ for men, women and kids? A: There are some interesting differences. When looking at overall coverage, men's coverage is more sensitive to unemployment rates than women's coverage. Children's health insurance coverage has the strongest correlation to gross state product. That may be because so many children are covered by SCHIP and Medicaid, whereas very few men are. Importantly, we actually found that men have continued to lose coverage during the recovery, whereas 45,000 women have gained coverage and 126,000 children have gained it. That's because women and children are more sensitive to gross state product. Gross state product has actually gone up a fair amount during this recovery. Q: From an economist's viewpoint, what obvious or subtle changes can policymakers make to prevent increases in uninsured rates during rising unemployment? A: Many changes could be made, but I don't know if there would be support for them. I'm not advocating these changes, just describing possibilities. Government-provided health insurance coverage for men is not really counter cyclical. When unemployment rates shoot up you don't see many more men being covered by the government. There are very gender-specific ways we have chosen to counteract uninsurance caused by the macroeconomy. We've decided to protect children and not really adult men. I wouldn't comment on whether that is right or wrong. But clearly one way you could soften the blow of the macroeconomy on health insurance coverage is to do something for adult men. Perhaps a more popular thing to do is to change SCHIP and Medicaid so they are fully counter cyclical. SCHIP could take in all kids who lose coverage through their parents during bad macroeconomic times so that we would see zero correlation of state unemployment rate and whether children are insured. That would be a goal I could imagine some policymakers and voters approving of, the idea that children should be protected from the swings in the macroeconomy. Q: Why is it important for policymakers to know there's a significant connection between higher unemployment and higher uninsured rates when considering solutions? A: The macroeconomy matters to health insurance coverage. During bad economic times men, women and children all lose coverage. It's not just the recession that matters. Recession is not want you want to focus on. It would be a mistake to think that because the U.S. is not currently in recession that we still don't have people losing health insurance. During the recovery, our estimates show that 35,000 men have lost health insurance coverage (since the recession ended). What they want to keep an eye on is unemployment rates and to a lesser extent gross state product. Also, because SCHIP and Medicaid aren't fully counter-cyclical, the net effect of higher unemployment is still that more kids lose health insurance.
Funded by The Robert Wood Johnson Foundation, ERIU is a five-year program shedding new light on the causes and consequences of lack of coverage, and the crucial role that health insurance plays in shaping the U.S. labor market. The Foundation does not endorse the findings of this or other independent research projects.
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